Corner of Berkshire & Fairfax Message Board

General Category => Fairfax Financial => Topic started by: FairFacts on February 07, 2019, 12:37:39 PM

Title: Fairfax Africa
Post by: FairFacts on February 07, 2019, 12:37:39 PM
Changes at the top at Atlas Mara.....

https://www.bloomberg.com/news/videos/2019-02-06/bob-diamond-steps-down-as-atlas-executive-chairman-video

More details here and their relevance to Fairfax

https://www.dailymail.co.uk/money/markets/article-6673811/Former-Barclays-boss-Bob-Diamond-gives-chairmanship-African-venture-Atlas-Mara.html?ns_mchannel=rss&ns_campaign=1490&ito=1490
Title: Re: Fairfax Africa
Post by: wondering on February 08, 2019, 06:08:04 AM
thanks for posting.

the Daily Mail article mentioned that Fairfax Africa had an investment in GroCapital Holdings.  I thought I was following FAH pretty closely, but I guess not because I have never heard of this GroCapital investment.
Title: Re: Fairfax Africa
Post by: FairFacts on February 08, 2019, 11:07:18 AM
Wondering,

See www.GroCapitalHoldings.com at the bottom of their home page which shows the corporate structure including Fairfax Holdings  and Fairfax Africa.

Ihave edited the link to the correct one, thanks Petec.
Title: Re: Fairfax Africa
Post by: petec on February 08, 2019, 11:53:15 AM
I think you meant this link: http://grocapitalholdings.com/

By the looks of it it might have been part of AFGRI, which might be why you don't know of it separately. It's the holding company for the South African Bank of Athens, bought from National Bank of Greece last year.
Title: Re: Fairfax Africa
Post by: wondering on February 08, 2019, 05:41:29 PM
Ok. Thanks.

I am little surprised that this announcement did not appear on the FAH website.  I would think that the additional role that Michael Wilkerson is taking on (CEO of Atlas Mara) would warrant a press release.

By the way, FAH made a $51m investment in Consolidated Infrastructure Group last month.  I am glad to see they are putting their cash to use (I just hope it was a good purchase ;)
Title: Re: Fairfax Africa
Post by: petec on February 08, 2019, 11:32:18 PM
By the way, FAH made a $51m investment in Consolidated Infrastructure Group last month.  I am glad to see they are putting their cash to use (I just hope it was a good purchase ;)

There’s a lot of good info on CIG on their website. Only glitch I can see is investors didn’t exercise their rights, but it would have been a non-event/disappointing for FAH if they had. At first glance FAH have bought half the company at a big discount to book, and it was healthily profitable before one of the divisions got into trouble.

Edit: not such a big discount to book; didn’t see how much they lost in 2018!
Title: Re: Fairfax Africa
Post by: petec on February 13, 2019, 02:27:50 AM
My notes on the recent CIG deal, if anyone's interested:

FAH agreed to recap CIG in 2018/2019 in three stages: a $21m loan (2.5% fee, prime+4%, 1 year), $51m in a rights issue at R4/sh (underwritten by FAH for 2.5% fee. Uptake was only 10.5% because the share price was below the offer price, so FAH got most of the shares which I imagine was the intention), and then conversion of the loan into equity at R5.20. After the conversion FAH will have 56% of the stock at an average price of R4.14. As of Feb 2019 CIG trades at R3.10 but the company's own SOTP (p17 here: http://www.ciglimited.co.za/wp-content/uploads/2018/08/Project-Wakanda-Shareholder-meeting-re-convert_13August2018_vF.pdf), which looks reasonably conservative at first glance, says it's worth R7.10. CIG is a pan-African diversified energy infrastructure holding company exposed to growing investment in power generation & grids etc. The problem is that the construction arm got into classic construction trouble with cost overruns etc. This caused the holdco to breach covenants on its long term debt, triggering a holders call clause and the need for a rights issue. There seems to be value in the other subsidiaries, so with a better debt structure this opportunity might never have arisen. The major assets are Conco and Conlog. Conco builds substations and high voltage electrification projects including wind parks and solar farms across Africa and the Middle East. This is the business that got the holdco into trouble. It has been restructured and reorganised to improve execution and project selection, management have been given CFops incentives for the next 3 years, and CIG believes it will return to profitability over the next 12-18 months. Conlog makes prepaid and smart electric meters. These can be sold or leased or bundled as a service (e.g. revenue management and load management for utilities and municipalities). Conlog will receive an equity injection to accelerate the buildout of the lease/service annuity streams at an anticipated 20-25% ROE. Other assets include AES (Angola Environmental Services - does waste disposal for the oil and gas industry in Angola, debt free), CIGenCo (develops mid-sized generation projects, made its first profit in 2018, targets a 20-25% ROE, and has 6 out of 14 projects coming online soon), CPM (maintains renewables and transmission sites), Tractionel (electrifies railways), and CBM (Consolidated Building Materials, consisting of Drift Supersand which mines aggregates and West End Claybrick which manufactures clay bricks and concrete roof tiles). A number of these businesses are currently depressed either due to the oil price (Angola rig count is at historic lows) or the South African economy (construction has been in a recession for some time).

In summary FAH seem to have got reasonable value, there's a clear reason why that opportunity existed, and there's a decent platform for future growth.
Title: Re: Fairfax Africa
Post by: wondering on February 13, 2019, 06:37:10 AM
Thanks for posting.

I have buying more FAH as the price is below initial issue price and book value.  I know that the South African zand took a beating against the US dollar, but the zand has recovered somewhat since the summer.
Title: Re: Fairfax Africa
Post by: wondering on February 19, 2019, 08:34:18 AM
https://www.fairfaxafrica.ca/News/Press-Releases/Press-Release-Details/2019/Fairfax-Africa-Appoints-Lieutenant-General-Romo-Dallaire-to-Its-Board-of-Directors/default.aspx
Title: Re: Fairfax Africa
Post by: elliott on July 10, 2019, 02:05:19 PM
Is the FAH team investing in some businesses which maybe in too much of a distressed situation? Is this typical Fairfax (parent company) behaviour? (I dont know much of FFH, and started looking at FAH only a couple of weeks ago).

Atlas Mara. I would not consider Atlas Mara to be in a distressed situation ar they have been and are generating positive earnings (even if somewhat inflated with "gains" on transactions), but it would seem that the company overreached and capital needs arised, thats why they had to call FAH. Share price has dropped 50% since Fairfax made their biggest purchase (the rights offering).
CIG. This company is clearly going through some tough years, financially and operationally (like South Africa!). FAH has provided some much needed capital but still. Share price has dropped 75% since FAH made its biggest purchase (the rights offering).
Undisclosed infrastructure stock, traded in the JSE. A USD 3M position initiated during 2018 than less than a year later has lost ca 90% of its value. It was either a case of fraud or a case of a company in distress.

I do not pretend to be negative with management here. I actually think they are doing some serious work, and like what I read in the reports, but the short term performance of, at least, the publicly traded stocks is appalling.



Title: Re: Fairfax Africa
Post by: petec on July 11, 2019, 01:17:00 AM
Is the FAH team investing in some businesses which maybe in too much of a distressed situation? Is this typical Fairfax (parent company) behaviour? (I dont know much of FFH, and started looking at FAH only a couple of weeks ago).

Atlas Mara. I would not consider Atlas Mara to be in a distressed situation ar they have been and are generating positive earnings (even if somewhat inflated with "gains" on transactions), but it would seem that the company overreached and capital needs arised, thats why they had to call FAH. Share price has dropped 50% since Fairfax made their biggest purchase (the rights offering).
CIG. This company is clearly going through some tough years, financially and operationally (like South Africa!). FAH has provided some much needed capital but still. Share price has dropped 75% since FAH made its biggest purchase (the rights offering).
Undisclosed infrastructure stock, traded in the JSE. A USD 3M position initiated during 2018 than less than a year later has lost ca 90% of its value. It was either a case of fraud or a case of a company in distress.

I do not pretend to be negative with management here. I actually think they are doing some serious work, and like what I read in the reports, but the short term performance of, at least, the publicly traded stocks is appalling.

Fairfax (as in the parent) are value investors with a long history of low p/bv and arguably distressed investing. Sometimes it's worked, sometimes it hasn't.

In fairness to them they also have a history of attracting very good people to build impressive businesses over the long run, and one thing I'd pay attention to is who they've hired or appointed to the board of their companies since taking control.

Another thing I think will be intriguing long term is the ability to share knowledge across group companies. They've mentioned doing this in agriculture (where they have assets in Canada, Ukraine, Africa, and India) and digital insurance. I suspect it will also happen in banking now they control ATMA and Catholic Syrian.

In ATMA's case the value is fairly apparent since it trades at a big discount to the value of the three listed stakes it owns (I'm including EGH, although that deal has not yet closed). It has been buying back shares steadily in 2019. FAH have taken over the chairmanship of the board and also appointed Richie Boucher (who led the turnaround of BKIR which Fairfax was heavily involved in, and who sits on the board of Eurobank, another Fairfax investment) and Hisham Ezz al-Arab (MD of CIB in Egypt, a phenomenal bank and also a Fairfax investment).

CIG has several segments. Only one is distressed. Others are variously at the bottom of their cycles, or about to move from an investment phase into a harvesting phase, or have huge potential with a bit of growth capex. The distressed one is the E&C business and its problems provided with Fairfax with the opportunity to control the whole firm at a decent price. They've already revamped management and last I heard the turnaround was on track although I haven't looked for a couple of months. My sense is that CIG will do well, but I could be wrong.

I suspect the best business in FAH, although it's a small stake, is Nova Pioneer.

One thing I personally wouldn't pay a lot of attention to is short term market moves. Fairfax tend to take advantage of distress when they see it rather than try to time the bottom.

FD: I hold FFH, FAH, and FIH. I am a fan of the group, but they have made plenty of mistakes. If you buy this go in with your eyes open.

EDIT: Hisham Ezz al-Arab left the ATMA board when FAH revamped it in Feb 2019, but he is on the board of FAH itself.

Title: Re: Fairfax Africa
Post by: elliott on July 11, 2019, 07:09:39 AM
Thanks for the reply, it provides some useful background.
I will try to read about the people in the team, specially Wilkerson, and also Pectorum.

One note though regarding Atlas Mara. According to my numbers, its trading at less of a discount than what most financial websites report, ex morningstar. First, is that I prefer to use PTBV. Second, Atlas Mara has UBN recorded at USD 530M approximately, when the fair value of their interest is worth much less, USD 300M (a little below the actual equity owned through that ownership - UBN trades slightly below BV). So, morningstar reports a 0.45 PBV, my numbers are close to 0.8 PTBV. Its still a figure that would be typically considered cheap, though.
Title: Re: Fairfax Africa
Post by: petec on July 11, 2019, 02:04:40 PM
I agree, but to be clear I wasn’t referring to book value. I was referring to the value of the listed stakes in UBN, ABCBotswana, and (soon) Equity Group Holdings.
Title: Re: Fairfax Africa
Post by: elliott on July 11, 2019, 02:37:31 PM
My mistake!

Quote
it trades at a big discount to the value of the three listed stakes it owns

I assume then that you are talking here about Atlas Mara market cap and that of its stakes?
Atlas Mara, USD ~250M
Stakes, USD ~495M composed of
I wonder however if we can make this comparison. Atlas Mara took on some debt in order to fund some of those acquisitions. That is, there is debt in Atlas Mara balance sheet that is not part of the normal banking business. What I am thinking is that if we want to compare what we get if we buy Atlas Mara against something that something has to be the cost of acquiring Atlas Mara, and that includes Market cap and that portion of the debt, which amount I dont know.

Btw, nice conversation about FAH here!
Title: Re: Fairfax Africa
Post by: petec on July 12, 2019, 01:42:16 AM
You’re right it’s a risk. The remaining unlisted asset is ABCZimbabwe. Any debt not associated with that is holdco debt and needs to be factored against the assets. Same goes for holdco costs. Those aren’t easy to break out (although it may become easier once the EGH deal is done) so it’s not a perfect valuation method. But I’ll be surprised if the holdco debt and costs account for the whole difference.

Mind you if you think ATMA is cheap you can just buy it. The reason I’m in FAH is a) I like the concept of investing in places with great potential where others aren’t looking and b) on balance I think Fairfax’s record, although far from perfect, of building and turning around businesses will play out well over time.
Title: Re: Fairfax Africa
Post by: elliott on July 14, 2019, 03:04:32 AM
I should continue researching Atlas Mara, although I am more interested in FAH at this moment (Atlas Mara is how I discovered Fairfax Africa, actually). I like very much how they play their thesis - they are much more sophisticated than me just purchasing some shares.
There are several points I need to address regarding FAH, though.

The African thesis Probably, the growth/demographics/political improvements argument could have been made several times during the last few decades, and I am not sure how the bet would have played out. Farnam Street has invested in FAH recently, and they argued that Africa could replicate the growth Asia has achieved in the last 50 years. Yeah, the problem is, why did Africa not achieve such growth already? Undoubtedly, some regions in Africa have achieved extraodinary accomplishments, but... I simply think Asia has improved much more, so I dont know why the next 50 years should be different (and I really hope they are).

Comparables. Farnam Street did not mention having compared the company against similars, which is unfortunate as it would have given us some names. At least, I think I need to read about similar firms to help me better understand FAH. If I cannot find any, then I need to look for actively managed funds investing in Africa.

Fairfax positive bias FAH is backed by Fairfax, but it is not Fairfax (or is it?). I am not sure how it is at the present moment, but at IPO time all of the companys executive directors, including the CEO, were based outside of Africa. They sure make some trips but... The only ones in the region were independents. HWIC is not in Africa either... So, regardless of their past experiences, this leaves only Pactorum permanently in the region. It makes me think that Pactorum is probably the biggest originatior of ideas, and the main researcher too (afgri and nova, both were investments that agrigroupe, the seed/precendent of Pactorum, had already made before FAH had even been born). So I wonder, if Pactorum had set up a fund, without the Fairfax brand attached, how would I see them?

