Toronto-based Fairfax Financial Holdings Ltd. is acquiring a controlling stake in India’s IDBI Bank for US$5.6-billion, marking what the Indian government has described as the largest foreign investment ever made in the country’s financial services sector.
According to a press release from India’s Department of Investment and Public Asset Management, Fairfax is purchasing a 60.72-per-cent stake in IDBI Bank from the government of India. Fairfax chief executive officer Prem Watsa said the deal represents what he called “a once-in-a-lifetime opportunity to purchase a majority interest in a bank in one of the world’s fastest growing economies,” adding that Fairfax is “committed to building the world’s finest financial institution from India.”
IDBI ranks among the 10 largest banks in India by market capitalization and sits in the top 15 by assets. Its dominant retail division includes teams that serve doctors, small-business owners and farmers, and the bank also owns an investment bank that finances infrastructure projects.
Plans to Combine Indian Holdings
Fairfax intends to expand IDBI by combining it with its 49-per-cent stake in Go Digit General Insurance Ltd. and its holding in investment bank and wealth manager IIFL Capital Services Ltd. Go Digit, founded in 2017 and based in Bangalore, offers car, motorbike, health, fire and property insurance through an online platform and serves roughly 80 million customers. Fairfax valued its stake in Go Digit at US$1.3-billion in last year’s annual report.
The Indian government and state-owned Life Insurance Corp. of India, known as LIC, took control of Mumbai-based IDBI in 2019 after the bank accumulated significant loan losses. Four years ago, the government launched a process to sell its stake as part of Prime Minister Narendra Modi’s strategy to attract more private capital into the banking sector.
The announcement came as Canada’s federal Minister of International Trade, Maninder Sidhu, was leading a trade mission in India.
A History of Bank Turnarounds
Fairfax has previously taken stakes in troubled banks in Ireland and Greece, later improving their balance sheets and expanding fee-generating services such as wealth management. In 2014, Fairfax began investing in Athens-based Eurobank, eventually committing €1.2-billion ($1.9-billion). According to its most recent annual report, Fairfax has earned a 15-per-cent annual return on that investment and still holds a Eurobank stake worth €4-billion after selling part of its position.
In 2011, following the global financial crisis, Fairfax led a consortium that recapitalized the Bank of Ireland. The company tripled its investment when it sold the position in 2017, realizing a €566-million profit.
How the IDBI Auction Played Out
As part of the sales process, the Indian government obtained valuations from two independent advisers, then used the average of their submitted prices — 75.99 rupees per IDBI share — as the benchmark for bidders. Fairfax won the auction with a bid of 81 rupees per share.
Five financial companies initially took part in the auction, the government said, with Fairfax and Dubai’s Emirates NBD advancing to submit final offers. Emirates NBD last year acquired a stake in private lender RBL Bank for US$3-billion as part of Mr. Modi’s broader campaign to strengthen domestic lenders’ balance sheets.
Under the transaction, the government of India and LIC are each selling just over 30 per cent of IDBI to Fairfax. Once the sale closes, the government will retain a 15-per-cent interest and LIC will hold a 19-per-cent stake. Directors representing the government and LIC have stepped down from IDBI’s board, a move that makes it easier for both remaining investors to sell their shares in the future.
Key Figures in the Fairfax-IDBI Deal
Fairfax also holds a stake in CSB Bank Ltd., a smaller Indian regional lender that ranks outside the country’s top 20 banks by assets, acquired in 2018. Government regulations tied to the IDBI investment require Fairfax to either merge or exit its 40-per-cent stake in CSB Bank within the next two years.
Watsa’s Background and Fairfax’s Growth
Mr. Watsa was born in Hyderabad, India, and earned a degree in chemical engineering before immigrating to Canada in the 1970s. He financed an MBA at Western University by selling furnaces and air conditioners door-to-door before launching Fairfax in 1985 through an asset manager and a truck insurance acquisition, built on a value-based investing approach.
Fairfax is now one of Canada’s largest financial services companies, with a market capitalization of US$51.2-billion. Its stock price has more than tripled over the past five years, with shares up 340 per cent on the Toronto Stock Exchange.
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