Fairfax stock positions

[gfp]

Just now, Crip1 said:

Perhaps I misunderstand the mechanics on these transactions, but there has to be an entity on the other side of the trade who is losing money on this. 

 

The idea is that the investment bank / counterparty took an offsetting long position to hedge their exposure

[nwoodman]

16 minutes ago, gfp said:

 

The idea is that the investment bank / counterparty took an offsetting long position to hedge their exposure

+1

Reposting the link to TRS below because it is important to understand this is a well considered directional bet that @StubbleJumper points out could unwind in a heart beat with a big market sell off, not to mention the cost to finance is now material.  It's worked out great but the risk reward has now narrowed considerably. My expectation is they ditch this around 1.1-1.2x’s book, Prem’s $1000 per share.  I won’t be disappointed to see this levered play disappear this financial year or early next year at the latest..

 

 

https://corporatefinanceinstitute.com/resources/derivatives/total-return-swap-trs/#

Edited November 7, 2023 by nwoodman

[TwoCitiesCapital]

1 hour ago, StubbleJumper said:

 

With FFH currently trading right around adjusted-BV, and with a ROE of 15%+ expected for 2024, they shouldn't perceive much pressure to close out the TRS.  Even if there's no increase in P/BV and we find ourselves at 1x next November, that's a 15%+ growth in the stock price which is considerably higher than the floating rate.  It will be a more challenging decision in a couple of years once CRs start to inch upwards and interest rates start to inch downwards, which will put a bit of pressure on that ROE.

 

 

For me, the liquidity issue is the risk that I'd like to see FFH manage.  FFH's share price can drop $100 at any point.  In fact, as the share price has grown to US$900, the likelihood of having a fluctuation of $100 has probably become higher (ie, when your share price is $500, a drop of $100 is enormous, but not so much when you are at $900 or $1,000).  FFH needs to be ready to send a $200m or $400m cheque to the counter-party at any point in time, which needs to be taken into consideration when considering the holdco's cash and liquidity planning.

 

 

SJ

 

 

The liquidity risk is also what concernse the most. 

 

I don't need them to eliminate the TRS position, but an orderly wind-down over time is desirable IMO. 

 

Wouldn't mind if they took 10-15% of it off the table at prices between $900-1000/sh. Considering the extra liquidity they would have to hold at HoldCo is probably earning less than the financing spread, and quarterly movements in the stock are unpredictable even if the longer term direction is up, I'm ok with leaving money on the table to manage some of the liquidity risk. 

[Viking]

Fairfax is on track to earn a record amount of operating earnings in 2023 of around $4.3 billion. My guess is it increases further in 2024 and 2025 to more than $4.5 billion each year.
 

At the same time, it appears the hard market is slowing. Of all P/C insurers, Fairfax appears to be the most disciplined today, with premium growth slowing to 5%.

 

When the hard market ends what is Fairfax going to do with its $4.5 billion in operating earnings?

 

If its share price falls $200 Fairfax will be buying Fairfax shares hand over fist. The gushing cash flow we are seeing today and in 2024 and 2025 are a perfect complement to the TRS-FFH position. Especially with the hard market in its late innings. 
 

Yes, there are risks to holding the TRS position. All investments have risks. I continue to think Fairfax shares are crazy cheap. 6 x normalized earnings? 1 x BV for a 15%ROE? The TRS position could easily gain +30% over the next year and +50% over the next 2 years. Ramping share buybacks higher are the ace in the hole. 

Edited November 7, 2023 by Viking

[gfp]

Everyone hates commercial real estate and Kennedy Wilson is at a new 52 week low.  Bill McMorrow bought $1.23 million worth of KW stock in the open market yesterday.  Maybe Bill needs to bring over some Brookfield real estate guys to put some spin on things!?  

 

https://www.sec.gov/Archives/edgar/data/1408100/000140810023000142/xslF345X03/wk-form4_1699311214.xml

 

https://ir.kennedywilson.com/~/media/Files/K/Kennedy-Wilson-IR-V2/documents/3q-2023-supplemental-and-release.pdf

 

https://ir.kennedywilson.com/~/media/Files/K/Kennedy-Wilson-IR-V2/reports-and-presentations/presentations/q3-2023-investor-presentation.pdf

 

Edited November 7, 2023 by gfp

[SafetyinNumbers]

Strong numbers out of Eurobank after the close. Looks to be ~5x P/E.

 

Cash dividends to start next year which will probably help the share price but since FFH equity accounts for it our on an equity basis, it’s about US$85 of book value earning a 20% return. 

 

 

[nwoodman]

11 hours ago, gfp said:

Everyone hates commercial real estate and Kennedy Wilson is at a new 52 week low.  Bill McMorrow bought $1.23 million worth of KW stock in the open market yesterday.  Maybe Bill needs to bring over some Brookfield real estate guys to put some spin on things!?  

