Canada’s Fairfax Financial Holdings Ltd has agreed to sell a 12.18% stake in ICICI Lombard General Insurance Company Ltd for about $383 million as part of a plan to float a new insurance joint venture.
The proposed transaction values India’s largest private general insurer at Rs 20,300 crore (about $3.1 billion), Fairfax said in a statement.
This is about 18% higher than the company’s valuation barely 18 months ago when Fairfax increased its stake in ICICI Lombard to 35% from 26%.
ICICI Lombard was set up in 2001 as a joint venture between ICICI Bank, India’s largest private-sector lender, and India-born Canadian billionaire Prem Watsa’s Fairfax. Its valuation has surged over the past few years, as India’s general insurance market expanded at a quick pace thanks to rising vehicle ownership and growing awareness about home and health insurance.
Fairfax said that Red Bloom Investment Ltd, wholly owned by private equity firm Warburg Pincus LLC, will pick up a 9% stake in ICICI Lombard. Tamarind Capital Pte. Ltd, part of Singapore-based investment firm Clermont Group, and IIFL ‎Special Opportunities Fund will buy 1.59% each.
The deal is subject to governmental and regulatory approvals and is likely to close in the third quarter of 2017.
Fairfax is looking to start a new general insurance joint venture in India and has submitted a proposal to the Insurance Regulatory and Development Authority. But it must first reduce its stake in ICICI Lombard below 10% to meet regulatory guidelines that don’t allow foreign investors to own a higher stake in two insurance companies. A foreign investor can own up to 49% of an Indian insurer.
The Canadian firm will own about 22% of ICICI Lombard after the transaction is complete and will have to shed more. ICICI Bank will own 63% of the insurer, which had gross written premiums of about $1.2 billion for 2015-16.
Fairfax had been in talks to sell 25% of ICICI Lombard. Private equity firms Blackstone Group and KKR & Co, as well as some Canadian pension funds had previously expressed interest in Fairfax’s stake.
Fairfax’s India play
ICICI Lombard was the first Indian company in which Fairfax had invested. And it remained so until 2012, when Fairfax acquired travel services group Thomas Cook. The Canadian company pressed the pedal about three years ago. Since then Thomas Cook has acquired a bunch of companies including business services provider Quess Corp, which in turn has taken over several companies.
Separately, Fairfax itself has made large investments in more than a half-dozen companies in various sectors. It launched an India-dedicated vehicle, Fairfax India, in November 2014. In January 2015, Fairfax India floated a public offering in Canada to raise $1.06 billion. In January this year, the firm mobilised another $500 million to invest more in India.
Overall, Fairfax has made equity investments of about $1.24 billion since August 2015, when it put in money in National Collateral Management Services Ltd, its annual report shows. It also has significant minority stakes in financial services group IIFL Holdings Ltd and Sanmar Chemicals Group.
It recently completed a transaction to acquire a 38% stake in Bangalore International Airport Ltd (BIAL), for $385.5 million (about Rs 2,520 crore). Fairfax purchased a 33% stake from GVK Power and Infrastructure Ltd and 5% from Flughafen Zürich AG. GVK had disclosed the transaction in March last year.