Conflicts of interest This expression may be misleading though. I am not talking about HWIC first telling about an invesment to FFH instead of FAH, or things like that. I am thinking of situations like the "initial investment", AFGRI. It was not just FFH that sold its stake to FAH. Wilkerson, Holzapfel, and other members of the team sold part of their AFGRI stakes to the company, when they had purchased AFGRI only 3 years earlier or so. It is not that I think there was something fishy there, it is just that it is hard for me to believe that they would have sold at a loss even if an objective valuation at the moment would have been lower than the price they initially paid for AFGRI. And I dont like that. I could be wrong here, though, as the whole transaction is rather convoluted (the company indicated there was a conflict of interest in the prospectus). Also, Chris Venter, CEO of AGH/Afgri holdings, is a director in one of FAHs internal companies. I wonder the CEO of an acquired compoany should be director somwhere in the "structure" of FAH. Surely he has a competent background, but...
Title: Re: Fairfax Africa
Post by: John Hjorth on July 14, 2019, 12:37:36 PM
... The reason I’m in FAH is a) I like the concept of investing in places with great potential where others aren’t looking and b) on balance I think Fairfax’s record, although far from perfect, of building and turning around businesses will play out well over time.

elliott,

I think both Fairfax Africa Holdings Corp. and Fairfax India Holdings Corp. are two Fairfax investments, that both have the potential to become repetitions of the original long term Fairfax story itself - which - long term - is an amazing one. If that actually happens - perhaps over the next one or two decades - it would be transformational to Fairfax itself, being big contributers to bringing Fairfax to the next level. There is an enormous abundance of capital some other places, and there is so much to do both places [Africa & India].

However for this really to work out, the companies need to get it right in the first place, to build a good track record - to be able to attract new capital to grow, thereby creating a fly-wheel effect.

- - - o 0 o - - -

Atlas Mara : "Why Africa?" (http://atlasmara.com/media/1189/atlasmara_ar2014_why-africa.pdf). [Old stuff from the 2014 Annual Report that you may have read already because you already have studied Atlas Mara - I personally think this still applies to great extent].
 IMF - World Economic and Financial Surveys - Regional Economic Outlook - Sub-Saharan Africa - Sub-Saharan Africa Regional Economic Outlook: Recovery Amid Elevated Uncertainty [April 2019] (https://www.imf.org/en/Publications/REO/SSA/Issues/2019/04/01/sreo0419#TOC).

- - - o 0 o - - -

elliott, I seldom post in the Fairfax part of CoBF. FFH is a fairly small position for me, now for some years actually. I have no intentions to reduce or sell my position, exactly because of Fairfax India Holdings and Fairfax Africa Holdings. I just try to shut up and learn more about FFH by avid reading FFH stuff here on CoBF. Well, here I failed on that - I hope that at least one of the links is of avail to you.
Title: Re: Fairfax Africa
Post by: hobbit on July 22, 2019, 12:58:54 PM
If you go thrugh the annual reports , the original thesis for ATMA was to turn around bank's fortunes by getting a new CEO . In less than 1.5 years it changed to selling almost all the assets( excluding BancABC) at a price( ~100 million )  which is probably way below their intrinsic value. This makes me question the ability of FAH management to find good bets in Africa in general. FAH management has to be more open about this sudden change in strategy regarding their biggest position.
Title: Re: Fairfax Africa
Post by: petec on August 19, 2019, 07:34:54 AM
If you go thrugh the annual reports , the original thesis for ATMA was to turn around bank's fortunes by getting a new CEO . In less than 1.5 years it changed to selling almost all the assets( excluding BancABC) at a price( ~100 million )  which is probably way below their intrinsic value. This makes me question the ability of FAH management to find good bets in Africa in general. FAH management has to be more open about this sudden change in strategy regarding their biggest position.

On the other hand if you get in a new CEO and he says: the best way to realise value is to reinvest heavily in this asset (UBN) while swapping these ones for a stake in one of Africa's best banks (EGH), should you argue?

More importantly, Fairfax have a long history of being highly active in the investments they own. Sometimes it works, sometimes it doesn't, but changing strategy is definitely not new to them. If sticking to the initial strategy is what you require, look elsewhere!

ATMA keeps weakening and on the face of it there is real value there. Company is in the market buying back shares every day.
Title: Re: Fairfax Africa
Post by: elliott on September 12, 2019, 08:18:15 AM
Bought shares a couple of days ago. The discount to BV, with public investments updated, will make up for a few years of fees I think.

I may also buy Atlas Mara shares, if the price drops to below the minimum of a few days ago. The company has been profitable even when it has not been operating at its best. If Wilkerson's push for cutting costs down has any real impact, and the new strategic direction (divestitures, new investments) pays off, then earnings will only rise.
Title: Re: Fairfax Africa
Post by: elliott on November 01, 2019, 03:34:03 AM
Third quarter interim report is now available in FAH website.

Quote
The book value per share at September 30, 2019 was $8.54 compared to $9.60 at December 31, 2018

I have recalculated the BVPS using updated market data (public stocks). Almost no change at all from the reported figure above. Shares closed yesterday at USD 5.90

There might be several reasons for the discount:

In the first 9 months of the year the company has bought back and cancelled close to 5% of total outstanding shares at the end of fiscal year 2018.
Title: Re: Fairfax Africa
Post by: petec on December 17, 2019, 02:37:40 AM
Updated valuation attached. My conclusions are:

- Valuation is 0.7x P/BV or 0.6x if you value ATMA at TBV.
- The holdco is hugely underlevered, with $170m of cash and only $8m of liability.
- ATMA is clearly undervalued and Nova Pioneer is exciting but neither really moves the needle.
- The rest is stodge: cash, loans with little upside optionality, and AGH, which hasn't performed in years.
- I don't really see where the performance comes from, at least until they have deployed more capital, and frankly their record on that isn't great.
Title: Re: Fairfax Africa
Post by: hobbit on January 06, 2020, 08:59:53 AM
https://taarifa.rw/analysis-what-does-the-flopped-equity-bank-atlas-mara-deal-mean/
Title: Re: Fairfax Africa
Post by: elliott on January 13, 2020, 07:11:00 AM
...not to mention that last november Equitys stock went up 50%. meaning, the 6-7% stake that Atlas Mara was to receive is much more valuable now than when the deal was initially disclosed - if my memory doest no fail. I wonder how the parties will deal with this.
Title: Re: Fairfax Africa
Post by: hobbit on March 03, 2020, 12:19:24 PM
At $4.35 per share , common stocks worth 232 mil are being marked at zero and on top of that ATMA is trading at less than its stake in UBN which has been posting good results. can easily double from here
Title: Re: Fairfax Africa
Post by: Xerxes on March 06, 2020, 10:03:29 AM
I was at the AGM last year, I recall the team had to do a lot of explaining for FAH performance
I am eager to see what they will say in AGM this year with share price down so much.

Incidentally the Letter is out this weekend
Title: Re: Fairfax Africa
Post by: hobbit on March 06, 2020, 04:35:42 PM
Annual letter-


mistakes with ATMA ( significantly less value in holdings in countries apart from Nigeria) , UBN might turn out decent.

CIG - debt restructuring in place but do not be hopeful of turn around anytime soon. I would classify this as a mistake too.

No significant changes anywhere else.

My conclusion - extremely undervalued at these prices unless you put the value of their entire equity stake at zero which clearly does not seem to be the case. PT $8+

Title: Re: Fairfax Africa
Post by: petec on March 07, 2020, 02:47:50 AM
Annual letter-


mistakes with ATMA ( significantly less value in holdings in countries apart from Nigeria) , UBN might turn out decent.

CIG - debt restructuring in place but do not be hopeful of turn around anytime soon. I would classify this as a mistake too.

No significant changes anywhere else.

My conclusion - extremely undervalued at these prices unless you put the value of their entire equity stake at zero which clearly does not seem to be the case. PT $8+

I read it more positively. UBN is going actively well, and ATMA is starting to receive dividends from UBN and ABCBotswana. CIG is in deep turnaround but got better in 2h, especially 4q, and liberalization of electricity in SA might be a boost.

I’m not invested but it’s looking deeply undervalued. How much of the ATMA stake is covered by UBN now? And Nova Pioneer is going to be a superb long term holding.
Title: Re: Fairfax Africa
Post by: jfan on March 27, 2020, 01:27:02 PM
FAH seems to be trading quite below reasonable cash and cash equivalent values with no fund level debt.

At this stage, what are the risks associated with investing at this point in time? Here is a short list that I can see:
a) Sudden increasing inflation in the countries they are in
b) Default risk of their underlying loans and bonds especially with CIL
c) Poor future capital allocation of cash and cash equivalents
d) For us Canadians, US-Canadian exchange rates
e) Falling interest rates causing it to not be able to cover fund expenses

Anything else?
Title: Re: Fairfax Africa
Post by: petec on March 27, 2020, 01:34:16 PM
Honestly I think at this price the “risk” is that something goes right.
Title: Re: Fairfax Africa
Post by: hobbit on March 27, 2020, 02:04:25 PM
https://www.canadianinsider.com/node/7?ticker=FAH

CEO bought 7K shares
Title: Re: Fairfax Africa
Post by: bearprowler6 on March 27, 2020, 02:10:10 PM
This stock is very thinly traded. At the first annual meeting, 2 years ago now, management indicated they would be taking steps to address this issue. Nothing has been done. Depending on the size of your investment this may become a problem down the road should you wish to or need to liquidate. I believe this to be a major knock against the stock and one of the major reasons it has drifted towards zero since the IPO. You will never get major buying or institutional support for this stock until this issue is addressed.
Title: Re: Fairfax Africa
Post by: petec on March 28, 2020, 01:09:30 AM
This stock is very thinly traded. At the first annual meeting, 2 years ago now, management indicated they would be taking steps to address this issue. Nothing has been done. Depending on the size of your investment this may become a problem down the road should you wish to or need to liquidate. I believe this to be a major knock against the stock and one of the major reasons it has drifted towards zero since the IPO. You will never get major buying or institutional support for this stock until this issue is addressed.

Maybe not, but equally it will go up a lot if performance improves because *any* buying will move the stock.
Title: Re: Fairfax Africa
Post by: bearprowler6 on March 28, 2020, 05:51:23 AM
This stock is very thinly traded. At the first annual meeting, 2 years ago now, management indicated they would be taking steps to address this issue. Nothing has been done. Depending on the size of your investment this may become a problem down the road should you wish to or need to liquidate. I believe this to be a major knock against the stock and one of the major reasons it has drifted towards zero since the IPO. You will never get major buying or institutional support for this stock until this issue is addressed.

Maybe not, but equally it will go up a lot if performance improves because *any* buying will move the stock.

Petec.....respectively, the issue is not whether the stock price goes up or not on good performance. The lack of liquidity of the stock makes it impossible for all but he smallest investor to take a position in the stock and have any hope at all of exiting when they need or want to. The traded volume yesterday was 3509 shares (closing share price is $3.01). So sure a very small retail investor can accumulate a couple of thousand shares at the current price and then trade out when/if the price recovers to...lets say even the IPO price of $10. But honestly, is this really what we are trying to do here?

Fairfax Africa shares cannot be accumulated in any meaningful amount without dramatically moving up the share price. Also, once accumulated, a significant number of  shares cannot be disposed of without greatly influencing the share price downward.

In my view, why bother. There are simply too many other opportunities out there where similar profit opportunities exist without the constraint of trading liquidity to worry about.

Furthermore, management did say they would address this issue (lack of liquidity for the shares) and have not done so. Perhaps this alone is reason enough to avoid these shares.
Title: Re: Fairfax Africa
Post by: matts on March 28, 2020, 06:04:00 AM
This stock is very thinly traded. At the first annual meeting, 2 years ago now, management indicated they would be taking steps to address this issue. Nothing has been done. Depending on the size of your investment this may become a problem down the road should you wish to or need to liquidate. I believe this to be a major knock against the stock and one of the major reasons it has drifted towards zero since the IPO. You will never get major buying or institutional support for this stock until this issue is addressed.

Maybe not, but equally it will go up a lot if performance improves because *any* buying will move the stock.

If you look at it as a multi-year hold, it's less of an issue. In 3 years either the fund is successful, which means it will have a much higher market cap and likely more liquidity, or it will keep languishing and possibly even get liquidated.
Petec.....respectively, the issue is not whether the stock price goes up or not on good performance. The lack of liquidity of the stock makes it impossible for all but he smallest investor to take a position in the stock and have any hope at all of exiting when they need or want to. The traded volume yesterday was 3509 shares (closing share price is $3.01). So sure a very small retail investor can accumulate a couple of thousand shares at the current price and then trade out when/if the price recovers to...lets say even the IPO price of $10. But honestly, is this really what we are trying to do here?

Fairfax Africa shares cannot be accumulated in any meaningful amount without dramatically moving up the share price. Also, once accumulated, a significant number of  shares cannot be disposed of without greatly influencing the share price downward.

In my view, why bother. There are simply too many other opportunities out there where similar profit opportunities exist without the constraint of trading liquidity to worry about.

Furthermore, management did say they would address this issue (lack of liquidity for the shares) and have not done so. Perhaps this alone is reason enough to avoid these shares.

If you look at it as a multi-year hold, it's less of an issue. In 3 years either the fund is successful, which means it will have a much higher market cap and likely more liquidity, or it will keep languishing and possibly even get liquidated.

It seems to me like you are looking at it as some levered ETF that you want to get out of once it pops, and in that case, you are right, it's not going to do a good job at that.

Title: Re: Fairfax Africa
Post by: petec on March 28, 2020, 06:38:22 AM
This stock is very thinly traded. At the first annual meeting, 2 years ago now, management indicated they would be taking steps to address this issue. Nothing has been done. Depending on the size of your investment this may become a problem down the road should you wish to or need to liquidate. I believe this to be a major knock against the stock and one of the major reasons it has drifted towards zero since the IPO. You will never get major buying or institutional support for this stock until this issue is addressed.

Maybe not, but equally it will go up a lot if performance improves because *any* buying will move the stock.

