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nwoodman

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nwoodman
nwoodman

Excellent news.  Digit has become the 26th Life Insurer in India 👍   https://irdai.gov.in/document-detail?documentId=3491346

glider3834
glider3834

thanks - yes exciting news - can they scale rapidly? they have built Digit's brand recognition in India, they have built a partner ecosystem, already have API integrations (couldn't they use these to

nwoodman
nwoodman

Looks like Digit’s Life Insurance venture  isn’t wasting anytime and will be releasing their first product in less than 30 days. You have to take a deep breath, but the opportunities here are pretty s

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  • 3 weeks later...
glider3834 Mentor

glider3834

Posted
Posted
5 hours ago, MMM20 said:

These reports say Fairfax’s stake is 30%. Is it not 49% going to 74% upon regulatory approval?


Why do I feel like the media always have the basic facts wrong on Fairfax? (like, more than other similar companies - not a #fakenews thing)

 

Or are they implying that Fairfax is planning on selling about half its stake? I hope not trimming flowers to water weeds

it looks like article from Reuters & they didn't receive any comment from Digit or Fairfax - if they did their DD & cross checked Fairfax's filings, then they would have realised 30% number is not correct.

 

I guess we need to wait to Sep to see what happens but I think it would be great if they can execute an IPO although I think they should wait until markets settle a bit more.

 

 

MMM20 Veteran

MMM20

Posted
Posted
11 minutes ago, bluedevil said:

Getting a little worrisome that the regulator has not approved Fairfax going to 74% yet.

Maybe they never will and Fairfax will just sell down from “74%” to the reported/speculated (?) ~30% in the IPO 

glider3834 Mentor

glider3834

Posted
Posted (edited)
4 hours ago, bluedevil said:

Getting a little worrisome that the regulator has not approved Fairfax going to 74% yet.

it usually takes time to get approvals in India, Generali recently received regulatory approval to increase its stake to 74% in its Indian non-life insurance JV

 

06 MAY 2022 - 17:49

Milan - Generali completed the acquisition from Future Enterprises Limited of 25% of the shares of Future Generali India Insurance (FGII) and will now hold a stake of around 74% in FGII.
Generali received the approval from the relevant regulatory and competition authorities.

https://www.generali.com/media/press-releases/all/2022/Generali-completes-the-transaction-to-become-the-majority-shareholder-in-its-Indian-P-and-C-insurance-joint-venture

 

 

 

 

Edited by glider3834
  • 2 months later...
glider3834 Mentor

glider3834

Posted
Posted (edited)

Here is the Digit IPO Draft Prospectus lodged today

 

https://www.axiscapital.co.in/uploads/equity_documents/dhrp/go-digit-general-insurance-limited.pdf

 

In Apr-22, Go Digit Infoworks (through which Fairfax owns its stake) had approx 729 mil shares out of total of 838 mil shares in Digit. The draft prospectus has Go Digit Infoworks proposing to sell up 109 mil shares.  (These amounts could change - its just a draft!)

 

https://www.reuters.com/markets/deals/fairfax-backed-digit-insurance-files-draft-papers-india-ipo-

2022-08-16/

 

image.png.fae5946c56018c14c9a44fb0f14e60ff.png

 

 

 

 

Edited by glider3834
Viking Veteran

Viking

Posted
Posted (edited)
49 minutes ago, glider3834 said:

Here is the Digit IPO Draft Prospectus lodged today

 

https://www.axiscapital.co.in/uploads/equity_documents/dhrp/go-digit-general-insurance-limited.pdf

 

In Apr-22, Go Digit Infoworks (through which Fairfax owns its stake) had approx 729 mil shares out of total of 838 mil shares in Digit. The draft prospectus has Go Digit Infoworks proposing to sell up 109 mil shares.  (These amounts could change - its just a draft!)