 

https://www.sec.gov/Archives/edgar/data/1408100/000140810023000142/xslF345X03/wk-form4_1699311214.xml

 

https://ir.kennedywilson.com/~/media/Files/K/Kennedy-Wilson-IR-V2/documents/3q-2023-supplemental-and-release.pdf

 

https://ir.kennedywilson.com/~/media/Files/K/Kennedy-Wilson-IR-V2/reports-and-presentations/presentations/q3-2023-investor-presentation.pdf

 

Certainly is interesting at these levels.  Flies in the face of my resolution to never to invest in a FFH holding but I do have respect for Bill.  

[Viking]

Nov 9: This post was updated to reflect the 12% increase in Stelco's stock price today.

----------

Stelco today (Nov announced another special dividend of C$3/share, along with the regular quarterly dividend of C$0.42/share. Fairfax will earn a total of US$32 million, payable Nov 28, 2023. That will provide a nice bump to interest and dividend income in Q4 when Fairfax reports. Below is an update to the summary I have posted before on Stelco.

----------

In November of 2018, Fairfax invested US$193 million in Stelco, buying 13 million shares at C$20.50. At the time, it was a deeply contrarian purchase. I did not like it. It screamed ‘old Fairfax’ to me: buy a bad business in a bad industry. Boy, was I wrong.

 

What has made this such a good investment for Fairfax?

 

The CEO of Stelco, Alan Kestenbaum. Since buying Stelco out of bankruptcy in 2017 (via Bedrock Industries) he has been putting on a clinic in capital allocation. (I'll come back to this.)

 

Stelco Corporate Presentation Q3-2023

https://s201.q4cdn.com/143749161/files/doc_earnings/2023/q3/presentation/Q3-2023-Earnings-Presentation-FINAL.pdf

 

Here is a little more information of Kestenbaum’s initial investment in Stelco in 2017.

 

 Purchase of Stelco out of bankruptcy: Bedrock gets steelmaker for less than $500 million

https://www.thespec.com/business/stelco-deal-bedrock-gets-steelmaker-for-less-than-500-million/article_da943b70-1a93-5a35-acb4-92a6da05946a.html?

 

How has the investment performed for Fairfax?

 

Over the past 5 years, Fairfax has received dividend payments (regular and special) from Stelco of $106 million. This has reduced Fairfax’s cost base from $193 million to $87 million. 

 

Fairfax’s investment in Stelco has a market value today of $398 million. Fairfax’s investment in Stelco is up $311 million or 358%. That is an amazing return over a 5-year period. 

 

 

What are prospects for Stelco?

 

Very good; just like for the big US steelmakers.

 

Kestenbaum - Schooling the Steel Industry on Capital Allocation

 

What did Stelco do with the earnings windfall from 2021 and 2022? He bought back stock 38% of shares outstanding. And he did not overpay. That was freaking brilliant. 

 

Fairfax’s ownership in Stelco has increased from 14.7% to 23.6% - with no new money invested.

 

 

Two other brilliant moves by Kestenbaum:

• April 2020 - Minntac deal: 8-year supply agreement with option to purchase 25% of Minntac (the largest iron ore mine in the US) for $100 million – done when Covid was raging. 
• June 2022: real estate sale of ‘Stelco lands’ for C$518 million. The timing of this sale is looking brilliant - at what might be close to the peak of Canada’s real estate bubble. 

—————

Comments from Prem about Stelco from the 2022AR. 

 

“2022 was an active and successful year for Alan Kestenbaum and the talented team at Stelco. The company ended the year with its second-best fiscal result since going public despite an approximately 50% decline in steel prices over the summer. Stelco is benefiting from the Cdn$900 million it has invested in its Lake Erie Works mill since 2017, which has made the mill one of the lowest-cost operators in North America. Stelco entered 2022 with an extremely strong balance sheet and put its capital to good use, completing three substantial issuer bids during the year, thereby repurchasing approximately 29% of its outstanding shares. These repurchases have resulted in Fairfax’s ownership increasing to 24% from 17% at the beginning of the year. In addition to share repurchases, Stelco paid a Cdn$3 per share special dividend and increased its regular dividend to Cdn$1.68 per share from Cdn$1.20 per share. Stelco maintains over Cdn$700 million of net cash on its balance sheet and we anticipate that it will continue to be active both investing in its operations and efficiently returning excess capital to shareholders. We are excited to continue as a significant investor in Alan Kestenbaum’s leadership at Stelco.” Prem Watsa – Fairfax 2022AR

 

Details of Stelco’s Hamilton land sale in 2022, for proceeds of $518 million.

 

 “Stelco Holdings Inc. (TSX: STLC) (“Stelco” or the “Company”) announced today that its wholly-owned subsidiary, Stelco Inc., has successfully closed a sale-leaseback transaction with an affiliate of Slate Asset Management (“Slate”). Stelco Inc. has sold the entirety of its interest in the approximately 800-acre parcel of land it occupies on the shores of Hamilton Harbour in Hamilton, Ontario to Slate for gross consideration of $518 million. In conjunction with the sale, Stelco Inc. has entered into a long-term lease arrangement for certain portions of the lands to continue its cokemaking and value-added steel finishing operations at its Hamilton Works site in Hamilton, Ontario.”

https://www.thespec.com/news/hamilton-region/all-of-stelco-s-hamilton-land-sold-in-deal-that-would-see-it-transformed-into/article_17a333af-8198-5f97-9866-8c61ed8f799f.html?