If you look at it as a multi-year hold, it's less of an issue. In 3 years either the fund is successful, which means it will have a much higher market cap and likely more liquidity, or it will keep languishing and possibly even get liquidated.
Petec.....respectively, the issue is not whether the stock price goes up or not on good performance. The lack of liquidity of the stock makes it impossible for all but he smallest investor to take a position in the stock and have any hope at all of exiting when they need or want to. The traded volume yesterday was 3509 shares (closing share price is $3.01). So sure a very small retail investor can accumulate a couple of thousand shares at the current price and then trade out when/if the price recovers to...lets say even the IPO price of $10. But honestly, is this really what we are trying to do here?

Fairfax Africa shares cannot be accumulated in any meaningful amount without dramatically moving up the share price. Also, once accumulated, a significant number of  shares cannot be disposed of without greatly influencing the share price downward.

In my view, why bother. There are simply too many other opportunities out there where similar profit opportunities exist without the constraint of trading liquidity to worry about.

Furthermore, management did say they would address this issue (lack of liquidity for the shares) and have not done so. Perhaps this alone is reason enough to avoid these shares.

If you look at it as a multi-year hold, it's less of an issue. In 3 years either the fund is successful, which means it will have a much higher market cap and likely more liquidity, or it will keep languishing and possibly even get liquidated.

It seems to me like you are looking at it as some levered ETF that you want to get out of once it pops, and in that case, you are right, it's not going to do a good job at that.

Exactly.

Separately, I’m sceptical management can really do much about liquidity.
Title: Re: Fairfax Africa
Post by: elliott on March 28, 2020, 08:30:02 AM
FAH seems to be trading quite below reasonable cash and cash equivalent values with no fund level debt.

At this stage, what are the risks associated with investing at this point in time? Here is a short list that I can see:
a) Sudden increasing inflation in the countries they are in
b) Default risk of their underlying loans and bonds especially with CIL
c) Poor future capital allocation of cash and cash equivalents
d) For us Canadians, US-Canadian exchange rates
e) Falling interest rates causing it to not be able to cover fund expenses

Anything else?

several of the companies they hold are not making money, at least in a significant amount.  I think what they need is for the businesses to become profitable, or at least for investors to believe that will happen. I exited some months ago because I simply could not see that moment coming.  And I like the way they do things, the common sense they bring into the companies they invest in...
Title: Re: Fairfax Africa
Post by: petec on March 28, 2020, 11:42:57 AM
FAH seems to be trading quite below reasonable cash and cash equivalent values with no fund level debt.

At this stage, what are the risks associated with investing at this point in time? Here is a short list that I can see:
a) Sudden increasing inflation in the countries they are in
b) Default risk of their underlying loans and bonds especially with CIL
c) Poor future capital allocation of cash and cash equivalents
d) For us Canadians, US-Canadian exchange rates
e) Falling interest rates causing it to not be able to cover fund expenses

Anything else?

several of the companies they hold are not making money, at least in a significant amount.  I think what they need is for the businesses to become profitable, or at least for investors to believe that will happen. I exited some months ago because I simply could not see that moment coming.  And I like the way they do things, the common sense they bring into the companies they invest in...

I agree with this and also exited. I think the gems are Nova Pioneer, UBN, and ABC Botswana. There may also be gems in AFGRI but the overall business has not performed. I suspect there are some very good bits of CIG too. But both CIG and AFGRI need the economy to work, especially in SA, and that’s a long way away sadly. In the end I decided the good bits were too small to move the needle. But that was at more than twice the current price. I suspect there are good returns to be had from here. But I suspect that’s also true of a lot of things. I recently re-bought FIH. That has more visibility for me.
Title: Re: Fairfax Africa
Post by: elliott on April 15, 2020, 01:00:11 PM
during the webcast of today Wilkerson admitted that they learned some lessons from Atlas Mara and CIG
specifically, he said they were up against too many challenges there, and he summarized the idea quoting Buffett

Quote
I don't look to jump over 7-foot bars: I look around for 1-foot bars that I can step over.

at least, thats something
Title: Re: Fairfax Africa
Post by: Xerxes on April 15, 2020, 05:29:39 PM
during the webcast of today Wilkerson admitted that they learned some lessons from Atlas Mara and CIG
specifically, he said they were up against too many challenges there, and he summarized the idea quoting Buffett

Quote
I don't look to jump over 7-foot bars: I look around for 1-foot bars that I can step over.

at least, thats something

IMHO, the difference between buffet wannabes and buffet is that the former quotes him a lot, while the latter stick to their guns no matter what. I think the initial idea of an African investment fund is great thing and a potential call option on Africa growth, but I would have never made that a separate ship from the rest of the FFH family.

FIH is different as I think there is enough concentration and is large enough.

incidentally, here is a great article in The Economist on Africa

https://www.economist.com/special-report/2020/03/26/africa-is-changing-so-rapidly-it-is-becoming-hard-to-ignore

My favorite part of the article "After centuries on the periphery, Africa is set to play a much more important role in global affairs, the global economy and the global imagination. Asia’s economic and population booms may continue to dominate the first part of this century, but Africa’s weight will grow in the second half....Demography is a big part of it. Africa’s population will almost certainly double by 2050, giving it more than a quarter of the world’s total. That alone commands attention. But if accompanied by matching growth in GDP, economies such as Nigeria could overtake France or Germany in size …."


Title: Re: Fairfax Africa
Post by: petec on April 16, 2020, 01:18:15 AM
Notable that just cash and treasuries here, less all liabilities (there are virtually none), is about $2.30 per share.

At $2.90 you're paying 60c for some genuinely attractive assets in UBN, Nova Pioneer, ABC Botswana, maybe bits of CIG and AFGRI. And if they can deploy some cash in this selloff...

Title: Re: Fairfax Africa
Post by: elliott on April 16, 2020, 06:51:52 AM
Notable that just cash and treasuries here, less all liabilities (there are virtually none), is about $2.30 per share.

At $2.90 you're paying 60c for some genuinely attractive assets in UBN, Nova Pioneer, ABC Botswana, maybe bits of CIG and AFGRI. And if they can deploy some cash in this selloff...

I would be cautious looking at cash.
its certainly possible (they said this yesterday) that some of the businesses need more cash to survive in the next months/years, and that Fairfax will provide it. so, the question comes back again to whether you think those businesses will be profitable one day, thus the extra cash well invested, or whether they will not, and thus Fairfax is just falling into the sink hole phallacy.
Title: Re: Fairfax Africa
Post by: elliott on April 16, 2020, 06:53:31 AM
oh, regarding new acquisitions, consider that now travel is very difficult in many parts of Africa.
management said that acquisition work is certainly affected by the covid19 situation.
Title: Re: Fairfax Africa
Post by: petec on April 16, 2020, 06:57:42 AM
Cash - yes - but it is still a lot.

Travel - yes -  but plenty of potential investments are listed and don't require cash.

They said they were hoping to have news on CIG and ATMA soon. I wondered if they are thinking of taking them private.
Title: Re: Fairfax Africa
Post by: petec on April 23, 2020, 07:29:50 AM
Pure speculation, but if FAH consolidates ATMA at any point, and ATMA consolidates UBN, the P/BV and P/E metrics here get transformed overnight.
Title: Re: Fairfax Africa
Post by: Thrifty3000 on June 05, 2020, 06:48:54 PM
I love that the performance fee doesn’t kick in again until book value exceeds $11.69 per share. 🤣
Title: Re: Fairfax Africa
Post by: Thrifty3000 on June 08, 2020, 12:23:52 PM
Notable that just cash and treasuries here, less all liabilities (there are virtually none), is about $2.30 per share.

At $2.90 you're paying 60c for some genuinely attractive assets in UBN, Nova Pioneer, ABC Botswana, maybe bits of CIG and AFGRI. And if they can deploy some cash in this selloff...

I would be cautious looking at cash.
its certainly possible (they said this yesterday) that some of the businesses need more cash to survive in the next months/years, and that Fairfax will provide it. so, the question comes back again to whether you think those businesses will be profitable one day, thus the extra cash well invested, or whether they will not, and thus Fairfax is just falling into the sink hole phallacy.

They have restrictions limiting the amount they can invest in a single opportunity to no more than 25% of the portfolio. And, only 2 holdings are allowed to consume up to 25%. After those 2 the limit is 20% for the rest. I'm not sure whether that's good or bad. In a way it protects investors from overallocation, but it also restricts capacity to bail out troubled investees.
Title: Re: Fairfax Africa
Post by: hobbit on June 23, 2020, 01:23:37 PM
https://finance.yahoo.com/news/atlas-mara-limited-announces-proposed-062000984.html
Title: Re: Fairfax Africa
Post by: Thrifty3000 on July 01, 2020, 09:17:14 AM
https://www.fairfaxafrica.ca/News/Press-Releases/Press-Release-Details/2020/Fairfax-Africa-Enters-Into-Automatic-Share-Purchase-Plan-and-Announces-Intention-to-Make-Normal-Course-Issuer-Bid-for-Subordinate-Voting-Shares/default.aspx

Looks like they're going to continue buying up 25% of the daily trading volume.

They repurchased 1,476,096 shares on the open market in the last 12 months for an average price of $6.18.
Title: Re: Fairfax Africa
Post by: peripatetic on July 07, 2020, 12:09:01 AM
Painful yet amusing summary of FAH's former crown jewel: https://brucepackard.com/remorseless/
Title: Re: Fairfax Africa
Post by: petec on July 07, 2020, 10:56:18 AM
I’m not sure it was ever FAH’s crown jewel. They bought it distressed and fairly rapidly set about trying to dismantle it.

Title: Re: Fairfax Africa
Post by: SharperDingaan on July 07, 2020, 01:31:49 PM
Hate to say it, but FFH really needs to rethink this entire thing.
After FX devaluation, the investments will have to be stellar performers - just to break even.

Until Covid-19 has run its course -simply put the cash into more robust entities (Barrick, Anglo-American, etc) doing acquisitions in the space. They will be the first to recover, and their shares are liquid - allowing easy exit at any time. Reassess later once the survivors are evident, and everyone is looking for recapitalization investment.

Africa is not a place where the wealth is made by owning the capital stock.
It is made by selling the annual production at a profit abroad, and returning only enough capital for maintenance capex & modest growth. Capital assets routinely get nationalized, and African countries routinely devalue.

SD
Title: Re: Fairfax Africa
Post by: Thrifty3000 on July 07, 2020, 04:39:51 PM
2016: Atlas Mara earned $9 million.

2017: FAH acquired 43% of Atlas Mara for $159 million. Atlas Mara earned $47 million. (Well played FAH.)

2018: Atlas Mara earned $42 million. FAH is looking pretty genius - despite Atlas Mara share price decline.

2019: Atlas Mara makes a strategic decision to focus on holdings with a dominant market position, and to divest several non-strategic banks in its portfolio. To do that it secures commitment from a buyer, and then has to reclassify the assets as held for sale, which requires a very large ($105.5 million) accounting write-down. The write-down flows through the P&L so it has to report a massive 2019 loss - but, Atlas Mara expected to sell the reclassified assets in early 2020.

2020: Covid = deal off. African securities lost more value than they did during the GFC. Atlas Mara is in Africa. Ouch.

Atlas Mara has $500 million of equity against $2 billion of liabilities. It can absorb a lot of losses.

It's largest asset, UBN (Nigeria), which shared $31 million of it's approximately $54 million of 2019 earnings with Atlas Mara, has been in business for over 100 years! So, it's at least some degree of proof banks can survive long term in Africa.

So, what if Atlas Mara goes bust and has to wipe out equity holders? FAH wouldn't walk away empty handed. It would likely recover at least some of its $36 million in Atlas Mara bonds. And, as a modest consolation prize, at the end of the first quarter 2020 FAH extended a $40 million debt facility to Atlas Mara collateralized by Atlas Mara's interest in it's second largest holding, Botswana Bank. Botswana Bank earned $14 million of pre-tax profit last year (ROE of 11.2%, ROA of 1.3%). So, FAH would likely still be in the banking business in Botswana (and also with a completely separate holding, Grobank).

Long story short. I'm not faulting FAH for this investment. If you have a mandate to invest in Africa, and you want to be a long term investor in the banking sector, then this looked like a flawlessly timed investment at a great price in 2017. And, I completely agree with the strategy they were pursuing to focus on their strongest assets.

I'm sure if Covid is damaging the well-capitalized Atlas Mara, then it is decimating Atlas Mara's competition. Hopefully Atlas Mara can capitalize on the opportunities, gain market share, and in a few years produce look through earnings of $25+ million for FAH. Hopefully FAH will still be selling then for less than $200 million. Haha.

Frankly, I'm more concerned about CIG than Atlas Mara, but that's a completely different story. And, all of CIG and Atlas Mara's risks appear to be priced into FAH.
Title: Re: Fairfax Africa
Post by: SharperDingaan on July 07, 2020, 07:22:54 PM
There's is little doubt that over time, FAH could build a solid business in Africa.
But it is wealth in an isolated gilded cage, and only local - try to convert that wealth into hard currency, and most often - investors will be disappointed. Always a devaluation + liquidity discount, the size of which will vary according to money flow in/out of the MCSI index.

Colonialism has been much maligned across Africa, but the reality is that the business model was very successful. Colonialism 2.0, is even more effective - let the natives control the domestic assets (saving on upkeep), and control distribution/sale of the output instead (minerals, food, exports, etc.). China's Belt & Road initiative, in various african nations, a more recent example.

We may decry Colonialism 2.0 as a business model - but if you own a cottage/holiday property, you are practicing exactly that.
The municipality services the area as it sees fit, sets the taxes, you pay them. You take the benefits of the property/area, and sell/use them for as much you can get. If you don't believe - look at the seasonal towns, swamped by large numbers of long weekend 'outsiders' - some bearing covid-19. Who is doing the protesting? 

Point is, this might be an opportune time to rethink the approach.
Hopefully, they do well, no matter the decision.
 
