Fairfax Financial has been selected by India’s government to buy a controlling stake in IDBI Bank, a deal its chief executive called a once-in-a-lifetime opportunity. The announcement came alongside third-quarter results that included a markdown on its Indian insurance investment, Digit.
Fairfax was named on October 14 as the strategic buyer of a 60.72% stake in IDBI Bank, for about US$5.6bn (approximately INR528.8bn). It said the price could be paid through a combination of cash, existing credit, possible asset sales, and contributing its stakes in Go Digit General Insurance, Go Digit Life Insurance and IIFL Capital Services at market prices. No binding agreements have been signed, and the deal needs numerous government, regulatory and other approvals.
“This transaction represents a once in a lifetime opportunity to purchase a majority interest in a bank in one of the world’s fastest growing economies and combine it with a successful and growing insurance company in Digit and an established provider of investment banking and wealth management services in IIFL Capital,” said Prem Watsa, chairman and CEO.
The quarter included US$257.9m of unrealized losses on preferred shares, mainly Fairfax’s compulsorily convertible preferred shares in Digit. Together with US$827.7m of bond losses from rising interest rates, that pushed net investment losses to US$858.7m. Net earnings fell to US$929.6m from US$1.15bn.
Fairfax’s International Insurers and Reinsurers segment drove premium growth. Gross premiums written there rose 27.1%, led by Gulf Insurance, which wrote a large, fully ceded marine war contract. Net premiums written grew across the segment, with Fairfax Asia among the main contributors, as the group expanded where pricing and terms remained attractive.
The group’s undiscounted combined ratio was 92.5%, compared with 92.0% a year earlier, with an underwriting profit of US$523.9m.
The IDBI deal would give Fairfax a major Indian bank to sit alongside Digit’s general and life insurance businesses, creating bancassurance and distribution opportunities in one of Asia’s fastest-growing insurance markets.
Combining banking and insurance would also mean regulatory hurdles, and the Digit markdown shows that Fairfax’s large Indian holdings bring valuation swings as well as growth.