  

Details of Stelco’s agreement with US Steel in 2020 to securing long term supply for iron ore pellets.

 

 Stelco Announces Option To Acquire 25% Interest In Minntac, The Largest Iron Ore Mine In The United States, And Entry Into Long-Term Extension Of Pellet Supply Agreement With U.S. Steel

 

“Stelco will pay US$100 million, in cash, to U.S. Steel in consideration for the Option (the "Initial Consideration"). The Initial Consideration is payable in five US$20 million installments, with the first installment paid upon closing of the Option Agreement and the remaining four installments payable every two months thereafter. Upon the exercise of the Option, Stelco would pay a net exercise price of US$500 million.”

 

Transaction Highlights:

• Secures long-term future of Stelco's steel production and solidifies Stelco's low-cost advantage
• Provides supply of high-quality iron ore pellets from a well-understood and consistent source for the next eight years, or longer if the Option is exercised
• Increases annual pellet supply to level required for Stelco's higher production capacity following this year's blast furnace upgrade project
• Supports Stelco's tactical flexibility model to deliver highest margin outcomes based on prevailing market conditions
• Creates a secure pathway for Stelco to become a vertically integrated player in the future through ownership in a low-cost iron ore source which is the largest producing iron ore mine in the Mesabi iron range
• Structured in stages that will preserve Stelco's strong balance sheet and financial flexibility

https://investors.stelco.com/news/news-details/2020/Stelco-Announces-Option-to-Acquire-25-Interest-in-Minntac-the-Largest-Iron-Ore-Mine-in-the-United-States-and-Entry-into-Long-Term-Extension-of-Pellet-Supply-Agreement-with-U.S.-Steel-04-20-2020/default.aspx

 

Edited November 10, 2023 by Viking

[glider3834]

this is an interesting article on Pacwest deal for KW & FFH which shows it was a strategic acquisition & looks like portfolio is performing as expected

https://commercialobserver.com/2023/11/kennedy-wilson-expanding-debt-platform-reach-pacwest-loan-acquisition/

 

'The loan portfolio Kennedy Wilson assumed has remained healthy despite the many market headwinds that unfolded over the past 18 months due largely to rising interest rates. Whitesell said there are zero losses in the portfolio as a result of low leverage and a strong asset management team that actively works with borrowers to rebalance loans as needed. The portfolio is facing some looming maturities, with about half of the loans positioned for an immediate paydown and the rest expected to receive extensions, according to Whitesell.'  

[petec]

On 11/7/2023 at 9:10 PM, gfp said:

Everyone hates commercial real estate and Kennedy Wilson is at a new 52 week low.  Bill McMorrow bought $1.23 million worth of KW stock in the open market yesterday.  Maybe Bill needs to bring over some Brookfield real estate guys to put some spin on things!?  

 

https://www.sec.gov/Archives/edgar/data/1408100/000140810023000142/xslF345X03/wk-form4_1699311214.xml

 

https://ir.kennedywilson.com/~/media/Files/K/Kennedy-Wilson-IR-V2/documents/3q-2023-supplemental-and-release.pdf

 

https://ir.kennedywilson.com/~/media/Files/K/Kennedy-Wilson-IR-V2/reports-and-presentations/presentations/q3-2023-investor-presentation.pdf

 

 

I have often wondered whether FFH would take them out at some point. Bring another great capital allocator on board with expertise in a specific/different industry and the ability to raise 3rd party capital and generate fees.

 

[nwoodman]

Just got through the KW CC.  Interesting to see they picked up so many of the Pacwest team.

 

“For example, in June, we sourced and acquired off market a $4.1 billion construction loan portfolio from a regional bank at a discount, representing the largest single transaction in our company’s history. This transaction was possible given our reputation in the banking industry and our ability to move with speed and certainty to get a transaction of this size closed inside of 30 days.”

 

“During Q3, we welcomed 40 new employees from the regional bank I mentioned, who have integrated perfectly into our existing operations and considerably strengthened our lending capabilities. We are currently one of the few active construction lenders in the U.S. market, and our team has a strong pipeline of new loans, of which a significant amount will close here in the fourth quarter.”

[SafetyinNumbers]

I heard from a KW institutional investor in August who had heard the Business Brew podcast on Fairfax that ultimately decided to switch their position from KW to FFH. One of their reasons for selling was because they thought management compensation was too high. I’ll add, the high dividend makes it harder to grow but probably helps with valuation.