SD


Title: Re: Fairfax Africa
Post by: Thrifty3000 on July 09, 2020, 06:46:51 PM
Not sure why this wasn't posted in the press section of CIG's website. It's definitely material information (assuming it's true):

https://www.businesslive.co.za/bd/companies/industrials/2020-03-09-consolidated-infrastructure-group-restructures-debt/

I'm sure they discussed it during the AGM, but I wasn't looking at FAH back then so I didn't dial in (would love to see a transcript/notes).

From what I gather the situation at CIG isn't pretty. Odds of survival were zero without a debt restructure. And, even with the restructure I still think things are grim. (It seems Mr. Market has written off CIG anyway.)

CIG has several business lines. Half the revenue comes from large scale project management. The other half comes from diverse businesses that are on solid footing from a profitability standpoint, and a couple have especially exciting growth prospects.

The problem is CIG royally SUCKED at project management, for years, and lost insane amounts of money. FAH had no idea how bad things were when they invested. It was clearly WAY out of FAH's circle of competence, because the issues were in plain sight. The good news is FAH appears capable of leading a solid turnaround effort, as long as it's not too little too late. If covid hadn't come along it sounded like CIG had a decent shot of returning to profitability in 2020. Now, who knows? It comes down to whether they can right size the project business, and whether they can continue servicing the debt.

I'm rooting for FAH on this one. I think if CIG starts showing signs of life it will be at least a $50 million boost to FAH's valuation, with what should be plenty of opportunity for long term growth. Not holding my breath.

Title: Re: Fairfax Africa
Post by: SharperDingaan on July 09, 2020, 08:38:53 PM
Just to give an indication of the FX headwind.

07/09/2019 the ZAR/CAD FX rate was 10.791:1. One year later, 07/09/2020 the ZAR/CAD FX rate was 12.4363:1.
ZAR had devalued by 15.25% ((12.4363-10.7910)/10.7910) x 100. The Atlas Mara and CIG investments were made when the ZAR/CAD was stronger. Their cumulative FX devaluation is a lot worse.

The FAH books are denominated in USD. Balance Sheet revalues every quarter-end, reducing equity.
To maintain the BS ratio's requires fresh capital every year, in addition to the maintenance capex. Not a problem while they are rolling in the investments, but after it's done?

Not to say that it cannot work, but it's a lot of work - just to break even.
Hopefully, it works out for them.

SD


https://www.bankofcanada.ca/rates/exchange/daily-exchange-rates-lookup/?series%5B%5D=FXZARCAD&lookupPage=lookup_daily_exchange_rates_2017.php&startRange=2010-07-09&rangeType=range&rangeValue=1.y&dFrom=&dTo=&submit_button=Submit

Title: Re: Fairfax Africa
Post by: elliott on July 10, 2020, 09:25:34 AM
FAH enters into an strategic transaction with an African investment firm, Helios, "for the combination of their complementary businesses on one unified platform."
FAH will become HFP, and "Helios will be appointed sole investment adviser to HFP"

oh, and towards the end of the announcement... news about the "crown jewel"
acquisition by Fairfax Financial of Atlas Mara "for an aggregate purchase price of US$40 million"

https://www.fairfaxafrica.ca/News/Press-Releases/Press-Release-Details/2020/Proposed-Strategic-Transaction-Between-Helios-Holdings-Limited-and-Fairfax-Africa-Holdings-Corporation/default.aspx

Title: Re: Fairfax Africa
Post by: hobbit on July 10, 2020, 12:23:07 PM
Can fairfax africa sell ATMA to fairfax as a related party transaction without independently marketing it?  what is the valuation helios paid for 46% stake or FAH paid for helios in shares? no color on helios revenue either...Fairfax really struggles with IR
Title: Re: Fairfax Africa
Post by: Thrifty3000 on July 10, 2020, 03:31:40 PM
Can fairfax africa sell ATMA to fairfax as a related party transaction without independently marketing it?  what is the valuation helios paid for 46% stake or FAH paid for helios in shares? no color on helios revenue either...Fairfax really struggles with IR

It doesn't look like Helios is paying anything up front. In exchange for the 46% stake Helios is committing a percentage of all future fees from its private equity funds.

I haven't found any info on Helios's historical fee earnings yet.

Helios manages around $3.6 billion. For now I'm assuming the deal is structured where Helios will start out contributing maybe $15 to $25 million annually. I also assume they will continue increasing their assets under management, which should generate additional fee revenue going forward.

Helios will benefit from having a liquid, publicly traded, investment vehicle backed by the credibility and network that comes with Fairfax.

FAH will benefit from being managed by leading, proven, investors in Africa.
Title: Re: Fairfax Africa
Post by: hobbit on July 10, 2020, 08:28:45 PM
Can fairfax africa sell ATMA to fairfax as a related party transaction without independently marketing it?  what is the valuation helios paid for 46% stake or FAH paid for helios in shares? no color on helios revenue either...Fairfax really struggles with IR

It doesn't look like Helios is paying anything up front. In exchange for the 46% stake Helios is committing a percentage of all future fees from its private equity funds.

I haven't found any info on Helios's historical fee earnings yet.

Helios manages around $3.6 billion. For now I'm assuming the deal is structured where Helios will start out contributing maybe $15 to $25 million annually. I also assume they will continue increasing their assets under management, which should generate additional fee revenue going forward.

Helios will benefit from having a liquid, publicly traded, investment vehicle backed by the credibility and network that comes with Fairfax.

FAH will benefit from being managed by leading, proven, investors in Africa.

what does not seem right is selling ATMA for 40mil to Fairfax when Fairfax africa themselves have calculated the tangible book value around 280 mil and were selling business in 4 countries to Equity group for 105mil + u have  UBN and Botswana...

If helios contribute 20mil in earnings and u put multiple of 10 to that ..it implies that FAH is valued at 400mil right now? I somehow doubt helios will contribute in excess of 10 mil right now but then there is no way to be sure until we see more data...they should have released these numbers alongwith press release
Title: Re: Fairfax Africa
Post by: Thrifty3000 on July 10, 2020, 09:13:36 PM
Can fairfax africa sell ATMA to fairfax as a related party transaction without independently marketing it?  what is the valuation helios paid for 46% stake or FAH paid for helios in shares? no color on helios revenue either...Fairfax really struggles with IR

It doesn't look like Helios is paying anything up front. In exchange for the 46% stake Helios is committing a percentage of all future fees from its private equity funds.

I haven't found any info on Helios's historical fee earnings yet.

Helios manages around $3.6 billion. For now I'm assuming the deal is structured where Helios will start out contributing maybe $15 to $25 million annually. I also assume they will continue increasing their assets under management, which should generate additional fee revenue going forward.

Helios will benefit from having a liquid, publicly traded, investment vehicle backed by the credibility and network that comes with Fairfax.

FAH will benefit from being managed by leading, proven, investors in Africa.

what does not seem right is selling ATMA for 40mil to Fairfax when Fairfax africa themselves have calculated the tangible book value around 280 mil and were selling business in 4 countries to Equity group for 105mil + u have  UBN and Botswana...

If helios contribute 20mil in earnings and u put multiple of 10 to that ..it implies that FAH is valued at 400mil right now? I somehow doubt helios will contribute in excess of 10 mil right now but then there is no way to be sure until we see more data...they should have released these numbers alongwith press release

I 100% agree there should have been more information. At the very least there should have been some historical information about Helios’s fees. I’m sure all the major shareholders, like Omers, are aware of this information. But, my first impression when reading the press release was “wow, this announcement shows zero regard/respect for minority equity holders.”

My assumption is Prem would not appreciate being treated the way this announcement treated smaller shareholders if roles were reversed.

My guess is he believes the smart money has already bailed. I also think this is a pretty good/brilliant solution to what everyone knows was a serious eff-up. And they probably expect the smart money to recognize the solution’s “brilliance.”

At this point the worst case is along the lines of what SharperD has been warning about... that equity investors simply cannot outrun currency devaluation, corruption, and poor business performance in Africa. If so, this deal only prolongs the slow, painful, death.

On the other hand, we could be looking at a scenario where a decade from now:

- $450 million of existing assets doubles in value to $900 million
- Helios contributes $400 million of fees, which is invested and grows to a total value of, say, 600 million
- Helios increases their PE assets under management from $3.6 billion to, say, $10 to $12 billion, which will contribute $80 or $100 million of annual fee income to FAH. If you slap an 18 multiple on that and add it to the prior two items you get a fair value over $3 billion, and a 5 to 10 bagger from today’s price.

I have a hunch the optimistic scenario is where Prem is leaning, and probably thinks no further explanation is needed.

With that said, without more color on expected fees this is highly speculative.
Title: Re: Fairfax Africa
Post by: bizaro86 on July 10, 2020, 09:24:35 PM

I 100% agree there should have been more information. At the very least there should have been some historical information about Helios’s fees. I’m sure all the major shareholders, like Omers, are aware of this information. But, my first impression when reading the press release was “wow, this announcement shows zero regard/respect for minority equity holders.”

My assumption is Prem would not appreciate being treated the way this announcement treated smaller shareholders if roles were reversed.


I think at this point Fairfax companies are getting the valuation multiple they deserve based on the way minority shareholders are treated.

At the parent there is family control through unequal voting with a next generation of unknown quality poised to take over.

At India, they press released the sale of part of the Airport at a high price and then took a big huge incentive fee based on that mark. Then when the details come out it turns out they only got that price because they guaranteed the valuation to a cozy buyer.

At Africa, they sell their crown jewel asset to the parent with limited disclosure at a much lower price than previously agreed with a third party buyer. They bury that at the bottom of a press release about selling a chunk of the company for assets of unknown quality.

At some point it's reasonable to assume Fairfax management is willfully mistreating minorities.
Title: Re: Fairfax Africa
Post by: hobbit on July 10, 2020, 09:53:09 PM
Can fairfax africa sell ATMA to fairfax as a related party transaction without independently marketing it?  what is the valuation helios paid for 46% stake or FAH paid for helios in shares? no color on helios revenue either...Fairfax really struggles with IR

It doesn't look like Helios is paying anything up front. In exchange for the 46% stake Helios is committing a percentage of all future fees from its private equity funds.

I haven't found any info on Helios's historical fee earnings yet.

Helios manages around $3.6 billion. For now I'm assuming the deal is structured where Helios will start out contributing maybe $15 to $25 million annually. I also assume they will continue increasing their assets under management, which should generate additional fee revenue going forward.

Helios will benefit from having a liquid, publicly traded, investment vehicle backed by the credibility and network that comes with Fairfax.

FAH will benefit from being managed by leading, proven, investors in Africa.

what does not seem right is selling ATMA for 40mil to Fairfax when Fairfax africa themselves have calculated the tangible book value around 280 mil and were selling business in 4 countries to Equity group for 105mil + u have  UBN and Botswana...

If helios contribute 20mil in earnings and u put multiple of 10 to that ..it implies that FAH is valued at 400mil right now? I somehow doubt helios will contribute in excess of 10 mil right now but then there is no way to be sure until we see more data...they should have released these numbers alongwith press release

I 100% agree there should have been more information. At the very least there should have been some historical information about Helios’s fees. I’m sure all the major shareholders, like Omers, are aware of this information. But, my first impression when reading the press release was “wow, this announcement shows zero regard/respect for minority equity holders.”

My assumption is Prem would not appreciate being treated the way this announcement treated smaller shareholders if roles were reversed.

My guess is he believes the smart money has already bailed. I also think this is a pretty good/brilliant solution to what everyone knows was a serious eff-up. And they probably expect the smart money to recognize the solution’s “brilliance.”

At this point the worst case is along the lines of what SharperD has been warning about... that equity investors simply cannot outrun currency devaluation, corruption, and poor business performance in Africa. If so, this deal only prolongs the slow, painful, death.

On the other hand, we could be looking at a scenario where a decade from now:

- $450 million of existing assets doubles in value to $900 million
- Helios contributes $400 million of fees, which is invested and grows to a total value of, say, 600 million
- Helios increases their PE assets under management from $3.6 billion to, say, $10 to $12 billion, which will contribute $80 or $100 million of annual fee income to FAH. If you slap an 18 multiple on that and add it to the prior two items you get a fair value over $3 billion, and a 5 to 10 bagger from today’s price.

I have a hunch the optimistic scenario is where Prem is leaning, and probably thinks no further explanation is needed.

With that said, without more color on expected fees this is highly speculative.

at 3$ per share the market cap is around 180mil out of which 140 is cash( minus 40 mil they lent to ATMA which Fairfax is now guaranteeing) . Even after this deal the fair value is probably around 5.50 assuming no new impact on investmetns from COVID-19 since Mar 31. What really bothers me is the sale of ATMA for 40mil when UBN stake alone is worth north of 100mil and UBN itself is on much firmer footing now than a couple of years ago. This is likely going to open up FAH mgmt to potential litigation if there is isn't more to the deal. As it is it seems like Fairfax Financial is trying to make up for its loss in FAH by getting ATMA for pennies.
Title: Re: Fairfax Africa
Post by: Thrifty3000 on July 10, 2020, 10:23:44 PM
Can fairfax africa sell ATMA to fairfax as a related party transaction without independently marketing it?  what is the valuation helios paid for 46% stake or FAH paid for helios in shares? no color on helios revenue either...Fairfax really struggles with IR

It doesn't look like Helios is paying anything up front. In exchange for the 46% stake Helios is committing a percentage of all future fees from its private equity funds.

I haven't found any info on Helios's historical fee earnings yet.

Helios manages around $3.6 billion. For now I'm assuming the deal is structured where Helios will start out contributing maybe $15 to $25 million annually. I also assume they will continue increasing their assets under management, which should generate additional fee revenue going forward.

Helios will benefit from having a liquid, publicly traded, investment vehicle backed by the credibility and network that comes with Fairfax.

FAH will benefit from being managed by leading, proven, investors in Africa.

what does not seem right is selling ATMA for 40mil to Fairfax when Fairfax africa themselves have calculated the tangible book value around 280 mil and were selling business in 4 countries to Equity group for 105mil + u have  UBN and Botswana...