 

https://www.reuters.com/markets/deals/fairfax-backed-digit-insurance-files-draft-papers-india-ipo-

2022-08-16/

 

image.png.fae5946c56018c14c9a44fb0f14e60ff.png

 

 

 

 


@glider3834 great news and thanks for posting. This has the potential to be a big, big win for Fairfax. However, given how slow things move in India i have low expectations as to how quickly the IPO will receive approvals. Also importantly, the CEO has said they will wait for the right time to execute the IPO (once it is approved). Given the current state of financial markets it might be best to execute the IPO in 2023 when, hopefully, EM financial markets are more settled. I am trying to keep my expectations in check. The silver lining with any delays is Digit will continue to grow its business over time and increase the value of the company even more.

Edited by Viking
  • 2 weeks later...
PJM Explorer

PJM

Posted
Posted (edited)

The investment from HDFC Bank values the life insurance part of Digit at $62-80m

 

https://www.business-standard.com/article/finance/hdfc-bank-invests-in-ipo-bound-general-insurance-firm-go-digit-122082500912_1.html

 

Private sector bank major HDFC Bank on Thursday said it has entered into an indicative and non-binding term sheet with Go Digit Life Insurance Ltd. The bank will invest ₹49.9 crore to ₹69.9 crore in two tranches to acquire up to 9.94% equity stake in the company.

Edited by PJM
  • 3 weeks later...
nwoodman Mentor

nwoodman

Posted
  • Author
Posted (edited)

Looks like the IPO is on hold for now

 

"While SEBI gave no reasons for its decision, a source familiar with the watchdog's thinking said concerns had been raised by the regulator that privately held Digit issued shares to more than 200 individuals in the past financial year, which is not allowed under Indian laws and regulations.

 

Digit will need to review SEBI's concerns and resolve them at an appropriate forum, the source added."

 

Digit Insurance IPO put on hold by Indian watchdog | Reuters

 

 

SEBI | Processing Status : Issues

 

image.png.607eca29880414ca23b79f78d63cb03c.png

 

 

Edited by nwoodman
glider3834 Mentor

glider3834

Posted
Posted (edited)
4 hours ago, nwoodman said:

Looks like the IPO is on hold for now

 

"While SEBI gave no reasons for its decision, a source familiar with the watchdog's thinking said concerns had been raised by the regulator that privately held Digit issued shares to more than 200 individuals in the past financial year, which is not allowed under Indian laws and regulations.

 

Digit will need to review SEBI's concerns and resolve them at an appropriate forum, the source added."

 

Digit Insurance IPO put on hold by Indian watchdog | Reuters

 

 

SEBI | Processing Status : Issues

 

image.png.607eca29880414ca23b79f78d63cb03c.png

 

 

cheers nwoodman, looks like a similar issue to RBL - they settled with SEBI - had to pay a fine - then were able to IPO 

https://www.business-standard.com/article/markets/sebi-settles-rbl-bank-s-case-through-consent-mechanism-116060101708_1.html

 

 

Edited by glider3834
glider3834 Mentor

glider3834

Posted
Posted
4 minutes ago, glider3834 said:

cheers nwoodman, looks like a similar issue to RBL - they settled with SEBI - had to pay a fine - then were able to IPO 

https://www.business-standard.com/article/markets/sebi-settles-rbl-bank-s-case-through-consent-mechanism-116060101708_1.html

 

 

this could be another reason too - Fairfax has sold most of its IIFL Wealth stake to comply with SEBI rules  https://economictimes.indiatimes.com/markets/stocks/news/sebi-lens-on-fairfax-for-alleged-breach-of-crossholding-norms/articleshow/93866786.cms?from=mdr

nwoodman Mentor

nwoodman

Posted
  • Author
Posted
45 minutes ago, glider3834 said:

this could be another reason too - Fairfax has sold most of its IIFL Wealth stake to comply with SEBI rules  https://economictimes.indiatimes.com/markets/stocks/news/sebi-lens-on-fairfax-for-alleged-breach-of-crossholding-norms/articleshow/93866786.cms?from=mdr

Yep,  the regulator two-step goes on.  I think you make an excellent point though….. there is a big difference between “No” and “No, but we will reconsider once you have done …..”.
 

