Raising Fairfax's ICICI Lombard stake

[bluedevil]

We know that the folks at Fairfax are very high on ICICI Lombard and hoping to raise their stake in the company to 49% as soon as Indian law allows it.  But I wonder how that process will actually work.  Does anyone know if Fairfax has a contractual right to go to 49% once the law allows it?  If so, any insight on how the purchase price would be calculated? 

 

Relatedly, here are links to a couple articles on recent efforts to raise the FDI cap in India for insurance JVs (such as ICICI Lombard) to 49%.  One writer seems to think the effort has suffered a "setback" but the other, quoting industry players, is not quite as negative.

 

http://timesofindia.indiatimes.com/business/india-business/Setback-for-FDI-hike-in-insurance/articleshow/7273249.cms

 

http://www.business-standard.com/india/news/parliament-panel-raises-issuerural-reachfdi-cap-bill/421741/

[JEast]

Still premature and the topic of raising the FDI threshold in India to 49% has been floated for years.  However, some progress is being made with the new government.  Time will tell though.

 

http://zeenews.india.com/business/news/economy/insurers-welcome-fdi-hike-pwc-sees-inflow-of-rs-1-lakh-cr_104698.html

[bluedevil]

Well -- it took a few years -- but it seems that the legal obstacles to Fairfax increasing its stake in ICICI Lombard to 49% have finally been removed.

 

http://www.thehansindia.com/posts/index/2015-03-18/Game-changer-for-insurance-industry-138108

[JEast]

Yes, the 26% hurdle has finally been removed.  However … see quote below:

 

I spoke with the ICICI Lombard chief executive Bhargav Dasgupta in Toronto a few weeks ago, nothing new — steady as she goes.  However, found this quote from a competitor interesting with respect to the Indian insurance industry (biased towards life though).

India is the least profitable market in the world. There are several reasons. We suffer from the basic fundamental flaw. If you look at the returns that we give, we struggle to compete say against a tax-free bond. Other markets are able to attract a lot more money.

Source:

http://articles.economictimes.indiatimes.com/2015-04-15/news/61179993_1_insurance-industry-insurance-companies-insurance-regulator

 

Maybe we don't want to go to 49% after all :( as their may be better uses of capital over the next several years.

[JEast]

After years of waiting, finally increasing the stake.  A little surprised with only buying from ICICI Bank as I would of thought (or hoping) that they would have gone the capital raise route.  I guess the growth is just not there yet to increase the capital base (see link).  Potentially good news nevertheless.

 

http://economictimes.indiatimes.com/industry/banking/finance/banking/icici-bank-sells-9-in-general-insurance-for-rs-1550-crore/articleshow/49594928.cms

[mals]

@JEast - Thanks for sharing the update from the horse's mouth.

 

Based on their annual report, it appears that P/B is about 6 and P/E ratio is about 25.

So I suppose a lot of growth has been factored into the price.

At 16% growth in book value, what they achieved last year, book value would double in 5 years.

 

https://www.icicilombard.com/Content/ilom-en/annualreport/Annual_Report_2014_2015.pdf

[Guest longinvestor]

FWIW, Berkshire piloted some insurance business in India w a partnership with Bajaj but exited that after a few years. More recently, Berkshire is partnering with IAG,

http://www.iag.com.au/iag-forms-strategic-relationship-berkshire-hathaway as a backdoor into India. IAG is targeting the 49% foreign ownership of SBI General from the current 24% stake. SBI is an old brand name in India.