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Fairfax Financial to sell 12.2 pct of Indian insurer ICICI Lombard - Reuters


dr.malone
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MUMBAI, May 27 (Reuters) - Canada's Fairfax Financial Holdings plans to sell a 12.2 percent stake in its Indian joint venture insurer ICICI Lombard in a deal that will value the company at 203 billion rupees ($3.15 billion), the Indian company said on Saturday.

 

Red Bloom Investment Ltd, a company wholly owned by private equity investment funds managed by Warburg Pincus, is buying a 9 percent stake, while two other investors, Tamarind Capital Pte Ltd and IIFL ‎Special Opportunities Fund, are buying 1.59 percent each from Fairfax, ICICI Lombard said in a statement.

 

After the sale India's ICICI Bank Ltd will own about 63.3 percent of the insurer, while Fairfax's stake will come down to about 22.1 percent.

 

In January sources familiar with the matter said Fairfax was looking to sell a 25 percent stake in ICICI Lombard as it looks to set up a new general insurance joint venture in India. ($1=64.5050 Indian rupees) (Reporting by Devidutta Tripathy; Editing by Greg Mahlich)

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that appears to be a gain of approx 332M (12.18% X 3.1B) - (12.18% x carrying value of  371.1M).  Please correct me if my math is wrong.

 

I wonder how they couldn't sell more of it.  I guess we'll find out on the next quarterly call.

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Your cost basis math is probably wrong. They're selling 12.18% of the company, but they only own about 35% of it in total (if memory serves). You should multiply the carrying value by the percentage of Fairfax's shares that are being sold.

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Here are my thoughts on this transaction. Fairfax owns 34.6% of ICICI Lombard at a valuation for the entire company of $3.1 billion (in USD)  or $1.07 billion for its 34.6%. The carrying cost of ICICI Lombard in the year end financial statements was $371 million. This sale of approximately 35% of their holding  (i.e. 12.18% divided by 34.6%) will generate proceeds of approximately $378 million which is more than the carrying cost at year end for the entire position. This suggests that the realized gain will be approximately $248 million (pretax) or $10.75 per share. Equally importantly, the fair value of the remaining ICICI Lombard shares will be approximately $695 million (i.e. 22% of $3.1 billion) suggesting an unrealized gain of approximately $450 million or $19.50 per share. This transaction shows the significant value that can be attributed to the associates that aren't reflected in Fairfax's book value per share. Even if you reduce these amounts for taxes or the higher share count after the Allied World transaction closes these numbers are still quite large! This is just my opinion but I don't think that investors are properly valuing the significant value of the Fairfax investments in the associates.

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I'm just recalling that Fairfax bought an additional 9% interest at the end of 2015. They paid 5x book or $235m which seemed a bit pricey at the time. Anyway, they have now sold that stake for about $279m (9%×$3.1b), or about a 19% gain in 18 months.

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