An impeccable record of corporate governance will be key…to misquote A Tropic Thunder “Very easy to shit the money bed”

 

Will it be worth it?  The market seems to have a view.  We see an opportunity 👍

  • 2 months later...
Hoodlum Collaborator

Hoodlum

Posted
Posted

It looks like the IPO was approved on Friday.
 

https://www.businesstoday.in/latest/corporate/story/irdai-gives-final-approval-to-go-digit-general-insurance-for-listing-354245-2022-11-25

 

Quote

Insurance regulator Irdai on Friday gave the final approval to Go Digit General Insurance for listing on stock markets, reported CNBC TV-18.

 

Also, another positive development for the Insurance sector.

 

https://www.msn.com/en-in/money/topstories/insurance-reforms-may-see-pe-funding-surge-in-sector/amp/ar-AA14CNJX

 

Quote

Insurance regulator Irdai's proposal to allow private equity (PE) funds to promote insurance companies will result in significant capital inflows into the sector. Opening the doors for private equity funds was part of a wide range of reforms announced by Irdai on Friday, including reducing the capital requirement for insurers on some social insurance schemes.

 

During liberalisation insurance companies from developed markets were key investors in the sectors, however, private equity funds are the ones with deep pockets currently. Till now PE funds could not promote insurance companies, and there was also a cap of 10% on a single investor. The Irdai on Friday said that special purpose vehicle (SPV) route was optional for PE promoters, indicating that they could now invest directly. Also, investors can now pick up to 25% of the paid-up capital without being treated as promoters.

 

"The increase of threshold to 25% from 10% stake for being treated as investors and making SPV structure optional will bring the sector on the road map of a wider base of institutional investors," said Nithya Easwaran, MD, Multiples Alternate Asset Management. "The 'fit and proper' criteria will ensure that high quality, responsible, and experienced institutional investors will become significant stakeholders and partner with the companies through the transition to a more open architecture and innovative industry structure," she added.

Sequoia Capital MD Ishaan Mittal said, "The relaxation for funds will help attract a higher flow of capital to India's insurance sector, resulting in greater innovation, deeper insurance penetration, and better offerings."

"The amendments will make the sector a hotbed for investments and make it more investor-friendly in the coming years," said Digit Insurance chairman Kamesh Goyal. Digit Insurance is promoted by Prem Watsa's Fairfax Group and Goyal.

 

nwoodman Mentor

nwoodman

Posted
  • Author
Posted
2 hours ago, Hoodlum said:

It looks like the IPO was approved on Friday.
 

https://www.businesstoday.in/latest/corporate/story/irdai-gives-final-approval-to-go-digit-general-insurance-for-listing-354245-2022-11-25

 

 

Also, another positive development for the Insurance sector.

 

https://www.msn.com/en-in/money/topstories/insurance-reforms-may-see-pe-funding-surge-in-sector/amp/ar-AA14CNJX

 

 

Awesome, @Hoodlum you made my day and no doubt many others 😀

nwoodman Mentor

nwoodman

Posted
  • Author
Posted
3 hours ago, SafetyinNumbers said:


Thanks for sharing. Anyone know how many other approvals are needed and what the timeline should be?

As far as I can tell that is all they need.  However,  I am somewhat surprised that Fairfax hasn’t issued a press release.  I think it is a development worthy of a one-pager.  This leads me to think that there might be more to it.  

  • 2 months later...
  • 1 month later...
nwoodman Mentor

nwoodman

Posted
  • Author
Posted (edited)

Sounds like Digit may be having another crack at the IPO later this month

 

Digit to have another go at an IPO

 

Given a slew of regulatory hurdles and its complicated shareholding structure, the Fairfax-backed insurer has unfinished business before it can hit the bourses


https://themorningcontext.com/internet/digit-to-have-another-go-at-an-ipo

 

Digit Insurance is set to refile its draft red herring prospectus this month, according to three industry executives, who asked not to be named. Additionally, the board of the general insurance company is set to meet in the coming days to either restructure or nullify the stock appreciation rights issued to its employees late last year, says the first executive.