If helios contribute 20mil in earnings and u put multiple of 10 to that ..it implies that FAH is valued at 400mil right now? I somehow doubt helios will contribute in excess of 10 mil right now but then there is no way to be sure until we see more data...they should have released these numbers alongwith press release

I 100% agree there should have been more information. At the very least there should have been some historical information about Helios’s fees. I’m sure all the major shareholders, like Omers, are aware of this information. But, my first impression when reading the press release was “wow, this announcement shows zero regard/respect for minority equity holders.”

My assumption is Prem would not appreciate being treated the way this announcement treated smaller shareholders if roles were reversed.

My guess is he believes the smart money has already bailed. I also think this is a pretty good/brilliant solution to what everyone knows was a serious eff-up. And they probably expect the smart money to recognize the solution’s “brilliance.”

At this point the worst case is along the lines of what SharperD has been warning about... that equity investors simply cannot outrun currency devaluation, corruption, and poor business performance in Africa. If so, this deal only prolongs the slow, painful, death.

On the other hand, we could be looking at a scenario where a decade from now:

- $450 million of existing assets doubles in value to $900 million
- Helios contributes $400 million of fees, which is invested and grows to a total value of, say, 600 million
- Helios increases their PE assets under management from $3.6 billion to, say, $10 to $12 billion, which will contribute $80 or $100 million of annual fee income to FAH. If you slap an 18 multiple on that and add it to the prior two items you get a fair value over $3 billion, and a 5 to 10 bagger from today’s price.

I have a hunch the optimistic scenario is where Prem is leaning, and probably thinks no further explanation is needed.

With that said, without more color on expected fees this is highly speculative.

at 3$ per share the market cap is around 180mil out of which 140 is cash( minus 40 mil they lent to ATMA which Fairfax is now guaranteeing) . Even after this deal the fair value is probably around 5.50 assuming no new impact on investmetns from COVID-19 since Mar 31. What really bothers me is the sale of ATMA for 40mil when UBN stake alone is worth north of 100mil and UBN itself is on much firmer footing now than a couple of years ago. This is likely going to open up FAH mgmt to potential litigation if there is isn't more to the deal. As it is it seems like Fairfax Financial is trying to make up for its loss in FAH by getting ATMA for pennies.

I suspect Helios needs/wants US dollars. And, I think ATMA was probably too risky for Helios. Helios already has a focus on financials, so they probably didn’t want any more in the portfolio.

UBN is in Nigeria. Nigeria is extremely oil dependent. It costs $23 per barrel to extract oil in Nigeria. There’s much cheaper oil in nearby regions (aka Middle East). So, with reduced global demand Nigeria isn’t exporting as much, which means their US dollar supply is running low. They already had to devalue their currency once to slow the USD depletion. And, when they did it hit the value of UBN hard. Also, approx 30% of UBN loans are to the oil & gas industry. Additionally, ATMA’s other major bank is in Botswana, which is heavily dependent on the travel and leisure industry. Ouch. Another one of their banks is in a hyperinflation country. And, they’re still stuck holding the non-strategic banks, which aren’t profitable. So, there’s plenty of pain at ATMA. Between the loan losses, currency devaluation, and interest rate fluctuations, it’s next to impossible to forecast what will remain of ATMA post Covid.
Title: Re: Fairfax Africa
Post by: SharperDingaan on July 11, 2020, 08:12:00 AM
It is useful to think in stages. During Covid, Covid Recovery, Post Recovery.

Africa doesn't have the medical infrastructure that a NA or Europe has. Hence, most would estimate how long until there is a working vaccine in wide distribution within a NA/Europe, and triple it for Africa (3rd world will be last in line). The reality is that Africa will be achieving herd immunity primarily by contracting Covid, and surviving it - a very difficult business environment for quite some time. If the average devaluation over the next 5 years, is 8%/yr (conservative), a $ invested today is worth 68c.   

CB's in NA/Europe are dong 'whatever it takes', with current/forecast spending at war time levels in many places. The traditional hedge against unavoidable currency devaluation is precious metals; either bullion itself, or the miners producing it. Africa is home to some of the most productive gold/platinum mines in the world - and the shares of all the bigger miners trade on unrestricted global exchanges, outside of Africa (liquid, enforceable rights, no capital controls). Pretty clear where a foreign investor, wishing to invest in Africa, needs to be.

The equation changes if the investor intends to consume the production, as either a tourist, or to make/distribute some other product. Buy that second property in Cape Town ;) not Florida, and visit for 3-4 weeks every year. Use the minerals (China), or resell to others (Glencore, etc.).

Point is - there has to be a flexible and intelligent LONG TERM plan
If you had a $ today, to put into either a FAH or an ABX, where would you put it?
Then, do you really see that changing? while Covid does its thing, around the world?

Hence, maybe it's time to rethink the execution. WEB did it with the airline stocks.
Africa is a tough place to invest, and we wish them the best of luck.

SD


Title: Re: Fairfax Africa
Post by: hobbit on July 11, 2020, 09:27:48 AM
Can fairfax africa sell ATMA to fairfax as a related party transaction without independently marketing it?  what is the valuation helios paid for 46% stake or FAH paid for helios in shares? no color on helios revenue either...Fairfax really struggles with IR

It doesn't look like Helios is paying anything up front. In exchange for the 46% stake Helios is committing a percentage of all future fees from its private equity funds.

I haven't found any info on Helios's historical fee earnings yet.

Helios manages around $3.6 billion. For now I'm assuming the deal is structured where Helios will start out contributing maybe $15 to $25 million annually. I also assume they will continue increasing their assets under management, which should generate additional fee revenue going forward.

Helios will benefit from having a liquid, publicly traded, investment vehicle backed by the credibility and network that comes with Fairfax.

FAH will benefit from being managed by leading, proven, investors in Africa.

what does not seem right is selling ATMA for 40mil to Fairfax when Fairfax africa themselves have calculated the tangible book value around 280 mil and were selling business in 4 countries to Equity group for 105mil + u have  UBN and Botswana...

If helios contribute 20mil in earnings and u put multiple of 10 to that ..it implies that FAH is valued at 400mil right now? I somehow doubt helios will contribute in excess of 10 mil right now but then there is no way to be sure until we see more data...they should have released these numbers alongwith press release

I 100% agree there should have been more information. At the very least there should have been some historical information about Helios’s fees. I’m sure all the major shareholders, like Omers, are aware of this information. But, my first impression when reading the press release was “wow, this announcement shows zero regard/respect for minority equity holders.”

My assumption is Prem would not appreciate being treated the way this announcement treated smaller shareholders if roles were reversed.

My guess is he believes the smart money has already bailed. I also think this is a pretty good/brilliant solution to what everyone knows was a serious eff-up. And they probably expect the smart money to recognize the solution’s “brilliance.”

At this point the worst case is along the lines of what SharperD has been warning about... that equity investors simply cannot outrun currency devaluation, corruption, and poor business performance in Africa. If so, this deal only prolongs the slow, painful, death.

On the other hand, we could be looking at a scenario where a decade from now:

- $450 million of existing assets doubles in value to $900 million
- Helios contributes $400 million of fees, which is invested and grows to a total value of, say, 600 million
- Helios increases their PE assets under management from $3.6 billion to, say, $10 to $12 billion, which will contribute $80 or $100 million of annual fee income to FAH. If you slap an 18 multiple on that and add it to the prior two items you get a fair value over $3 billion, and a 5 to 10 bagger from today’s price.

I have a hunch the optimistic scenario is where Prem is leaning, and probably thinks no further explanation is needed.

With that said, without more color on expected fees this is highly speculative.

at 3$ per share the market cap is around 180mil out of which 140 is cash( minus 40 mil they lent to ATMA which Fairfax is now guaranteeing) . Even after this deal the fair value is probably around 5.50 assuming no new impact on investmetns from COVID-19 since Mar 31. What really bothers me is the sale of ATMA for 40mil when UBN stake alone is worth north of 100mil and UBN itself is on much firmer footing now than a couple of years ago. This is likely going to open up FAH mgmt to potential litigation if there is isn't more to the deal. As it is it seems like Fairfax Financial is trying to make up for its loss in FAH by getting ATMA for pennies.

I suspect Helios needs/wants US dollars. And, I think ATMA was probably too risky for Helios. Helios already has a focus on financials, so they probably didn’t want any more in the portfolio.

UBN is in Nigeria. Nigeria is extremely oil dependent. It costs $23 per barrel to extract oil in Nigeria. There’s much cheaper oil in nearby regions (aka Middle East). So, with reduced global demand Nigeria isn’t exporting as much, which means their US dollar supply is running low. They already had to devalue their currency once to slow the USD depletion. And, when they did it hit the value of UBN hard. Also, approx 30% of UBN loans are to the oil & gas industry. Additionally, ATMA’s other major bank is in Botswana, which is heavily dependent on the travel and leisure industry. Ouch. Another one of their banks is in a hyperinflation country. And, they’re still stuck holding the non-strategic banks, which aren’t profitable. So, there’s plenty of pain at ATMA. Between the loan losses, currency devaluation, and interest rate fluctuations, it’s next to impossible to forecast what will remain of ATMA post Covid.

The issue is they were trying to sell stakes in 4 countries ex botswanaand Nigeria to equity group for 105mil until a month ago. Do you think the deal would have gone through if ATMA dropped that price to 40mil..i think it probably would have...who knows though...plus they have been emphatically stating in their Annual letters, AGM 2020 call regarding how undervalued ATMA is and what a brilliant turnaround is going on at UBN ..UBN issued dividend for the first time in years and kept it on post COVID too. Oil is essentially trading at a 30% discount to last year despite the volatility and is above the Nigeria break even price for extracting it ...that UBN stake is always going to be worth atleast 100mil under most circumstances ....plus they have 150 mil in cash ( and no debt ) which they can use to tide over any situation...they even gave ATMA an extra 40mil and stated on the AGM 2020 call that all their businessmen are well capitalized for COVID after they had run their internal stress tests...if they had sold for the entire ATMA stake for 100mil , it would still be wrong but you could justify it as a firesale to close this deal... 40mil is criminal and if there isn't more to the deal ...then Prem + rest of mgmt can give up the charade of being honest and ethical because they just royally screwed the minority shareholders.

Moreover, OMERS proabably has access to financials of helios and other shareholders dont, so OMERS can make a more informed decision which is another -ve for minority shareholders
Title: Re: Fairfax Africa
Post by: Xerxes on July 11, 2020, 03:55:48 PM
Point is - there has to be a flexible and intelligent LONG TERM plan
If you had a $ today, to put into either a FAH or an ABX, where would you put it?

perhaps neither ABX nor FAH,
lets go with Jumia with a $600 million market cap. :-)
Fire and forget. See you in 2030.


i am not as knowledgeable as everybody else when it comes to FAH, but here some broad strokes from an average joe who has been watching the collapse of Fairfax Africa in slow motion; and lets call it what it is, a collapse:

- FFH with all its deep bench, simply didn't not have the needed overhead to support such a far flung operation. There is no shame into that. A lot of companies stay away from what they do not know. When was the last time, you saw a job opening on FFH looking for local talent in Africa to feed its investment vehicle.
- it is fine that FAH is permanent capital, therefore not exposed to the same pull as say PE would be when client start to pull in their money, before the investment plays out. But even permanent capital is not immune, when it is trading on the market as an investment vehicle and the message that it sends when the stock takes a massive hit. What was wrong planting these seeds in Africa as part of FFH (and I believe in Africa), rather a separate permanent capital vehicle.
- there was no reason for FFH to create FAH and FIH at the same time when it did. I understand FIH, given their historic exposure in India. They could have kept FAH within FFH for a while longer.
- i have said this in the FIH thread, the FIH/FAH needed to have some management fee stream that gives their respective management ammunition to deploy. in absence of that the only other two source of cash is either selling a crown jewel at the wrong time or issuing stock at the wrong time. i think issuing debt without having a cash inflow to pay the interest not feasible either.


Title: Re: Fairfax Africa
Post by: Thrifty3000 on July 11, 2020, 05:38:11 PM
Point is - there has to be a flexible and intelligent LONG TERM plan
If you had a $ today, to put into either a FAH or an ABX, where would you put it?

perhaps neither ABX nor FAH,
lets go with Jumia with a $600 million market cap. :-)
Fire and forget. See you in 2030.


i am not as knowledgeable as everybody else when it comes to FAH, but here some broad strokes from an average joe who has been watching the collapse of Fairfax Africa in slow motion; and lets call it what it is, a collapse:

- FFH with all its deep bench, simply didn't not have the needed overhead to support such a far flung operation. There is no shame into that. A lot of companies stay away from what they do not know. When was the last time, you saw a job opening on FFH looking for local talent in Africa to feed its investment vehicle.
- it is fine that FAH is permanent capital, therefore not exposed to the same pull as say PE would be when client start to pull in their money, before the investment plays out. But even permanent capital is not immune, when it is trading on the market as an investment vehicle and the message that it sends when the stock takes a massive hit. What was wrong planting these seeds in Africa as part of FFH (and I believe in Africa), rather a separate permanent capital vehicle.
- there was no reason for FFH to create FAH and FIH at the same time when it did. I understand FIH, given their historic exposure in India. They could have kept FAH within FFH for a while longer.
- i have said this in the FIH thread, the FIH/FAH needed to have some management fee stream that gives their respective management ammunition to deploy. in absence of that the only other two source of cash is either selling a crown jewel at the wrong time or issuing stock at the wrong time. i think issuing debt without having a cash inflow to pay the interest not feasible either.

FWIW, I think FAH was earning maybe $20 million of interest annually. Though, I think much of it was paid in kind (or rolled into additional principle) in recent months. FAH had over $100 million of bonds, loans, and guarantees. Most earning double digit interest rates. (Much of the interest coming from ATMA.)