 

 

[glider3834]

https://www.prnewswire.com/news-releases/blackberry-announces-partial-extension-of-convertible-debentures-301986571.html

 

I guess will allow Fairfax to free up around $200M to invest in higher return debt instruments

 

 

[StubbleJumper]

7 minutes ago, glider3834 said:

https://www.prnewswire.com/news-releases/blackberry-announces-partial-extension-of-convertible-debentures-301986571.html

 

I guess will allow Fairfax to free up around $200M to invest in higher return debt instruments

 

 

 

Frankly, this looks somewhat irresponsible by FFH management.  The chances of the BB share price rising US$6 (and therefore it being worth converting the debs) between now and next spring are approximately zero.  So, in effect, FFH is issuing 1.75% 3-month commercial paper to BB in an environment where sovereign guaranteed 3-month t-bills are trading at 5.40%.  The idea of extending such a bull shit arrangement to May 2024 is even more ridiculous.

 

This stinks.  The sooner that FFH is done with BB, the better.

 

 

SJ

[Viking]

31 minutes ago, glider3834 said:

https://www.prnewswire.com/news-releases/blackberry-announces-partial-extension-of-convertible-debentures-301986571.html

 

I guess will allow Fairfax to free up around $200M to invest in higher return debt instruments

Great news: Fairfax is (finally) materially shrinking their exposure to Blackberry. $200 million that has been dead money for a decade is now going to be re-invested into something that should now earn an acceptable return. 
 

Perhaps they extended some of the debenture to assist the company with the sales process? No idea.

 

Blackberry is one of the few legacy equity ‘problem children’ that Fairfax has left to fix. Fairfax just reduced its exposure to Blackberry by about 40%. A step in the right direction.

[jbwent63]

I'm confused a bit here (maybe it's just a bit of friendly rounding...), but didnt FFH hold $330 MM of BB debentures, and just agreed to "roll" $150 MM, for net cash to FFH of $180 MM vs $200MM? I too am somewhat surprised that FFH didn't bargain for a better interest rate given the current environment or a lower warrant exercise price given the current share price, but there may be unknowable reasons for that (those reasons might become clearer in time). Anyway, I agree with Viking, good to reduce exposure at 100 cents on the dollar.

[StubbleJumper]

37 minutes ago, jbwent63 said:

I'm confused a bit here (maybe it's just a bit of friendly rounding...), but didnt FFH hold $330 MM of BB debentures, and just agreed to "roll" $150 MM, for net cash to FFH of $180 MM vs $200MM? I too am somewhat surprised that FFH didn't bargain for a better interest rate given the current environment or a lower warrant exercise price given the current share price, but there may be unknowable reasons for that (those reasons might become clearer in time). Anyway, I agree with Viking, good to reduce exposure at 100 cents on the dollar.

 

Yeah, your numbers are right, it suspect it was just a bit of rounding.  

 

Shareholders definitely will be better off now that a portion of the proceeds from those debs are reinvested.  FFH was getting 1.75% interest, and pretty much any US treasury will yield ~5%, so that part is good.  The part that isn't good is that the whole $330m isn't being reinvested at the higher rate.  I don't love the idea of extending any more credit to BB, but if FFH is going to do it, they should at least demand market terms.  For 3-month debt that would be, what, perhaps ~8% or something instead of the 1.75% they actually accepted?  So, it looks to me like FFH is being shorted about $2m of interest over three months (and worse if it is extended to 6 months).

 

It is entirely possible that there are unknowable reasons for that.  But, that's part of the problem.  Prem has gotten so involved with BB through his position on the board and his relationship with management that it's hard to tell whether he's acting to maximize value for FFH shareholders of to fulfil some other goal.

 

 

SJ

[rkbabang]

25 minutes ago, StubbleJumper said:

 

Yeah, your numbers are right, it suspect it was just a bit of rounding.  

 

Shareholders definitely will be better off now that a portion of the proceeds from those debs are reinvested.  FFH was getting 1.75% interest, and pretty much any US treasury will yield ~5%, so that part is good.  The part that isn't good is that the whole $330m isn't being reinvested at the higher rate.  I don't love the idea of extending any more credit to BB, but if FFH is going to do it, they should at least demand market terms.  For 3-month debt that would be, what, perhaps ~8% or something instead of the 1.75% they actually accepted?  So, it looks to me like FFH is being shorted about $2m of interest over three months (and worse if it is extended to 6 months).

 

It is entirely possible that there are unknowable reasons for that.  But, that's part of the problem.  Prem has gotten so involved with BB through his position on the board and his relationship with management that it's hard to tell whether he's acting to maximize value for FFH shareholders of to fulfil some other goal.

 

 

SJ

 

 

This is something that has bothered me for years and why for a long time I wouldn't hold FFH (although I do now again).  From the very first share of RIM/BB they bought it was so obviously a bad investment and so obviously not for the benefit of FFH that I thought that there must be an ulterior motive (helping a dying local company who hires from a school he likes was my theory).  FFH's involvement with BB has never made any sense and it still doesn't.  Nothing FFH has done with BB was to the benefit of FFH shareholders and it was always blatantly obvious from the very first share purchased.  Now he's loaning them money at 1.75% interest.  That can't possibly be for the benefit of FFH shareholders.  There is a reason, I'm sure, but not the right one.