 

In November and December, in two separate allotments, Go Digit General Insurance Ltd issued stock appreciation rights to about a dozen employees, including CEO Jasleen Kohli, who was chief distribution officer until April last year. Stock appreciation rights allow eligible employees to receive a bonus equivalent to the rise in the company's stock price.


To be sure, Digit has been allotting these rights to its employees since 2018. According to the second executive, SEBI may have had concerns in its initial review of the draft papers for an IPO, but the latest issuance of stock appreciation rights could have led to the shelving of the draft prospectus altogether. Reuters was the first to report about the capital market regulator's decision to return Digit's IPO papers due to concerns about the stock appreciation rights.

 

 

"The company may call a board meeting this week or next to possibly restructure these allotments into traditional ESOP schemes or nullify them altogether and refile its papers. There is an expectation that the refiling of fresh papers could happen before the closing of the financial year", which ends on 31 March, says the first executive.

 

This is not the first time Digit has tried to convince SEBI to clear its IPO, a crucial step for the six-year old company's growth plans.


SEBI had put the firm's IPO plan in "abeyance" in September last year after the firm filed its DRHP for the first time in August. Reuters had reported that the regulator had raised concerns that Digit had flouted laws by issuing shares to over 200 private individuals. The second and third industry executives cited above say that SEBI initially also had concerns about Digit's complicated shareholding structure and a conflict of interest among some of its directors who were also on boards of other related-party businesses. We could not independently verify this. Nevertheless, Digit made its case with SEBI later in September that it believed it was not in violation of an laws.

 

 

SEBI restarted the review process in October. But Digit hit a bump again in January due to the stock appreciation rights it issued to its employees. Filings with the Ministry of Corporate Affairs show that Digit issued over 394,000 stock appreciation rights on 24 November and 30 December to nearly a dozen employees.


Digit, which is backed by Canadian billionaire Prem Watsa's Fairfax Group, last raised capital in 2021 in a $200 million round from Faering Capital and Sequoia, valuing the firm at $3.5 billion. Digit's now-expired draft prospectus indicated that it wanted to raise Rs 1,250 crore in a fresh issue, with some existing investors expected to sell part of their stakes as well.

 

 

The insurer has not publicly disclosed how it will price its IPO, but the second and third executives say the valuation is likely to be in the $4.5-5 billion range. A Digit spokesperson declined to comment.

 

The company needs capital to grow as well as maintain a minimum solvency ratio of 150%, as prescribed by the insurance regulator. The solvency ratio is the amount by which an insurer's assets exceed its liabilities; it is a mandatory requirement for insurers to protect policyholders in adverse scenarios. Go Digit General Insurance's current solvency ratio is just under 190%, down from 220% in June last year. An IPO will not only help shore up its solvency capital, but also sustain it in the long run. The company also has other plans: It wants to expand into life and reinsurance businesses. It had applied for the respective licences last year, but the proposals have not been cleared yet.

 

It has been over eight months since the company kicked off plans to go public, but regulatory hurdles have left its management frustrated. Can it get past SEBI's many concerns?

 

Digit was founded in 2017 by former Bajaj Allianz chief executive

Kamesh Goyal. The idea was to build India's first digitally oriented insurance firm. Along with Amazon- backed Acko and Navi General Insurance, Digit is among the three startups granted a full-fledged insurance licence in the last decade or so. It competes with over 22 other non- life insurers and six pure-play health insurers.

 

In its six years of operation, Digit has recorded impressive growth, boasting a market share of around 2.5% (in premiums accrued) in India's highly competitive yet underpenetrated non- life insurance market. Its scale, however, is not comparable yet to its more established listed peers such as ICICI Lombard and New India Assurance.


As a general insurer, Digit mostly sells motor, liabilities and health policies. Despite recording an annualized growth rate of 74% in gross premiums underwritten in the last three financial years, the firm is yet to record an annual profit. While in the first three quarters of 2022-23, Digit posted marginal profits, much of this was on the back of the return on investments of its parked funds rather than on the strength of its underwriting.