I get the sense FFH’s buying back ATMA was a deal concession. I look at it as a $40 to $80 million dollar pot sweetener. Neither FFH nor Helios needed any more risky financials on their books - they both have plenty. And, you know ATMA is risky because Wilkerson is the chairman of ATMA’s board. Wilkerson has COMPLETE visibility into ATMA. I’m talking daily updates on loan losses/forbearance. If ATMA was a guaranteed success Wilkerson could have convinced Helios to take it. But, he didn’t, which means ATMA is a big question mark. I guarantee there are tons of bad debts piling up. And, the prognosis goes something like this... if energy demand, travel, and life in general return to normal in the next 6 to 12 months then ATMA will probably work out ok, but if it doesn’t then we’re probably impairing this sucker big time.

Remember, ATMA was already a red flag when it asked to defer interest payments back in December - even before Covid emerged as a threat.

No doubt FAH’s Wilkerson has plenty of IQ. A Harvard MBA and a masters from Yale is ample evidence. I have a hunch his experience with CIG and ATMA will propel him to world-class turnaround expert status. And, I’m sure he is experiencing a lifetime’s worth of stress these days.

But, concentrating $500+ million into a falling knife bank holding company, a horrendously mismanaged infrastructure company, a startup education company, and a couple AGH spin offs was a terrible rookie mistake - fueled by impatience, lack of discipline, and unawareness of one’s circle of competence. (The blame can be shared by Wilkerson, FFH’s investment team, and FAH’s board.) The whole fiasco was a hope strategy that didn’t work out.

From what I’ve gathered in a few hours of digging, Helios is much more in line with the type of investment manager you would expect of a partnership with a reputable billionaire like Prem. Being the largest, fastest growing, savviest Private Equity group in Africa comes with plenty of competitive advantages. (I’m intrigued by the little I’ve learned so far about their growth, telecom business, and dollar denominated credit operation.)

My gut says Helios got wind that Prem was looking for a new investment manager for FAH. I suspect Helios has plenty of investment opportunities that could thrive with more access to dollar bills. I suspect Helios was aware of FAH’s large cash position, and skillfully and compellingly made Prem aware of what Helios could do with a couple hundred million of extra US dollars (remember, Africa does not have access to the Federal Reserve’s dollar swap lines. There has been a run on dollars, and African business is a fish out of water without dollars.)

I suspect Helios said to Prem something along the lines of “if you not only give us control of FAH’s $140 million of cash & equivs, but also kick in an extra $40 mil while taking ATMA’s risk off the table, we already have the breadth of opportunities and knowledge (aka more ideas than capital) to immediately deploy US dollars so incredibly profitably that investing in Africa during its 40% off sale will feel even easier than investing in US equities in the 1970’s.”

Prem says “where do I sign the check?”
Title: Re: Fairfax Africa
Post by: hobbit on July 11, 2020, 08:24:07 PM
Point is - there has to be a flexible and intelligent LONG TERM plan
If you had a $ today, to put into either a FAH or an ABX, where would you put it?

perhaps neither ABX nor FAH,
lets go with Jumia with a $600 million market cap. :-)
Fire and forget. See you in 2030.


i am not as knowledgeable as everybody else when it comes to FAH, but here some broad strokes from an average joe who has been watching the collapse of Fairfax Africa in slow motion; and lets call it what it is, a collapse:

- FFH with all its deep bench, simply didn't not have the needed overhead to support such a far flung operation. There is no shame into that. A lot of companies stay away from what they do not know. When was the last time, you saw a job opening on FFH looking for local talent in Africa to feed its investment vehicle.
- it is fine that FAH is permanent capital, therefore not exposed to the same pull as say PE would be when client start to pull in their money, before the investment plays out. But even permanent capital is not immune, when it is trading on the market as an investment vehicle and the message that it sends when the stock takes a massive hit. What was wrong planting these seeds in Africa as part of FFH (and I believe in Africa), rather a separate permanent capital vehicle.
- there was no reason for FFH to create FAH and FIH at the same time when it did. I understand FIH, given their historic exposure in India. They could have kept FAH within FFH for a while longer.
- i have said this in the FIH thread, the FIH/FAH needed to have some management fee stream that gives their respective management ammunition to deploy. in absence of that the only other two source of cash is either selling a crown jewel at the wrong time or issuing stock at the wrong time. i think issuing debt without having a cash inflow to pay the interest not feasible either.

FWIW, I think FAH was earning maybe $20 million of interest annually. Though, I think much of it was paid in kind (or rolled into additional principle) in recent months. FAH had over $100 million of bonds, loans, and guarantees. Most earning double digit interest rates. (Much of the interest coming from ATMA.)

I get the sense FFH’s buying back ATMA was a deal concession. I look at it as a $40 to $80 million dollar pot sweetener. Neither FFH nor Helios needed any more risky financials on their books - they both have plenty. And, you know ATMA is risky because Wilkerson is the chairman of ATMA’s board. Wilkerson has COMPLETE visibility into ATMA. I’m talking daily updates on loan losses/forbearance. If ATMA was a guaranteed success Wilkerson could have convinced Helios to take it. But, he didn’t, which means ATMA is a big question mark. I guarantee there are tons of bad debts piling up. And, the prognosis goes something like this... if energy demand, travel, and life in general return to normal in the next 6 to 12 months then ATMA will probably work out ok, but if it doesn’t then we’re probably impairing this sucker big time.

Remember, ATMA was already a red flag when it asked to defer interest payments back in December - even before Covid emerged as a threat.

No doubt FAH’s Wilkerson has plenty of IQ. A Harvard MBA and a masters from Yale is ample evidence. I have a hunch his experience with CIG and ATMA will propel him to world-class turnaround expert status. And, I’m sure he is experiencing a lifetime’s worth of stress these days.

But, concentrating $500+ million into a falling knife bank holding company, a horrendously mismanaged infrastructure company, a startup education company, and a couple AGH spin offs was a terrible rookie mistake - fueled by impatience, lack of discipline, and unawareness of one’s circle of competence. (The blame can be shared by Wilkerson, FFH’s investment team, and FAH’s board.) The whole fiasco was a hope strategy that didn’t work out.

From what I’ve gathered in a few hours of digging, Helios is much more in line with the type of investment manager you would expect of a partnership with a reputable billionaire like Prem. Being the largest, fastest growing, savviest Private Equity group in Africa comes with plenty of competitive advantages. (I’m intrigued by the little I’ve learned so far about their growth, telecom business, and dollar denominated credit operation.)

My gut says Helios got wind that Prem was looking for a new investment manager for FAH. I suspect Helios has plenty of investment opportunities that could thrive with more access to dollar bills. I suspect Helios was aware of FAH’s large cash position, and skillfully and compellingly made Prem aware of what Helios could do with a couple hundred million of extra US dollars (remember, Africa does not have access to the Federal Reserve’s dollar swap lines. There has been a run on dollars, and African business is a fish out of water without dollars.)

I suspect Helios said to Prem something along the lines of “if you not only give us control of FAH’s $140 million of cash & equivs, but also kick in an extra $40 mil while taking ATMA’s risk off the table, we already have the breadth of opportunities and knowledge (aka more ideas than capital) to immediately deploy US dollars so incredibly profitably that investing in Africa during its 40% off sale will feel even easier than investing in US equities in the 1970’s.”

Prem says “where do I sign the check?”

I do not know if you were on the call for AGM 2020 and heard Prem and Michael's comments when they were asked point blank if there is any stress in any of the businesses including ATMA or CIG...their response was basically that their internal tests indicated that businesses will be able to manage on their own apart from the 40mil to ATMA . Prem called the share price at 3$ an absolute joke .

They basically cannot sell at ATMA for 40 mil to a related party without marketing the business independently to the market. UBN stake alone could have easily fetched 80-100mil .
Title: Re: Fairfax Africa
Post by: SharperDingaan on July 12, 2020, 07:43:00 AM
The reality is that the reputational damage to the Watsa family, is far more damaging than the $ lost.
Good intentions are great, but they are well out of their depth in these 2nd/3rd world ventures. If this is truly going to be a long-term thing - at least one family member needs to apprentice on site, under skilled expertise, for an extended period of time. A great opportunity!

We wish them luck.

SD
Title: Re: Fairfax Africa
Post by: Xerxes on July 12, 2020, 08:41:43 AM
FWIW, I think FAH was earning maybe $20 million of interest annually. Though, I think much of it was paid in kind (or rolled into additional principle) in recent months. FAH had over $100 million of bonds, loans, and guarantees. Most earning double digit interest rates. (Much of the interest coming from ATMA.)

No doubt FAH’s Wilkerson has plenty of IQ. A Harvard MBA and a masters from Yale is ample evidence. I have a hunch his experience with CIG and ATMA will propel him to world-class turnaround expert status. And, I’m sure he is experiencing a lifetime’s worth of stress these days.

But, concentrating $500+ million into a falling knife bank holding company, a horrendously mismanaged infrastructure company, a startup education company, and a couple AGH spin offs was a terrible rookie mistake - fueled by impatience, lack of discipline, and unawareness of one’s circle of competence. (The blame can be shared by Wilkerson, FFH’s investment team, and FAH’s board.) The whole fiasco was a hope strategy that didn’t work out.


i don't know which extreme is worse:
- buying non profitable technology story companies (don't mean big tech) knowing that a greater fool will be buy it from you at a higher price and then the music stops, and you are left holding the bag
- worshipping at the alter of Deep Value; buying stuff 50 cent on the dollar and selling out at 25 cents on the dollar b/c the market forces your hand.

what's wrong with finding something in between these styles.

On Wilkerson, i was at the 2018 AGM in Toronto; seem like a nice guy. At the end of the Q&A session, two of the older gentlemen (who i believe were FFH shareholders from he crowd) give him a copy of what i believe was Buffet AGM letters in a book form. Hopefully he is reading those.
 
Title: Re: Fairfax Africa
Post by: Thrifty3000 on July 13, 2020, 11:02:16 AM
Point is - there has to be a flexible and intelligent LONG TERM plan
If you had a $ today, to put into either a FAH or an ABX, where would you put it?

perhaps neither ABX nor FAH,
lets go with Jumia with a $600 million market cap. :-)
Fire and forget. See you in 2030.


i am not as knowledgeable as everybody else when it comes to FAH, but here some broad strokes from an average joe who has been watching the collapse of Fairfax Africa in slow motion; and lets call it what it is, a collapse:

- FFH with all its deep bench, simply didn't not have the needed overhead to support such a far flung operation. There is no shame into that. A lot of companies stay away from what they do not know. When was the last time, you saw a job opening on FFH looking for local talent in Africa to feed its investment vehicle.
- it is fine that FAH is permanent capital, therefore not exposed to the same pull as say PE would be when client start to pull in their money, before the investment plays out. But even permanent capital is not immune, when it is trading on the market as an investment vehicle and the message that it sends when the stock takes a massive hit. What was wrong planting these seeds in Africa as part of FFH (and I believe in Africa), rather a separate permanent capital vehicle.
- there was no reason for FFH to create FAH and FIH at the same time when it did. I understand FIH, given their historic exposure in India. They could have kept FAH within FFH for a while longer.
- i have said this in the FIH thread, the FIH/FAH needed to have some management fee stream that gives their respective management ammunition to deploy. in absence of that the only other two source of cash is either selling a crown jewel at the wrong time or issuing stock at the wrong time. i think issuing debt without having a cash inflow to pay the interest not feasible either.

FWIW, I think FAH was earning maybe $20 million of interest annually. Though, I think much of it was paid in kind (or rolled into additional principle) in recent months. FAH had over $100 million of bonds, loans, and guarantees. Most earning double digit interest rates. (Much of the interest coming from ATMA.)

I get the sense FFH’s buying back ATMA was a deal concession. I look at it as a $40 to $80 million dollar pot sweetener. Neither FFH nor Helios needed any more risky financials on their books - they both have plenty. And, you know ATMA is risky because Wilkerson is the chairman of ATMA’s board. Wilkerson has COMPLETE visibility into ATMA. I’m talking daily updates on loan losses/forbearance. If ATMA was a guaranteed success Wilkerson could have convinced Helios to take it. But, he didn’t, which means ATMA is a big question mark. I guarantee there are tons of bad debts piling up. And, the prognosis goes something like this... if energy demand, travel, and life in general return to normal in the next 6 to 12 months then ATMA will probably work out ok, but if it doesn’t then we’re probably impairing this sucker big time.

Remember, ATMA was already a red flag when it asked to defer interest payments back in December - even before Covid emerged as a threat.

No doubt FAH’s Wilkerson has plenty of IQ. A Harvard MBA and a masters from Yale is ample evidence. I have a hunch his experience with CIG and ATMA will propel him to world-class turnaround expert status. And, I’m sure he is experiencing a lifetime’s worth of stress these days.

But, concentrating $500+ million into a falling knife bank holding company, a horrendously mismanaged infrastructure company, a startup education company, and a couple AGH spin offs was a terrible rookie mistake - fueled by impatience, lack of discipline, and unawareness of one’s circle of competence. (The blame can be shared by Wilkerson, FFH’s investment team, and FAH’s board.) The whole fiasco was a hope strategy that didn’t work out.

From what I’ve gathered in a few hours of digging, Helios is much more in line with the type of investment manager you would expect of a partnership with a reputable billionaire like Prem. Being the largest, fastest growing, savviest Private Equity group in Africa comes with plenty of competitive advantages. (I’m intrigued by the little I’ve learned so far about their growth, telecom business, and dollar denominated credit operation.)

My gut says Helios got wind that Prem was looking for a new investment manager for FAH. I suspect Helios has plenty of investment opportunities that could thrive with more access to dollar bills. I suspect Helios was aware of FAH’s large cash position, and skillfully and compellingly made Prem aware of what Helios could do with a couple hundred million of extra US dollars (remember, Africa does not have access to the Federal Reserve’s dollar swap lines. There has been a run on dollars, and African business is a fish out of water without dollars.)

I suspect Helios said to Prem something along the lines of “if you not only give us control of FAH’s $140 million of cash & equivs, but also kick in an extra $40 mil while taking ATMA’s risk off the table, we already have the breadth of opportunities and knowledge (aka more ideas than capital) to immediately deploy US dollars so incredibly profitably that investing in Africa during its 40% off sale will feel even easier than investing in US equities in the 1970’s.”