 

Edited November 14, 2023 by rkbabang

[MMM20]

The good news...

 

https://www.apnnews.com/digit-insurance-wins-digital-insurer-of-the-year-award-at-asia-insurance-industry-awards-2023/

 

Digit Insurance wins Digital Insurer of the Year Award at Asia Insurance Industry Awards 2023

Published on November 14, 2023

 

Bengaluru: Go Digit General Insurance Limited, one of India’s leading digital full stack insurance companies, announced it has won the “Digital Insurer of the Year” Award at the prestigious 27th Asia Insurance Industry Awards  2023 held in Singapore. This is Digit’s fourth AIIA award in the last five years.

 

The Asia Insurance Industry Awards, 2023 stated that “Digit’s technological innovations have enabled it to achieve efficient underwriting, which is its differentiator from other insurer.” Digit’s hybrid model of AI-enabled analytics and human assessment along with its partnership-based model has helped the company mitigate India’s geographic limitations. Hong Kong-based AIA Group and FWD Group were the other two finalists for the Digital Insurer of the Year category.

 

Only two Indian companies won an award at this year’s edition. Digit Insurance is also the only Indian insurance company to have bagged the Digital Insurer of the Year award twice in the last five years. The company had bagged the General Insurance Company of the Year Award back-to-back in 2019 and 2020. Digit is also the only Indian company to be nominated this year for two organizational categories, the other being “Technology Initiative of the Year” award.

 

Commenting on the win, Jasleen Kohli, MD & CEO, Digit Insurance, said, “We are extremely honoured and delighted to win the prestigious Asia Insurance Industry Award. Winning the ‘Digital Insurer of the Year’ is truly special as it is a testimony of our in-house tech capabilities that form the backbone of our company. Our advanced tech platform is surely one of our competitive strengths that has aided in our growth and helped us in delivering high quality customer experience.”

 

The entries were judged by a panel of 26 expert judges from across the insurance industry and the winners were chosen from nearly 200 entries in 17 categories received from insurance companies all over Asia. The awards are well known for their stringent criteria and transparent selection process and is overseen by a panel of expert judges from across the insurance industry.

[MMM20]

3 minutes ago, MMM20 said:

The good news...

 

https://www.apnnews.com/digit-insurance-wins-digital-insurer-of-the-year-award-at-asia-insurance-industry-awards-2023/

 

Digit Insurance wins Digital Insurer of the Year Award at Asia Insurance Industry Awards 2023

Published on November 14, 2023

 

Bengaluru: Go Digit General Insurance Limited, one of India’s leading digital full stack insurance companies, announced it has won the “Digital Insurer of the Year” Award at the prestigious 27th Asia Insurance Industry Awards  2023 held in Singapore. This is Digit’s fourth AIIA award in the last five years.

 

The Asia Insurance Industry Awards, 2023 stated that “Digit’s technological innovations have enabled it to achieve efficient underwriting, which is its differentiator from other insurer.” Digit’s hybrid model of AI-enabled analytics and human assessment along with its partnership-based model has helped the company mitigate India’s geographic limitations. Hong Kong-based AIA Group and FWD Group were the other two finalists for the Digital Insurer of the Year category.

 

Only two Indian companies won an award at this year’s edition. Digit Insurance is also the only Indian insurance company to have bagged the Digital Insurer of the Year award twice in the last five years. The company had bagged the General Insurance Company of the Year Award back-to-back in 2019 and 2020. Digit is also the only Indian company to be nominated this year for two organizational categories, the other being “Technology Initiative of the Year” award.

 

Commenting on the win, Jasleen Kohli, MD & CEO, Digit Insurance, said, “We are extremely honoured and delighted to win the prestigious Asia Insurance Industry Award. Winning the ‘Digital Insurer of the Year’ is truly special as it is a testimony of our in-house tech capabilities that form the backbone of our company. Our advanced tech platform is surely one of our competitive strengths that has aided in our growth and helped us in delivering high quality customer experience.”

 

The entries were judged by a panel of 26 expert judges from across the insurance industry and the winners were chosen from nearly 200 entries in 17 categories received from insurance companies all over Asia. The awards are well known for their stringent criteria and transparent selection process and is overseen by a panel of expert judges from across the insurance industry.

 

The bad news...

 

https://inc42.com/buzz/ipo-bound-go-digit-gets-show-cause-notice-multiple-advisories-from-insurance-regulator/

 

IPO Bound Go Digit Gets Show Cause Notice, Multiple Advisories From Insurance Regulator

14 Nov'23

 

Insurtech major Go Digit General Insurance, which is gearing up for its initial public offering (IPO), has received a show cause notice and multiple advisories from the Insurance Regulatory and Development Authority of India (IRDAI) last month, the company said in a new addendum to its draft prospectus filed with the Securities And Exchange Board of India (SEBI).

 

The development comes at a time when the company’s IPO is yet to receive final approval from the SEBI even after Go Digit refiled its draft red herring prospectus (DRHP) addressing certain concerns that the market regulator had raised earlier.