 

 

For 2021-22, the company reported an underwriting loss of Rs 730 crore, which, after adjusting for an investment income of Rs 437 crore for the period, yielded a net loss of Rs 296 crore. In this period, Digit also reported a combined ratio of 113%, as against 109% for the financial year 2020-2021.

 

The combined ratio is a measure of profitability of an insurance company in terms of its daily operations. A combined ratio of above 100% is indicative of a loss -making venture with a weak underwriting model. The high combined ratio for Digit, and several other insurers, in the last two fiscal years can be attributed to an abnormal amount of health-related insurance claims filed due to the COVID-19 pandemic.

 

Digit's differentiating edge is its digital network, which it claims offers a faster and more seamless insurance service to customers compared with other insurers. The success of its model is somewhat apparent by the fact that over 60% of the company's insurance premium comes from tier-2 and -3 cities, where most policies are issued to individual holders and not corporations; retail policies sold at scale are seen as more lucrative than group covers from an insurer's perspective.

 

 

Over 60% of Digit's policies in terms of premiums gathered are in motor insurance, followed by liability insurance, which constitutes about 12% of the total premium base. Digit also has a robust network of employees. The company has tie-ups with over 650 lawyers and 360 investigators. Its network also covers more than 700 surveyors and nearly 10,000 workshops. The company has stationed its sales team across 165 cities and has a team of 265 in-house service engineers.

 

But does it warrant a valuation of $5 billion based on these numbers?


Some industry analysts don't believe so. According to an expert, who didn't want to be identified, given the current market cap of more established general insurers listed on the stock exchanges, Digit doesn't warrant such an expensive valuation. "If you look at the numbers of players such as ICICI Lombard and HDFC Ergo, despite a significantly larger scale and more experienced business, their valuations are in the $5-7 billion range. If Digit prices the issue in this range, it leaves nothing much for investors," says this person.

 

 

Perhaps it is to justify its lofty valuation that Digit wants to portray itself as a full-fledged insurance business making a foray into life insurance and reinsurance businesses.

In 2022, the firm incorporated its life insurance arm, Go Digit Life Insurance Pvt. Ltd. This entity was recently converted into a public limited company, possibly on the Insurance Regulatory and Development Authority of India's suggestion.

 

According to documents filed with the Ministry of Corporate Affairs, Go Digit Life Insurance has been preparing the ground over the past four months to become an operational life insurance company. During this period, the company altered its articles of association, appointed a new statutory auditor, increased its capital base from Rs 40 crore to Rs 200 crore and also commissioned a fair value report, seemingly incorporating suggestions made by the IRDAI. In July last year, Go Digit Life Insurance also brought HDFC Bank and Axis Bank to its cap table, with both private lenders buying around 10% each in the company.

Last year, the firm also appointed former HDFC Life and Aviva Life senior executive Srinivasan Parthasarathy as its managing director.

 

The tvpical life insurance licence process involves three lavers of checks and Go Digit Life is still in the process of getting the first stage of clearance. The regulatory scrutiny is much higher, as life insurance is a riskier and more capital-intensive business," says the first executive cited above.

 

Securing a reinsurance licence is going to be even harder. "It's really rare for the IRDAI to offer reinsurance licences to any player, let alone a startup. There is only one domestic reinsurer currently, which is GIC Re, and Digit will have to pull a rabbit out of the hat to become the second-ever domestic reinsurer."

 

While the IRDAI is yet to approve Digit's life insurance and reinsurance proposals, Digit's senior management, says the first executive, is confident that it will get the life insurance licence, especially as IRDAI chairman Debasish Panda - who took charge a year ago - has publicly said that he wants more players entering the insurance business. But even as preparations for an IPO are underway, a host of regulatory issues continue to plague the company.

 

 

One of the main reasons for Digit's success in recent years has been the continued backing of Fairfax. Prem Watsa is known for his astute yet contrarian bets centred on financial services and infrastructure businesses around the world (read "The silent, sure rise of Prem Watsa in India"). Digit has also raised funding from institutional investors such as TVS Capital, Sequoia Capital, Faering Capital and A91 Partners.