Prem says “where do I sign the check?”

I do not know if you were on the call for AGM 2020 and heard Prem and Michael's comments when they were asked point blank if there is any stress in any of the businesses including ATMA or CIG...their response was basically that their internal tests indicated that businesses will be able to manage on their own apart from the 40mil to ATMA . Prem called the share price at 3$ an absolute joke .

They basically cannot sell at ATMA for 40 mil to a related party without marketing the business independently to the market. UBN stake alone could have easily fetched 80-100mil .

I hear what you're saying on ATMA. I think if the ATMA transaction was done in isolation (not as part of a broader deal with Helios), without additional explanation, it would raise red flags - and maybe even spark some legal activity.

But, it's clearly a deal concession. Fairfax and Helios both well know the importance of speed when it comes to doing deals.

I suspect that during the diligence process Helios couldn't pinpoint the value of ATMA (especially with recent devaluations, and with so much of the equity stakes collateralizing debt). Helios probably considered selling it post-transaction, and realized it could be a nightmare, especially since the recent deal had collapsed. I have a hunch Helios had conversations with the parties involved in the prior deal that fell through (I feel like Fairfax would allow those types of discussions), and probably with other potential buyers, none of which alleviated concerns related to ATMA.

My guess is Helios raised ATMA as a deal breaker. Fairfax wanted to salvage the deal, had to think quickly, probably considered multiple solutions, and proposed taking most of the ATMA risk off the balance sheet by buying it at ATMA's public market value. There were alternative solutions;

- Fairfax could have offered to infuse more cash by buying more shares of FAH at around $3.00 per share
- they could have offered to loan FAH money
- they could have offered Helios more equity in the deal, etc.

I think Fairfax recognized the value of a partnership with Helios, knew they needed a quick solution specific to ATMA, and probably did the right thing to salvage the deal.

I think this deal de-risks FAH big time. I think it's win win for Fairfax and Helios.

I think Helios will leverage this relationship to launch a few $3 to $5 billion funds over the next decade, which will gush cash into the new FAH (Helios Fairfax Partners - HFP). I think HFP will provide a lot of visibility into how Helios performs, which will be reviewed by potential investors in their PE deals, so Helios will have plenty of incentive to assure HFP performs very well.

Assuming Helios can continue drumming up value in Africa for years to come this deal should create a virtuous cycle for HFP owners and for Helios's partners.

If it turns out Helios is more skilled at raising funds than investing profitably, then at some point HFP will languish. If that happens Fairfax still has control.

So, at the current price, over the next decade, I see this as landing somewhere between an investment that languishes (but, doesn't go to zero unless we see crazy leverage introduced), and maaaaybe a 10 bagger if Helios rides a wave of strong African economic growth, strong investment performance, and strong fund raising.
Title: Re: Fairfax Africa
Post by: hobbit on July 13, 2020, 03:08:22 PM
Point is - there has to be a flexible and intelligent LONG TERM plan
If you had a $ today, to put into either a FAH or an ABX, where would you put it?

perhaps neither ABX nor FAH,
lets go with Jumia with a $600 million market cap. :-)
Fire and forget. See you in 2030.


i am not as knowledgeable as everybody else when it comes to FAH, but here some broad strokes from an average joe who has been watching the collapse of Fairfax Africa in slow motion; and lets call it what it is, a collapse:

- FFH with all its deep bench, simply didn't not have the needed overhead to support such a far flung operation. There is no shame into that. A lot of companies stay away from what they do not know. When was the last time, you saw a job opening on FFH looking for local talent in Africa to feed its investment vehicle.
- it is fine that FAH is permanent capital, therefore not exposed to the same pull as say PE would be when client start to pull in their money, before the investment plays out. But even permanent capital is not immune, when it is trading on the market as an investment vehicle and the message that it sends when the stock takes a massive hit. What was wrong planting these seeds in Africa as part of FFH (and I believe in Africa), rather a separate permanent capital vehicle.
- there was no reason for FFH to create FAH and FIH at the same time when it did. I understand FIH, given their historic exposure in India. They could have kept FAH within FFH for a while longer.
- i have said this in the FIH thread, the FIH/FAH needed to have some management fee stream that gives their respective management ammunition to deploy. in absence of that the only other two source of cash is either selling a crown jewel at the wrong time or issuing stock at the wrong time. i think issuing debt without having a cash inflow to pay the interest not feasible either.

FWIW, I think FAH was earning maybe $20 million of interest annually. Though, I think much of it was paid in kind (or rolled into additional principle) in recent months. FAH had over $100 million of bonds, loans, and guarantees. Most earning double digit interest rates. (Much of the interest coming from ATMA.)

I get the sense FFH’s buying back ATMA was a deal concession. I look at it as a $40 to $80 million dollar pot sweetener. Neither FFH nor Helios needed any more risky financials on their books - they both have plenty. And, you know ATMA is risky because Wilkerson is the chairman of ATMA’s board. Wilkerson has COMPLETE visibility into ATMA. I’m talking daily updates on loan losses/forbearance. If ATMA was a guaranteed success Wilkerson could have convinced Helios to take it. But, he didn’t, which means ATMA is a big question mark. I guarantee there are tons of bad debts piling up. And, the prognosis goes something like this... if energy demand, travel, and life in general return to normal in the next 6 to 12 months then ATMA will probably work out ok, but if it doesn’t then we’re probably impairing this sucker big time.

Remember, ATMA was already a red flag when it asked to defer interest payments back in December - even before Covid emerged as a threat.

No doubt FAH’s Wilkerson has plenty of IQ. A Harvard MBA and a masters from Yale is ample evidence. I have a hunch his experience with CIG and ATMA will propel him to world-class turnaround expert status. And, I’m sure he is experiencing a lifetime’s worth of stress these days.

But, concentrating $500+ million into a falling knife bank holding company, a horrendously mismanaged infrastructure company, a startup education company, and a couple AGH spin offs was a terrible rookie mistake - fueled by impatience, lack of discipline, and unawareness of one’s circle of competence. (The blame can be shared by Wilkerson, FFH’s investment team, and FAH’s board.) The whole fiasco was a hope strategy that didn’t work out.

From what I’ve gathered in a few hours of digging, Helios is much more in line with the type of investment manager you would expect of a partnership with a reputable billionaire like Prem. Being the largest, fastest growing, savviest Private Equity group in Africa comes with plenty of competitive advantages. (I’m intrigued by the little I’ve learned so far about their growth, telecom business, and dollar denominated credit operation.)

My gut says Helios got wind that Prem was looking for a new investment manager for FAH. I suspect Helios has plenty of investment opportunities that could thrive with more access to dollar bills. I suspect Helios was aware of FAH’s large cash position, and skillfully and compellingly made Prem aware of what Helios could do with a couple hundred million of extra US dollars (remember, Africa does not have access to the Federal Reserve’s dollar swap lines. There has been a run on dollars, and African business is a fish out of water without dollars.)

I suspect Helios said to Prem something along the lines of “if you not only give us control of FAH’s $140 million of cash & equivs, but also kick in an extra $40 mil while taking ATMA’s risk off the table, we already have the breadth of opportunities and knowledge (aka more ideas than capital) to immediately deploy US dollars so incredibly profitably that investing in Africa during its 40% off sale will feel even easier than investing in US equities in the 1970’s.”

Prem says “where do I sign the check?”

I do not know if you were on the call for AGM 2020 and heard Prem and Michael's comments when they were asked point blank if there is any stress in any of the businesses including ATMA or CIG...their response was basically that their internal tests indicated that businesses will be able to manage on their own apart from the 40mil to ATMA . Prem called the share price at 3$ an absolute joke .

They basically cannot sell at ATMA for 40 mil to a related party without marketing the business independently to the market. UBN stake alone could have easily fetched 80-100mil .

I hear what you're saying on ATMA. I think if the ATMA transaction was done in isolation (not as part of a broader deal with Helios), without additional explanation, it would raise red flags - and maybe even spark some legal activity.

But, it's clearly a deal concession. Fairfax and Helios both well know the importance of speed when it comes to doing deals.

I suspect that during the diligence process Helios couldn't pinpoint the value of ATMA (especially with recent devaluations, and with so much of the equity stakes collateralizing debt). Helios probably considered selling it post-transaction, and realized it could be a nightmare, especially since the recent deal had collapsed. I have a hunch Helios had conversations with the parties involved in the prior deal that fell through (I feel like Fairfax would allow those types of discussions), and probably with other potential buyers, none of which alleviated concerns related to ATMA.

My guess is Helios raised ATMA as a deal breaker. Fairfax wanted to salvage the deal, had to think quickly, probably considered multiple solutions, and proposed taking most of the ATMA risk off the balance sheet by buying it at ATMA's public market value. There were alternative solutions;

- Fairfax could have offered to infuse more cash by buying more shares of FAH at around $3.00 per share
- they could have offered to loan FAH money
- they could have offered Helios more equity in the deal, etc.

I think Fairfax recognized the value of a partnership with Helios, knew they needed a quick solution specific to ATMA, and probably did the right thing to salvage the deal.

I think this deal de-risks FAH big time. I think it's win win for Fairfax and Helios.

I think Helios will leverage this relationship to launch a few $3 to $5 billion funds over the next decade, which will gush cash into the new FAH (Helios Fairfax Partners - HFP). I think HFP will provide a lot of visibility into how Helios performs, which will be reviewed by potential investors in their PE deals, so Helios will have plenty of incentive to assure HFP performs very well.

Assuming Helios can continue drumming up value in Africa for years to come this deal should create a virtuous cycle for HFP owners and for Helios's partners.

If it turns out Helios is more skilled at raising funds than investing profitably, then at some point HFP will languish. If that happens Fairfax still has control.

So, at the current price, over the next decade, I see this as landing somewhere between an investment that languishes (but, doesn't go to zero unless we see crazy leverage introduced), and maaaaybe a 10 bagger if Helios rides a wave of strong African economic growth, strong investment performance, and strong fund raising.
I agree with you broadly and things could have very well gone down that way. But the least FAH mgmt could have done is explain why they couldn't liquidate their stake in a public company(UBN) worth 180 million dollars for even 100mil. Were there no takers at a 50% discount to the current share price? and top of that no color on the financials of helios makes it very hard to give them the benefit of doubt.

Michael Wilkerson is incharge both at ATMA and FAH and gives a sweetheart deal( based on the info they shared) to the people who hired him without any explanation does not the pass the smell test at all.
Title: Re: Fairfax Africa
Post by: Xerxes on July 14, 2020, 12:19:10 PM
They owe it to their minority investors to have a separate conference call walking through the merits of this transaction with Q&A session. That would be a right thing to do.
The related Q&A cannot be 5 min of the Q2 main FFH conference call that is couple of weeks or so.
Title: Re: Fairfax Africa
Post by: SharperDingaan on July 14, 2020, 01:38:34 PM
Treat it as a learning experience in investment strategy.
Master it, if you intend to invest in the 2nd/3rd world. 

Three main takeaways.

1. A minority shareholder has no place investing in a FAH. He/she has to trust the majority shareholder, believe in their 'vision', and accept that the entire information structure of the new arrangement - puts them at a severe disadvantage. Lot more 'real' to just write a cheque to Oxfam, or invest in an african gold/platinum miner.

2. FFH sucks at this.  Sure, they should do better under the new management going forward - but they are still neophytes. Given how hard it is to outrun devaluation/corruption, and how easy it is to screw up; most would expect more fails than successes. Implies that FAH is worth more as a short, and that there is a bias towards taking the minority out altogether - at a discount.

3. If you want to invest in Africa, use an index fund - & bet against the MCSI Index. Diversifies the risk, buy at a deep liquidity discount when there is a rush for the exits (today), sell at inflated prices when there is a rush back in .... Helios reporting outsized profits, triggering a gold rush  ;)

We live in interesting times.

SD


Title: Re: Fairfax Africa
Post by: Xerxes on July 14, 2020, 01:51:26 PM
Agreed
Though I should clarify that I never had a position on FAH.
Only FFH and FIH. But the lessons applies to FIH as well.
I am just more comfortable with India and wrapping my head around the narrative. The governance concern is common though.
Title: Re: Fairfax Africa
Post by: Xerxes on August 07, 2020, 12:27:40 PM
Folks

Fairfax Africa is down 7% while Jumia is up 7% based on today.

It is time to temporarily don a Robinhood hat and go triple-leverage long on Jumia, and be back before dinner to FAH.
Title: Re: Fairfax Africa
Post by: Thrifty3000 on September 18, 2020, 11:41:05 AM
Was anything interesting shared at the meeting today?

https://www.fairfaxafrica.ca/News/Press-Releases/Press-Release-Details/2020/Fairfax-Africa-to-Provide-Update-on-Strategic-Transaction/default.aspx
Title: Re: Fairfax Africa
Post by: wondering on September 18, 2020, 02:12:12 PM
Sorry, I missed this, and if I am not mistaken there is no playback,

Did anyone listen to this?
Title: Re: Fairfax Africa
Post by: petec on September 21, 2020, 02:59:02 AM
Notes from the call.

My summary:
- Helios are impressive.
- HFP will be a very different animal to FAH, with fee streams, more/better deals, and a dividend.
- Those wanting real details will be disappointed and need to wait for the circular.