 

Go Digit revealed that the show cause notice from IRDAI has alleged non-disclosure of change in the conversion ratio of the CCPS issued by Go Digit Infoworks Services (GDISPL), the parent of Go Digit General Insurance, to FAL Corporation.

 

FAL Corporation is a part of Canada-based Fairfax Financial Holdings, which is one of the major investors in Go Digit.

 

“In terms of the Notice, the change in the conversion ratio of 6,300,000 CCPS issued by GDISPL to FAL Corporation, from ‘1 CCPS for 2.324 equity shares’ to ‘2.324 CCPS for each equity share’, which was reflected by way of an amendment to the JV Agreement dated August 11, 2022, is a material change to the information furnished at the time of applying for registration to the IRDAI,” the company’s regulatory disclosure to SEBI said.

 

As per the notice, Go Digit was expected to provide the details of such change to the IRDAI but it did not furnish the “full particulars”. Hence, IRDAI has also alleged that the startup is in violation of Section 26 of the Insurance Act.

 

If an adverse order is passed against Go Digit and its officers responsible for the non-compliance, the insurtech unicorn would be slapped with a maximum penalty of INR 1 Lakh for each day during which such failure continues, or INR 1 Cr, whichever is lower, the addendum mentioned.

 

Besides, IRDAI has also issued certain advisories and cautioned Go Digit on a few aspects.

 

The advisory notice has been issued for failing to take the insurance regulator’s approval for the change in remuneration of its Chief Executive Officer (CEO) on the account of the change in ESAR 2018 (employee stock appreciation rights scheme) to ESOP 2018 (employee stock option plans) and for failing to inform IRDAI of the retrospective grant of ESARs prior to the date of grant of the company’s certificate of registration.

 

“In the event the IRDAI is not satisfied with our responses or we fail to adhere to the advisories and cautions issued by the IRDAI, we may be subject to warnings, show-cause notices and/ or penalties in the future, which would, amongst other things, adversely impact our brand and reputation,” Go Digit said in its regulatory disclosure to SEBI.

 

Meanwhile, the IRDAI has also cautioned the startup to ensure due care and correct disclosures in the offer documents, of the position in relation to the commission on long-term policies and that acquisition costs incurred in the year, among several other advisories issued.

 

It is pertinent to note that Go Digit filed its DRHP with the SEBI in August last year. Within months, it also received the IRDAI’s approval to launch the IPO in November last year though SEBI had kept the IPO in ‘abeyance’.

 

In March this year, the startup refiled the DRHP with the market regulator for its $440 Mn, addressing the latter’s concerns about its ESOPs. 

 

In the latest filing, Go Digit said its erstwhile Go Digit – Employee Stock Appreciation Rights Plan, 2018 has been amended and changed to ESOP 2018, pursuant to the resolutions passed by the board and shareholders on March 21, 2023 and March 27, 2023, respectively. 

 

Founded in 2017 by Kamesh Goyal, Go Digit offers insurance policies across verticals including motor vehicle, health, travel, and property. Besides Prem Watsa’s Fairfax, the startup is also backed by prominent names such as Sequoia, cricketer Virat Kohli, and actor Anushka Sharma. 

 

Go Digit’s IPO comprises a fresh issue of shares worth INR 1,250 Cr and an offer for sale (OFS) of 109.45 Mn shares.

 

Edited November 14, 2023 by MMM20

[TwoCitiesCapital]

36 minutes ago, MMM20 said:

 

The bad news...

 

https://inc42.com/buzz/ipo-bound-go-digit-gets-show-cause-notice-multiple-advisories-from-insurance-regulator/

 

IPO Bound Go Digit Gets Show Cause Notice, Multiple Advisories From Insurance Regulator

14 Nov'23

 

Insurtech major Go Digit General Insurance, which is gearing up for its initial public offering (IPO), has received a show cause notice and multiple advisories from the Insurance Regulatory and Development Authority of India (IRDAI) last month, the company said in a new addendum to its draft prospectus filed with the Securities And Exchange Board of India (SEBI).

 

The development comes at a time when the company’s IPO is yet to receive final approval from the SEBI even after Go Digit refiled its draft red herring prospectus (DRHP) addressing certain concerns that the market regulator had raised earlier.

 

Go Digit revealed that the show cause notice from IRDAI has alleged non-disclosure of change in the conversion ratio of the CCPS issued by Go Digit Infoworks Services (GDISPL), the parent of Go Digit General Insurance, to FAL Corporation.

 

FAL Corporation is a part of Canada-based Fairfax Financial Holdings, which is one of the major investors in Go Digit.

 

“In terms of the Notice, the change in the conversion ratio of 6,300,000 CCPS issued by GDISPL to FAL Corporation, from ‘1 CCPS for 2.324 equity shares’ to ‘2.324 CCPS for each equity share’, which was reflected by way of an amendment to the JV Agreement dated August 11, 2022, is a material change to the information furnished at the time of applying for registration to the IRDAI,” the company’s regulatory disclosure to SEBI said.

