Post Digit Insurance stake sale, $1.4-bn windfall for investor Fairfax

Prem Watsa, founding father of Fairfax group, has struck a goldmine in his funding in Go Digit General Insurance Ltd. Fairfax Financial Holdings has made a $1.4-billion (round Rs 10,000 crore) achieve after Digit launched a $200-million share sale at a valuation nicely above Fairfax’s funding within the four-year-old firm.
Watsa’s funding on this comparatively small insurance coverage agency has appreciated by ten occasions in a interval of 4 years, making it one of many quickest appreciations within the insurance coverage sector.
Since Digit was based in 2017, Toronto-based Fairfax has invested roughly $154 million within the former. That funding is at present carried on Fairfax’s stability sheet at $532 million and, when the brand new fairness issuances by Digit shut and the Indian authorities and regulatory approvals are given, could have an mixture market worth of roughly $2.3 billion, Fairfax mentioned.
Fairfax had just lately acquired a majority stake in CSB Bank.
On Monday, Digit — which boasts of cricketer Virat Kohli as an investor — mentioned it was elevating cash by promoting inventory to a bunch of institutional buyers that features Faering Capital, Sequoia Capital India and IIFL Alternate Asset Managers. The newest financing values Digit Insurance at $3.5-billion (Rs 25,900 crore).

Compared to this, the market valuation of public sector New India Assurance — India’s largest common insurance coverage agency — is round Rs 27,826 crore ($ 3.76 billion). Digit’s whole premium revenue within the first two months of FY22 was Rs 506 crore with market share of 1.71 per cent whereas New India recorded a premium revenue of Rs 6,079 crore and a market share of 20.52 per cent.
When the brand new fairness issuances by Digit Insurance shut, the elevated valuation of Digit Insurance will end in Fairfax recording a internet unrealised achieve on investments of roughly $1.4 billion on its funding in Digit compulsorily convertible choice shares (a rise of roughly $47 in ebook worth per primary share), Fairfax mentioned.
The inventory sale will end in a achieve of roughly $1.8 billion, leading to a rise within the ebook worth of Fairfax of roughly $61 per primary share. Fairfax is a holding firm which, by its subsidiaries, is engaged in property and casualty insurance coverage and reinsurance and the related funding administration.

In addition at the moment, the pre-tax extra of truthful worth over carrying worth of Fairfax’s fairness accounted curiosity in Digit will improve by roughly $0.4 billion (a rise of an extra roughly $14 in ebook worth per primary share), which won’t be mirrored in Fairfax’s consolidated internet earnings or within the calculation of ebook worth per share till the Indian authorities offers last approval of its introduced intention to extend overseas possession limits within the insurance coverage sector from 49.0 per cent to 74.0 per cent and Fairfax obtains regulatory approval particular to its holdings in Digit, it mentioned.
Fairfax’s 49.0 per cent fairness curiosity in Digit includes a forty five.3 per cent curiosity in Digit frequent shares and a 3.7 per cent curiosity by Digit compulsorily convertible choice shares which can be thought-about in substance fairness. Foreign direct possession within the insurance coverage sector in India is at present restricted to 49.0 per cent and, because of this, the rest of Fairfax’s funding in Digit compulsorily convertible choice shares is recorded at truthful worth by revenue, Fairfax mentioned.