Fairfax Africa Holdings Corp. - Preliminary Prospectus/ IPO

[berkshiremystery]

Some unusual new Christmas Gift from Fairfax,...

 

Fairfax Africa Holdings Corp. - Preliminary Prospectus / IPO

 

Cheers!!

 

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http://www.fairfax.ca/news/press-releases/press-release-details/2016/Fairfax-Africa-Holdings-Corporation-Files-Preliminary-Prospectus-for-Initial-Public-Offering-of-Subordinate-Voting-Shares/default.aspx

 

http://s1.q4cdn.com/579586326/files/doc_news/2016/December/PRFFH-December-23-2016-Fairfax-Africa-Holdings-Corporation-IPO-SVS.pdf

 

https://mobile.twitter.com/FFH_TO/

 

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http://www.theglobeandmail.com/report-on-business/streetwise/fairfax-financial-plans-ipo-for-company-focused-on-african-investments-sources/article33415475/

 

http://www.pressreader.com/canada/the-globe-and-mail-ottawaquebec-edition/20161223/281754153977995

 

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https://cancompany.org/co/fairfax-africa-holdings-corporation

[SharperDingaan]

Nice to see. It's also a very smart idea to keep the whole thing private until it finds its feet, and the direct FFH commitment low enough to avoid equity accounting. No mandatory IFRS disclosures will be required.

 

Like India, Africa moves to its own drummer, and it's methods are very different to NA expectations.

There will be some culture clashes!

 

SD   

[Estimated Profit]

I am a big Watsa fan but I hate to say it... I'm worried.

 

Fairfax India - I can get that. Prem has a direct relationship with the country. I imagine that through him, his team and past successes, FFH would have a  cultural appreciation, reputation, and the connections to be able to do well there. I see him as someone you can trust investing in a country that is ripe with opportunity as well as risk. Nepotism, cronyism and corruption must be rampant there.  But if you can navigate the seas there is amazing opportunity.

 

When the IPO was completed for FIH, Prem said on the conference call that he had no intention to dilute the shareholders of FIH with multiple secondary offerings.  Now he is raising another 500 million.  My biggest concern about this is that it is motivated not by what is best for shareholders, but by the fact that FFH generates huge fees from managing this money.  They generate 1.5% of NAV for the investments plus 20% of all profits on the funds NAV greater than 5% per year.  This is an incredibly small hurdle. I am looking for 10% - 15% increase in value of NAV minimum.  The projected growth rate GDP for India is 7% per year....  the hurdle is less than that. At any rate, surprise surprise, they are selling as many of the shares into the market as possible.

 

Allied World Fairfax's biggest takeover to date. With FFH's capital destroying hedges now being thrown off the books I imagine that Prem is looking to make up for lost time.  But as Buffett espouses, invest in what you know.  OK. take on leverage, dilute the company further, and expand the size of your company. 

 

the above two ventures alone are enough to juice earnings, expand a burgeoning Empire and add to the bottom line of all shareholders going forward.

 

But now Fairfax Africa?  Invest in what you know? I mean, as nice as it may sound that Ethiopia and South Africa and a few other countries have real potential there is a minefield of risks with investing in this continent.  What real oversight does Prem and his team have in this from Toronto?  Now there may well be potential and they are going for it... fine.  But what about biting off more than you can chew.  Prem looks now to be trying to monetize his reputation as much as possible. Multiple very bad preferred share offerings where he took advantage of investors by issuing as many horrible offerings as he could while there was an appetite for them, dilute, issue more debt, more stock and then raise as much as they can by selling an additional FIH tranche and now Fairfax Africa... 

 

In short, I'm afraid he's going away from quality and heading for quantity. Fairfax has really been a cult of Prem Watsa story. There is no way he can oversee all that is going on with the company. How long will it be until one of his subs in the various jurisdictions goes rogue?

 

It just feels like all of this expansion is staring to look willy nilly.

 

I welcome all thoughts. I'm an owner of all things FFH. Bonds, prefs, common, FIH.U... I'm a fan obviously and have been for decades. I'd just like some perspective. Is something rotten in the State of Denmark?  :o

 

[SharperDingaan]

He's using the stock as currency.

 

Nothing wrong in that but it implies that he's planning to buy some of it back at some future date - at a much lower price. All 3 investments carry significant inherent operational risk; it's almost a given that they are going to periodically generate negative news events as they move forward. When they do the share price will drop, creating the opportunity; it's a way of safely shorting your own stock.

 

The inference is that to make $ with FFH, an investor really needs to treat it as a trading vehicle.

 

SD

 

 

     

[Estimated Profit]

http://bloom.bg/2j9m35g

 

Hey SD. Listen to the link above from Bloomberg. FFH is the lowest rated of the insurers as per the above reporter. Tapping the markets and using their stock like a currency as much as they do really risks fatigue. The more you use your currency the less value it ends up having.  The reputation of the company needs to be of paramount concern.

 

re. FFH Africa

As much as we have compared Watsa to Buffett in the past... a major difference in what Buffett has done and what Prem is doing is that Buffett did most of his business in the USA.  In the US, Warren knows the business culture, the players, how the rule of law works etc. In India it is possible that one might argue the same for Prem. Seeing Watsa start investment holdcos in Africa looks to me that he is starting to build a stable of Emerging Markets hedge funds. This while he builds his global insurance company. I understand that this gives him access to opportunities not available to others. But by using the Fairfax name he is risking the reputation of the firm should one of these subs and/or holdcos (Emerging Markets Hedge Funds) blow up. In EMs this could well be more the norm than the exception.

 

People who know and love FFH will start to question how much exposure they have to the firm and one day they may come to market and find that the well has run dry. 

 

Perhaps these concerns would have been better addressed in this string: http://www.cornerofberkshireandfairfax.ca/forum/fairfax-financial/identity-crisis/ which to a large part is a conversation on these issues and more with the company. 

Value2 Yes some hedges are still in place just nothing like before. To take off as much as has been removed shows how much they were  "bets" and not "hedges" per se. [Please note that these speculations have worked out before (CDS) but when huge bets don't work we see just how much damage they do. All the while they are being discussed as "hedges" but I digress.]

[SharperDingaan]

Agreed that after Allied World, the stock its pretty much done as a currency.

Maybe 10-15% up at best, and 40-50% down at worst - over the next 1-2 years as things develop; not a bad thing overall.

 

This is a family business. To an owner; being able to expand the business by paying with stock - and buying it back later at a lower price, is highly desirable. All else equal over time you get higher earnings from more business, gains on share repurchase, and a higher EPS as the outstanding share position declines. To an investor, the wide potential change in value offers a lot of opportunity.         

 

SD

[Estimated Profit]

Talking about market fatigue in regards to digesting FFH offerings.

 

FIH.U just did a secondary offering at $11.75. When FIH.U first came out you couldn't buy it on the new issue - it was very hot.  Now when they did a secondary at $11.75 it did not sell out at all brokerage firms. Additional clean up offerings at $11.25 had to be made.  This will make brokerages hesitate to do bought deals in the future.

 

I am very curious to see how well Fairfax Africa will do. If it will do well or sputter out.

 

Again, coming to market time and again hurts the value of the currency, the reputation of the firm and ultimately the firm's credit ratings.

[naboo]

http://finance.yahoo.com/news/fairfax-said-raise-500-million-160226082.html