 

As per the notice, Go Digit was expected to provide the details of such change to the IRDAI but it did not furnish the “full particulars”. Hence, IRDAI has also alleged that the startup is in violation of Section 26 of the Insurance Act.

 

If an adverse order is passed against Go Digit and its officers responsible for the non-compliance, the insurtech unicorn would be slapped with a maximum penalty of INR 1 Lakh for each day during which such failure continues, or INR 1 Cr, whichever is lower, the addendum mentioned.

 

Besides, IRDAI has also issued certain advisories and cautioned Go Digit on a few aspects.

 

The advisory notice has been issued for failing to take the insurance regulator’s approval for the change in remuneration of its Chief Executive Officer (CEO) on the account of the change in ESAR 2018 (employee stock appreciation rights scheme) to ESOP 2018 (employee stock option plans) and for failing to inform IRDAI of the retrospective grant of ESARs prior to the date of grant of the company’s certificate of registration.

 

“In the event the IRDAI is not satisfied with our responses or we fail to adhere to the advisories and cautions issued by the IRDAI, we may be subject to warnings, show-cause notices and/ or penalties in the future, which would, amongst other things, adversely impact our brand and reputation,” Go Digit said in its regulatory disclosure to SEBI.

 

Meanwhile, the IRDAI has also cautioned the startup to ensure due care and correct disclosures in the offer documents, of the position in relation to the commission on long-term policies and that acquisition costs incurred in the year, among several other advisories issued.

 

It is pertinent to note that Go Digit filed its DRHP with the SEBI in August last year. Within months, it also received the IRDAI’s approval to launch the IPO in November last year though SEBI had kept the IPO in ‘abeyance’.

 

In March this year, the startup refiled the DRHP with the market regulator for its $440 Mn, addressing the latter’s concerns about its ESOPs. 

 

In the latest filing, Go Digit said its erstwhile Go Digit – Employee Stock Appreciation Rights Plan, 2018 has been amended and changed to ESOP 2018, pursuant to the resolutions passed by the board and shareholders on March 21, 2023 and March 27, 2023, respectively. 

 

Founded in 2017 by Kamesh Goyal, Go Digit offers insurance policies across verticals including motor vehicle, health, travel, and property. Besides Prem Watsa’s Fairfax, the startup is also backed by prominent names such as Sequoia, cricketer Virat Kohli, and actor Anushka Sharma. 

 

Go Digit’s IPO comprises a fresh issue of shares worth INR 1,250 Cr and an offer for sale (OFS) of 109.45 Mn shares.

 

 

 

"From ‘1 CCPS for 2.324 equity shares’ to ‘2.324 CCPS for each equity share’"

 

So conversion ratio went from

1 : 2.324

2.324 : 1

 

anyone know if this was simply a typo/administrative mistake on filing documents and will be a non-issue? 

or did they literally 5x their conversion ratio? 

Edited November 14, 2023 by TwoCitiesCapital

[Haryana]

33 minutes ago, TwoCitiesCapital said:

 

 

"From ‘1 CCPS for 2.324 equity shares’ to ‘2.324 CCPS for each equity share’"

 

So conversion ratio went from

1 : 2.324

2.324 : 1

 

anyone know if this was simply a typo/administrative mistake on filing documents and will be a non-issue? 

or did they literally 5x their conversion ratio? 

 

They likely hired directly from high school for filing official documents to save money and brownie points.

 

I know nothing about how or what they hire but this allegation sounds credible based on what happened.

 

[glider3834]

1 hour ago, MMM20 said:

 

The bad news...

 

https://inc42.com/buzz/ipo-bound-go-digit-gets-show-cause-notice-multiple-advisories-from-insurance-regulator/

 

IPO Bound Go Digit Gets Show Cause Notice, Multiple Advisories From Insurance Regulator

14 Nov'23

 

Insurtech major Go Digit General Insurance, which is gearing up for its initial public offering (IPO), has received a show cause notice and multiple advisories from the Insurance Regulatory and Development Authority of India (IRDAI) last month, the company said in a new addendum to its draft prospectus filed with the Securities And Exchange Board of India (SEBI).

 

The development comes at a time when the company’s IPO is yet to receive final approval from the SEBI even after Go Digit refiled its draft red herring prospectus (DRHP) addressing certain concerns that the market regulator had raised earlier.

 

Go Digit revealed that the show cause notice from IRDAI has alleged non-disclosure of change in the conversion ratio of the CCPS issued by Go Digit Infoworks Services (GDISPL), the parent of Go Digit General Insurance, to FAL Corporation.

 

FAL Corporation is a part of Canada-based Fairfax Financial Holdings, which is one of the major investors in Go Digit.

 

“In terms of the Notice, the change in the conversion ratio of 6,300,000 CCPS issued by GDISPL to FAL Corporation, from ‘1 CCPS for 2.324 equity shares’ to ‘2.324 CCPS for each equity share’, which was reflected by way of an amendment to the JV Agreement dated August 11, 2022, is a material change to the information furnished at the time of applying for registration to the IRDAI,” the company’s regulatory disclosure to SEBI said.

