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Canadian 'Fairfax Financial' making sizeable investments in India

Tuesday, July 21, 2015 - GLOBE AND MAIL

  After circling investment opportunities in India for months, Fairfax India Holdings Corp. is starting to pick up assets, launching its first two bids in the past week.

  The investment fund founded by Prem Watsa said Monday it would acquire a majority stake in commodity storage company National Collateral Management Services Ltd. The $126-million deal comes as National Collateral is looking to expand its business amid growth in India's agriculture industry, from grains to raw silk and guar gum.

  Just a few days earlier, Fairfax India made a share tender offer for Mumbai-based financial services company IIFL Holdings Ltd., worth about $290-million.

  Nearly six months have passed since Fairfax India went public, a move sponsored and promoted by Mr. Watsa's insurance and investments company, Fairfax Financial Holdings Ltd. Growth in India's urbanization, transport systems and technology sector offered more investment potential than Fairfax could bite off alone, said India-born Mr. Watsa when he founded the fund. He also expressed confidence in the changes being made by the "business-friendly government" of Indian Prime Minister Narendra Modi.

  Mr. Modi has now been in power for more than a year, and has allowed more foreign investment in some industries and altered regulations to encourage investment in others. But the new policies haven't always gone smoothly and some planned changes, such as new education systems and infrastructure, will take many more years.

  Improving the collection and distribution of food - particularly grains - is an ongoing government priority. India is one of the world's largest agriculture producers, but the infrastructure needed to sort, package, store and move goods needs improvement. The country has high rates of food spoilage, and many regions lack proper storage and cooling facilities.

  National Collateral is already the largest private-sector warehouse and storage company in India's fragmented agriculture market. It has more than 50 warehouse locations across 12 states in the country. The company preserves and manages more than 40 agricultural commodities. Some of the facilities accept physical goods that are traded on the commodity futures market, and some banks lend against the commodities the company stores.

  Mr. Watsa said in a statement that the company's "long-term approach to investing" would help National Collateral "take advantage of the substantial market potential in India by offering competitive, market-driven solutions for India's agriculture warehouse and grain storage industry."

  Fairfax India will have to work with National Collateral's remaining shareholders, such as National Commodity and Derivatives Exchange Ltd., and some Indian banks.

  Fairfax Financial already has some experience with the commodity storage and agricultural services business through its investment in South Africabased grain manager AFGRI Holdings Proprietary Ltd., which is also a major distributor of John Deere farm equipment and a specialty lender. Last year, Fairfax took a 40-per-cent stake in the business for $78-million, saying the acquisition could be a platform from which to dive into new investments in sub-Saharan Africa.

  "In researching this investment, we had the advantage of expert diligence that was conducted by AFGRI Holdings, Africa's largest grain storage company, which has been in business for over 90 years," said Mr. Watsa of the National Collateral stake.

  Fairfax India is still looking for investment opportunities. The company's IPO was oversubscribed, with proceeds of more than $1-billion, after expenses. Fairfax bought a controlling interest of $300-million, through multiple voting shares. Shares have since climbed more than 17 per cent since the IPO.

Associated Graphic
  National Collateral is the largest private-sector storage company in India's fragmented agriculture market. Improving the collection and distribution of food - particularly grains - is a government priority.

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