ICUMD

Regardless of Prems missteps in the past, each and every holding of Fairfax India seems like an uncut gem to my eye. In the sea of overvalued equities, this one still stands out. I will hold my shares and not tender at the offered price. I agree that Modi politics has very little to do with the FIH companies prospects.

Hobbit, thanks for this excellent analysis. I agree as I think many do that FIH is undervalued. Seeing how it is a large position for you (and for me), you must be optimistic that's it will achieve parity with it's book value. What will it take for this to happen and when? Obviously despite the institutional holders, there are a lot of weak hands selling. I personally know some previously staunch holders who sold at $8.

The dutch auction is a piece of unexpected news. I was awaiting announcements regarding the formation of Anchorage and mark to market of their private holdings such as the airport and seven seas shipping. So, for me, that begs the question, is Fairfax being opportunistic (at the expense of shareholders) in buying back before the Anchorage IPO, or are they genuinely trying to generate value for impatient shareholders?

Certainly hope there is no buyout of Fairfax India at these depressed prices. Brookfield has recently done the same on their Brookfield properties, offering only about 2/3 of book value. I would much prefer to see Fairfax continue to build their revenue stream and continue to mark to market their assets. I believe this whole Covid fiasco is responsible for the discount to BV that we are currently seeing.

Good points Viking. People often make the mistake of judging a company by the share price, myself included. 4x return on Privi is excellent. What will be more interesting is what they use the funds for. While Fairfax India's price has lagged, I don't see management clearly dropping the ball on any of their decisions.

I hold a significant holding in BABA.  I just came across this article re the VIE structure of Chinese equities making me much more uncomfortable, even considering liquidation at a loss.  Thoughts? https://globescancapital.com/chinese-vie-structure-wall-street-continues-to-ignore-the-risks/

My understanding is that Anchorage is an entity that will be listed on the Indian stock exchange. It will essentially be a route to indirectly list private holdings like BIAL. OMERS I believe has simply become a pre IPO investor in the entity. As there seems to be an appetite for good infrastructure assets, Fairfax is hoping to unlock value in BIAL through a public listing. Funds raised through a share sale if Anchorage will allow purchase if additional infra assets. Now that I understand the motives, I believe it's a very smart move. Management fees will likely become part of the equation at some point.

Picking up on Petecs last line is key. If FIH sells Anchorage shares, money goes to FIH and is a disposition of the airport (and other assets Anchorage holds). OTOH, if Anchorage sells Anchorage shares, it's a dilutive equity raise which allows Anchorage to purchase additional assets. The flow of fees and OMERS not wanting to hold the other FIH assets is purely speculative at this point. However, following a tried and proven model like BAM certainly makes sense. Interested to see if FIH purchases the 13% BIAL stake for sale by AAI and National Shipping.

Thanks Petec for the explanation. This makes a lot of sense to me. And is certainly much more reassuring to my concerns. Even if this thing can trade at book value, I'll be happy. I think the value of the airport has been short changed with the current setup. Hopefully Anchorage will help realize some of this value.

The more I think about this, the more I realize it's a complicated structure that's a bit difficult to understand. Essentially through Anchorage, Fairfax is selling off the airport via public listing. Presumably, they are monetizing parts of it at current Mark to market prices, but will necessarily need to keep some equity for future cash flows and growth. (Otherwise what's the point of having bought it in the first place). As the airport generates a regulated rates of return, those cash flows will likely go to Anchorage shareholders. Some management fees would go back to Fairfax India for their work on development/management. Really, for this arrangement to make sense, Fairfax India needs to deploy the capital they raise via the Anchorage ipo in a way better than the airport investment is in and of itself. Maybe it's a way to diversify their investments? If the airport was fully valued this would make sense, but I'm not sure this is the case presently. I'm open to corrections in my interpretation. Thoughts?

Thanks for the replies. If I understand correctly, with Anchorage, they are attempting to set up a structure similar to Brookfield Asset Management with its various subsidiaries. I also see how they may be able to 'mark to market' some of their assets like the airport by selling stakes to equity firms like Omers. In others they will remain a shareholder. I think BIAL has experienced a transient impairment in its value with ridership down to 30% of usual volumes. I agree that book value is closer to $18 and could be as high as $20 - 22. Regardless, this is a 10 - 20 yr play.

Thanks for posting this. As a shareholder of Fairfax. India, does anyone know the relationship to Anchorage holdings? Why is Prem forming yet another holding company and does this negativity affect Fairfax India shareholders?

Trading more than 50% discount to BV. What's not so clear is the profitability - certainly the airport (along with the other entities) is taking a clear financial hit. As the operator of the airport on a lease, it may take 2 yrs for profitability to return. Now as I understand it, Fairfax India has a regulated rate of return of 16%. What I'm not sure of is how they plan to increase the user development fee to recoup the lost income. They also have significant loans for the development of T2 which I understand is proceeding as planned. On a positive, the flight volumes seem to be returning.

The airport, being a regulated industry that's too important to fail, that all pandemics subside, it follows that any impairment is temporary. People will fly again. Bangalore population is growing. Covid numbers will abate in 6 mo to 1 yr. Volumes will reach pre covid levels in 2 yrs. The impairment will be shed when a large buyer sees the underlying value bidding up the share price.

Airport revenue, to my understanding, is based on aero and non aero revenue. The aero component is regulated via UDF modulation during the control period to provide 16% return on depreciated investment. Non aero revenue is not regulated and will take a large hit. I don't know the proportion of each, but it is likely the value of the airport is currently impaired. Oth, population continues to increase and there is talk of building a second airport. For the patient investor, I think this will turn out ok. Covid will likely reach a baseline in 12-24 months. The airport is not going anywhere. NAV I think is $12-14. 50 % discount right now.