 

As per the notice, Go Digit was expected to provide the details of such change to the IRDAI but it did not furnish the “full particulars”. Hence, IRDAI has also alleged that the startup is in violation of Section 26 of the Insurance Act.

 

If an adverse order is passed against Go Digit and its officers responsible for the non-compliance, the insurtech unicorn would be slapped with a maximum penalty of INR 1 Lakh for each day during which such failure continues, or INR 1 Cr, whichever is lower, the addendum mentioned.

 

Besides, IRDAI has also issued certain advisories and cautioned Go Digit on a few aspects.

 

The advisory notice has been issued for failing to take the insurance regulator’s approval for the change in remuneration of its Chief Executive Officer (CEO) on the account of the change in ESAR 2018 (employee stock appreciation rights scheme) to ESOP 2018 (employee stock option plans) and for failing to inform IRDAI of the retrospective grant of ESARs prior to the date of grant of the company’s certificate of registration.

 

“In the event the IRDAI is not satisfied with our responses or we fail to adhere to the advisories and cautions issued by the IRDAI, we may be subject to warnings, show-cause notices and/ or penalties in the future, which would, amongst other things, adversely impact our brand and reputation,” Go Digit said in its regulatory disclosure to SEBI.

 

Meanwhile, the IRDAI has also cautioned the startup to ensure due care and correct disclosures in the offer documents, of the position in relation to the commission on long-term policies and that acquisition costs incurred in the year, among several other advisories issued.

 

It is pertinent to note that Go Digit filed its DRHP with the SEBI in August last year. Within months, it also received the IRDAI’s approval to launch the IPO in November last year though SEBI had kept the IPO in ‘abeyance’.

 

In March this year, the startup refiled the DRHP with the market regulator for its $440 Mn, addressing the latter’s concerns about its ESOPs. 

 

In the latest filing, Go Digit said its erstwhile Go Digit – Employee Stock Appreciation Rights Plan, 2018 has been amended and changed to ESOP 2018, pursuant to the resolutions passed by the board and shareholders on March 21, 2023 and March 27, 2023, respectively. 

 

Founded in 2017 by Kamesh Goyal, Go Digit offers insurance policies across verticals including motor vehicle, health, travel, and property. Besides Prem Watsa’s Fairfax, the startup is also backed by prominent names such as Sequoia, cricketer Virat Kohli, and actor Anushka Sharma. 

 

Go Digit’s IPO comprises a fresh issue of shares worth INR 1,250 Cr and an offer for sale (OFS) of 109.45 Mn shares.

 

I would expect them to pay the fines & move along, but these delays to IPO are frustrating, but on the flipside IPO conditions now in India look better than late 2022 https://www.business-standard.com/finance/personal-finance/india-emerges-as-global-leader-in-the-number-of-ipos-in-2023-123110600198_1.html and it does allow Digit to  include their latest financials for Jun-23 quarter in their IPO application showing Digit's improving profitability 

 

[dartmonkey]

Shareholders definitely will be better off now that a portion of the proceeds from those debs are reinvested.  FFH was getting 1.75% interest, and pretty much any US treasury will yield ~5%, so that part is good.  The part that isn't good is that the whole $330m isn't being reinvested at the higher rate.  I don't love the idea of extending any more credit to BB, but if FFH is going to do it, they should at least demand market terms.  For 3-month debt that would be, what, perhaps ~8% or something instead of the 1.75% they actually accepted?  So, it looks to me like FFH is being shorted about $2m of interest over three months (and worse if it is extended to 6 months).

 

 

Forgoing $2m in interest is the part of the glass that is empty, but removing $180m of the $330m invested via bonds is a much bigger part of the glass with water in it. And if getting a good deal and paying a low interest rate for 3 more months is helpful for Blackberry and allowed FFH to actually reduce the 47m share position, that would be even greater. Anything to get farther away from this canine investment.

[TwoCitiesCapital]

3 hours ago, dartmonkey said:

Shareholders definitely will be better off now that a portion of the proceeds from those debs are reinvested.  FFH was getting 1.75% interest, and pretty much any US treasury will yield ~5%, so that part is good.  The part that isn't good is that the whole $330m isn't being reinvested at the higher rate.  I don't love the idea of extending any more credit to BB, but if FFH is going to do it, they should at least demand market terms.  For 3-month debt that would be, what, perhaps ~8% or something instead of the 1.75% they actually accepted?  So, it looks to me like FFH is being shorted about $2m of interest over three months (and worse if it is extended to 6 months).

 

 

Forgoing $2m in interest is the part of the glass that is empty, but removing $180m of the $330m invested via bonds is a much bigger part of the glass with water in it. And if getting a good deal and paying a low interest rate for 3 more months is helpful for Blackberry and allowed FFH to actually reduce the 47m share position, that would be even greater. Anything to get farther away from this canine investment.

 

 It does kind of make you wonder why though. 

 

BlackBerry had plenty of cash at quarter end to retire all the bonds plus receivables incoming..