Billionaire Prem Watsa’s Fairfax bets $5.6bn on IDBI Bank

Fairfax Financial Holdings Ltd., the insurance and investment group led by Indian-born Canadian billionaire Prem Watsa, says IDBI Bank Ltd. has the potential to become the finest universal bank in India with a global reach, as it works to close its ₹52,878 crore ($5.6 billion) purchase of a controlling stake in the state-backed lender.

Fairfax has offered ₹81 a share for 60.72% of IDBI Bank, which the Indian government and Life Insurance Corp. of India are selling. The Toronto-based company was named the winning bidder on Oct. 14, and the government has approved the sale. Fairfax’s chief operating officer set out the group’s ambitions for the bank on Nov. 12.

The deal is the largest investment in Fairfax’s history and one of the biggest foreign investments in India’s financial sector. Watsa has called it “a once in a lifetime opportunity to purchase a majority interest in a bank.”

How Fairfax will pay

Fairfax plans to fund the purchase with cash, existing credit lines and possible asset sales, and by contributing its stakes in Go Digit General Insurance Ltd., Go Digit Life Insurance Ltd. and IIFL Capital Services Ltd. at market prices. No binding agreements had been signed when the company reported results on Nov. 5, and the deal still needs a series of government and regulatory approvals. Fairfax expects to complete it early next year.

The group’s third-quarter net earnings fell to $929.6 million from $1.15 billion a year earlier. Results included $257.9 million of unrealized losses on preferred shares, mainly its compulsorily convertible preferred shares in Go Digit, and $827.7 million of bond losses as interest rates rose.

Plans for the bank

Watsa has said the goal is an Indian bank run by Indian professionals rather than an extension of a foreign institution. Fairfax plans to combine IDBI Bank’s lending and deposit business with insurance distribution through Go Digit and investment banking and wealth management through IIFL Capital, while each business keeps its own management.

IDBI Bank Managing Director and Chief Executive Officer Rakesh Sharma will stay on. N.S. Kannan, the former chief executive of ICICI Prudential Life Insurance Co., is the intended chairman, subject to approval from the Reserve Bank of India. Fairfax has pledged to protect existing employee benefits.

The sale has drawn opposition from some IDBI Bank employees and politicians who object to a foreign company taking control of the lender.

Watsa’s long India bet

Watsa, 76, was born in Hyderabad and moved to Canada in 1972. He took control of a small Canadian trucking insurer in 1985, renamed it Fairfax and built it into a global insurance and investment group, earning the nickname “Canada’s Warren Buffett.” India has been one of his biggest bets for more than a decade through Fairfax India Holdings Corp., which owns stakes in Bangalore International Airport and other Indian companies.

Figures were converted at ₹95.2 to the dollar.