 

Fairfax has pumped more than $150 million into Digit since its inception, providing a steady flow of capital. But the firm now faces issues due to the complicated nature of its shareholding. The company's old draft red herring prospectus reveals these concerns in some detail.

 

Go Digit General Insurance's holding company, Go Digit Infoworks Services Pvt. Ltd, is a joint venture between Fairfax and Kamesh Goyal, and holds an 83.65% stake in Digit, while the balance is held by private equity funds. In Go Digit Infoworks, Fairfax (through FAL Corp.) and Goyal (through Oben Ventures) hold 45.25% and 54.75%, respectively.

Additionally, FAL Corp. holds compulsorily convertible preference shares in Go Digit Infoworks. Upon conversion of these shares, the shareholding of FAL Corp. will represent an indirect shareholding of up to 68.65% in the main insurance entity, Go Digit General Insurance.

 

 

In June 2022, the IRDAI dismissed a proposal by Digit to convert 7.8 million compulsory convertible preference shares held by FAL Corp. in Go Digit Infoworks (the promoter entity) into direct equity shares.

 

According to Go Digit General Insurance's draft red herring prospectus, the insurance regulator said the proposal would result in the insurance company becoming a step-down subsidiary of FAL Corp., which is not allowed under the IRDAI regulations. A step-down subsidiary is a company owned by another company through one of the latter's subsidiaries.

 

A promoter entity in an insurance company cannot be a subsidiary of another firm. If FAL Corp's preference shares in Go Digit Infoworks are fully converted, Watsa's company effectively becomes the majority owner of Digit's promoter entity, and Go Digit General Insurance becomes a subsidiary of a subsidiary.

 

Unless a resolution is found, it's likely that FAL Corp's preference shares will remain locked in. This could impact Fairfax's ability to invest in the business in the future. In a recent regulatory filing by Fairfax in Canada, it said the company will explore all options prescribed in the law to find a resolution. "A resolution to this issue would involve Fairfax having to restructure its indirect holding in Go Digit's parent company into a direct stake, so that the conversion of the preference shares doesn't result in the insurance firm becoming a step-down subsidiary," says the second executive cited earlier.

 

According to the third executive, Fairfax will continue its attempts to convince the IRDAI regarding the conversion of its preference shares but these conversations are expected to resume only after the completion of the IPO. However, it's unlikely whether the regulator will change its stance, given the straightforward nature of the law.

 

This is not the only regulatory issue Fairfax has faced of late. Go Digit's DRHP also reveals that, in October 2021, SEBI served Fairfax a show-cause notice over allegations that the firm indirectly owns interests in "an asset management company and a trustee company of a mutual fund while being an associate of the sponsor of another mutual fund".

 

While the violation pertains to Fairfax Financial Holdings and another subsidiary -FIH Mauritius Investments-owning IIFL Wealth Management and IIFL Trustee, the exact structure that triggered it couldn't be immediately determined.

 

To assuage SEBI's concerns, FIH Mauritius Investments, in which Fairfax Financial Holdings indirectly holds shares, has entered a binding agreement for the sale of some of its shareholding in IIFL Wealth Management. But clearances from the regulator are pending.

Fairfax's settlement application filed in June 2022 with SEBI is also awaiting review, the prospectus revealed.

 

There were other issues too, all of which point to a firm that, in its enthusiasm, sometimes gets ahead of established norms.

 

 

For instance, last year, Digit attracted scrutiny from the tax authorities. In June, the Central Board of Indirect Taxes and Customs directed the company to appear for a hearing and pay a fine of over Rs 10 crore. It is unclear whether Digit has appealed this penalty, even as it said the fine was paid "in protest". Separately, the Securities Appellate Tribunal also recently directed the firm to uphold the IRDAI's order to discontinue a product that was technically life insurance.


While Goyal has built a strong insurance franchise, there is still work to be done. Some of the issues it has faced recently could be attributed to its enthusiasm and lack of experience. But how these issues will come to the fore again in the lead-up to an IPO is anybody's guess.

 

 

 

Edited by nwoodman

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