Call notes:
   - Deal creates Helios Fairfax Partners, which aims to be the pre-eminent investment vehicle for Africa, combining private equity capital and permanent capital.
   - Founders met Prem c. 1 year ago and deal developed over 6-9 months. Helios had been looking for permanent capital for years to seed new funds and support strategic/control acquisitions. Met Fairfax and immediately saw cultural similarity - shared vision and common investment principles.
   - In effect FAH is buying Helios for 45.9% of the combined company. Fairfax gives up its fee. HFP pays a fee to Helios, but then Helios pays 100% of investment fees net of expenses to HFP, plus 25% of carry on Helios' 3 old funds, which have a lot of room to appreciate, plus 50% of carry on Helios IV and any new funds. More details to come in circular late sept/early Oct. Deal closes end Oct.
   - OMERS accepted ongoing trading restrictions in order to do independent due diligence and approved the deal.
   - Opportunity in Africa is "very significant indeed". "The word excitement doesn't capture how we feel about this" deal. Public listing increases visibility and ability to hire and comp the best people.
   - Helios team will manage legacy PE funds and will co-manage the FAH balance sheet assets with Mike and his team.
   - Helios
      ○ Have a 15 year track record having raised 3 PE funds and with a small private credit business (think this is advisory) which they want to grow. They are now the largest Africa-focussed private investment firm with $3.5bn in AUM from sovereign wealth funds, pension funds, family offices etc.
      ○ The two founders of Helios, Tope Lawani and Babatunde Soyoye, are Nigerians (unique for an African PE fund to have African founders, amazingly) with outstanding academic track records and met at TPG Capital. This is their life's work.
      ○ Investment partners have average 20y private experience. Team predominantly African - big advantage.
      ○ B-Corp with active CSR programme.
      ○ Buy or build market leaders in key economic sectors. Active.
      ○ Have invested in 30 companies since inception across startup, growth, carve-out etc. 24 investments today.
      ○ Generalists with particular expertise in financial services/technology (own several payments platforms), telecom and telecom infrastructure ("literally founded" the first telecom towers business in Africa, which they sold, and their second one, Helios Towers, is listed in London), consumer non-discretionary (food & beverage), energy (power, particularly distributed solar, and midstream gas/LNG regas because they are big believers in gas as a transitional fuel), and real estate (focussed on rental accommodation for student and recent graduate housing where the other options are expensive and deplorable, and logistics).
      ○ Several examples of companies created from scratch or via mergers.
      ○ Broad range of exits covering sales, listings, and other methods.
      ○ Unique edge is knowledge of and commitment to Africa, and a proven capability to manage complexity. Partner of choice in Africa - institutional but also entrepreneurial and pioneering.
   - Q&A
      ○ Is there an information asymmetry between Helios LP investors and FAH minorities? No - the latter don't have a view of Helios economics. Circular will give a comprehensive view and there will be ample time between the circular being published and the shareholder vote.
      ○ Fees and dividends? HFP will have a stream of income which will be "very significant" over time. "We will certainly be looking at a dividend policy" which will be explained in the circular.
      ○ Helios invests in Francophone Africa. Yes. Team is bilingual in the English/French sense so able to execute in Francophone Africa. One advantage of this is that the CFA currency is pegged to the Euro in a sustainable way, so they have to worry about fx less - elsewhere they spend a "huge" amount of time on fx risk, and try to find companies with natural hedges because they sell in hard currency or have pricing power).
      ○ ATMA - presumably FFH thinks it is undervalued, as FAH has always maintained. How is that fair? Prem and Mike answered this, not Helios. FFH did not want to do this - Helios felt the exposure was too high and required it as part of the deal. Also, the transfer price is at a significant premium to market value and you have to accept there will be challenges as a result of the ongoing economic impact of Covid, particularly on financial institutions.
      ○ African GDP? Over 15 years you see patterns. One is that economic cycles are short and shallow. That makes investing in cyclicals that require the economy to be buoyant is challenging. Prefer to focus on long term, non-cyclical, secular opportunities driven by things like demographics, urbanisation, technology, innovation. Another is that some countries have reformed - Cote D'Ivoire, Morocco, Egypt, increasingly Ethiopia; while others - Angola, Nigeria, South Africa - have not. Focus on picking spots with both good macro and good exit environments.
Title: Re: Fairfax Africa
Post by: wondering on September 21, 2020, 05:46:21 AM
Thanks for posting.  Very much appreciated.
Title: Re: Fairfax Africa
Post by: Thrifty3000 on September 21, 2020, 07:56:47 AM
Notes from the call.

My summary:
- Helios are impressive.
- HFP will be a very different animal to FAH, with fee streams, more/better deals, and a dividend.
- Those wanting real details will be disappointed and need to wait for the circular.

Call notes:
   - Deal creates Helios Fairfax Partners, which aims to be the pre-eminent investment vehicle for Africa, combining private equity capital and permanent capital.
   - Founders met Prem c. 1 year ago and deal developed over 6-9 months. Helios had been looking for permanent capital for years to seed new funds and support strategic/control acquisitions. Met Fairfax and immediately saw cultural similarity - shared vision and common investment principles.
   - In effect FAH is buying Helios for 45.9% of the combined company. Fairfax gives up its fee. HFP pays a fee to Helios, but then Helios pays 100% of investment fees net of expenses to HFP, plus 25% of carry on Helios' 3 old funds, which have a lot of room to appreciate, plus 50% of carry on Helios IV and any new funds. More details to come in circular late sept/early Oct. Deal closes end Oct.
   - OMERS accepted ongoing trading restrictions in order to do independent due diligence and approved the deal.
   - Opportunity in Africa is "very significant indeed". "The word excitement doesn't capture how we feel about this" deal. Public listing increases visibility and ability to hire and comp the best people.
   - Helios team will manage legacy PE funds and will co-manage the FAH balance sheet assets with Mike and his team.
   - Helios
      ○ Have a 15 year track record having raised 3 PE funds and with a small private credit business (think this is advisory) which they want to grow. They are now the largest Africa-focussed private investment firm with $3.5bn in AUM from sovereign wealth funds, pension funds, family offices etc.
      ○ The two founders of Helios, Tope Lawani and Babatunde Soyoye, are Nigerians (unique for an African PE fund to have African founders, amazingly) with outstanding academic track records and met at TPG Capital. This is their life's work.
      ○ Investment partners have average 20y private experience. Team predominantly African - big advantage.
      ○ B-Corp with active CSR programme.
      ○ Buy or build market leaders in key economic sectors. Active.
      ○ Have invested in 30 companies since inception across startup, growth, carve-out etc. 24 investments today.
      ○ Generalists with particular expertise in financial services/technology (own several payments platforms), telecom and telecom infrastructure ("literally founded" the first telecom towers business in Africa, which they sold, and their second one, Helios Towers, is listed in London), consumer non-discretionary (food & beverage), energy (power, particularly distributed solar, and midstream gas/LNG regas because they are big believers in gas as a transitional fuel), and real estate (focussed on rental accommodation for student and recent graduate housing where the other options are expensive and deplorable, and logistics).
      ○ Several examples of companies created from scratch or via mergers.
      ○ Broad range of exits covering sales, listings, and other methods.
      ○ Unique edge is knowledge of and commitment to Africa, and a proven capability to manage complexity. Partner of choice in Africa - institutional but also entrepreneurial and pioneering.
   - Q&A
      ○ Is there an information asymmetry between Helios LP investors and FAH minorities? No - the latter don't have a view of Helios economics. Circular will give a comprehensive view and there will be ample time between the circular being published and the shareholder vote.
      ○ Fees and dividends? HFP will have a stream of income which will be "very significant" over time. "We will certainly be looking at a dividend policy" which will be explained in the circular.
      ○ Helios invests in Francophone Africa. Yes. Team is bilingual in the English/French sense so able to execute in Francophone Africa. One advantage of this is that the CFA currency is pegged to the Euro in a sustainable way, so they have to worry about fx less - elsewhere they spend a "huge" amount of time on fx risk, and try to find companies with natural hedges because they sell in hard currency or have pricing power).
      ○ ATMA - presumably FFH thinks it is undervalued, as FAH has always maintained. How is that fair? Prem and Mike answered this, not Helios. FFH did not want to do this - Helios felt the exposure was too high and required it as part of the deal. Also, the transfer price is at a significant premium to market value and you have to accept there will be challenges as a result of the ongoing economic impact of Covid, particularly on financial institutions.
      ○ African GDP? Over 15 years you see patterns. One is that economic cycles are short and shallow. That makes investing in cyclicals that require the economy to be buoyant is challenging. Prefer to focus on long term, non-cyclical, secular opportunities driven by things like demographics, urbanisation, technology, innovation. Another is that some countries have reformed - Cote D'Ivoire, Morocco, Egypt, increasingly Ethiopia; while others - Angola, Nigeria, South Africa - have not. Focus on picking spots with both good macro and good exit environments.

Thanks, Petec! After reading your notes and what I’ve found about Helios on the internet this seems like an ideal pivot for the African strategy. Helios seems like it’s about as high quality of a partnership as you could hope to find in Africa. I liked the color on the currency and fx risk management. I’m looking forward to the circular.
Title: Re: Fairfax Africa
Post by: petec on September 21, 2020, 10:12:39 AM
Notes from the call.

My summary:
- Helios are impressive.
- HFP will be a very different animal to FAH, with fee streams, more/better deals, and a dividend.
- Those wanting real details will be disappointed and need to wait for the circular.

Call notes:
   - Deal creates Helios Fairfax Partners, which aims to be the pre-eminent investment vehicle for Africa, combining private equity capital and permanent capital.
   - Founders met Prem c. 1 year ago and deal developed over 6-9 months. Helios had been looking for permanent capital for years to seed new funds and support strategic/control acquisitions. Met Fairfax and immediately saw cultural similarity - shared vision and common investment principles.
   - In effect FAH is buying Helios for 45.9% of the combined company. Fairfax gives up its fee. HFP pays a fee to Helios, but then Helios pays 100% of investment fees net of expenses to HFP, plus 25% of carry on Helios' 3 old funds, which have a lot of room to appreciate, plus 50% of carry on Helios IV and any new funds. More details to come in circular late sept/early Oct. Deal closes end Oct.
   - OMERS accepted ongoing trading restrictions in order to do independent due diligence and approved the deal.
   - Opportunity in Africa is "very significant indeed". "The word excitement doesn't capture how we feel about this" deal. Public listing increases visibility and ability to hire and comp the best people.
   - Helios team will manage legacy PE funds and will co-manage the FAH balance sheet assets with Mike and his team.
   - Helios
      ○ Have a 15 year track record having raised 3 PE funds and with a small private credit business (think this is advisory) which they want to grow. They are now the largest Africa-focussed private investment firm with $3.5bn in AUM from sovereign wealth funds, pension funds, family offices etc.
      ○ The two founders of Helios, Tope Lawani and Babatunde Soyoye, are Nigerians (unique for an African PE fund to have African founders, amazingly) with outstanding academic track records and met at TPG Capital. This is their life's work.
      ○ Investment partners have average 20y private experience. Team predominantly African - big advantage.
      ○ B-Corp with active CSR programme.
      ○ Buy or build market leaders in key economic sectors. Active.
      ○ Have invested in 30 companies since inception across startup, growth, carve-out etc. 24 investments today.
      ○ Generalists with particular expertise in financial services/technology (own several payments platforms), telecom and telecom infrastructure ("literally founded" the first telecom towers business in Africa, which they sold, and their second one, Helios Towers, is listed in London), consumer non-discretionary (food & beverage), energy (power, particularly distributed solar, and midstream gas/LNG regas because they are big believers in gas as a transitional fuel), and real estate (focussed on rental accommodation for student and recent graduate housing where the other options are expensive and deplorable, and logistics).
      ○ Several examples of companies created from scratch or via mergers.
      ○ Broad range of exits covering sales, listings, and other methods.
      ○ Unique edge is knowledge of and commitment to Africa, and a proven capability to manage complexity. Partner of choice in Africa - institutional but also entrepreneurial and pioneering.
   - Q&A
      ○ Is there an information asymmetry between Helios LP investors and FAH minorities? No - the latter don't have a view of Helios economics. Circular will give a comprehensive view and there will be ample time between the circular being published and the shareholder vote.
      ○ Fees and dividends? HFP will have a stream of income which will be "very significant" over time. "We will certainly be looking at a dividend policy" which will be explained in the circular.
      ○ Helios invests in Francophone Africa. Yes. Team is bilingual in the English/French sense so able to execute in Francophone Africa. One advantage of this is that the CFA currency is pegged to the Euro in a sustainable way, so they have to worry about fx less - elsewhere they spend a "huge" amount of time on fx risk, and try to find companies with natural hedges because they sell in hard currency or have pricing power).
      ○ ATMA - presumably FFH thinks it is undervalued, as FAH has always maintained. How is that fair? Prem and Mike answered this, not Helios. FFH did not want to do this - Helios felt the exposure was too high and required it as part of the deal. Also, the transfer price is at a significant premium to market value and you have to accept there will be challenges as a result of the ongoing economic impact of Covid, particularly on financial institutions.
      ○ African GDP? Over 15 years you see patterns. One is that economic cycles are short and shallow. That makes investing in cyclicals that require the economy to be buoyant is challenging. Prefer to focus on long term, non-cyclical, secular opportunities driven by things like demographics, urbanisation, technology, innovation. Another is that some countries have reformed - Cote D'Ivoire, Morocco, Egypt, increasingly Ethiopia; while others - Angola, Nigeria, South Africa - have not. Focus on picking spots with both good macro and good exit environments.

Thanks, Petec! After reading your notes and what I’ve found about Helios on the internet this seems like an ideal pivot for the African strategy. Helios seems like it’s about as high quality of a partnership as you could hope to find in Africa. I liked the color on the currency and fx risk management. I’m looking forward to the circular.

Agreed. I tentatively doff my cap to Prem on this one. His flaws have been well-aired, but one of his strengths is to pull best in class people into his orbit and I think he has done it again.
Title: Re: Fairfax Africa
Post by: Thrifty3000 on September 30, 2020, 09:42:08 AM
Here we go. Atlas Mara announced yesterday they sold a subsidiary bank for .8 times book value:

https://otp.tools.investis.com/clients/uk/atlas_mara1/rns/regulatory-story.aspx?cid=744&newsid=1419246
Title: Re: Fairfax Africa
Post by: petec on September 30, 2020, 09:46:11 AM
Given the p/bv of ATMA, that's a good (albeit small) deal.

If they can do more of those with the noncore banks, and end up with UBN (ideally consolidated) and Botswana the shares should rally significantly.
Title: Re: Fairfax Africa
Post by: Thrifty3000 on October 13, 2020, 12:05:51 PM
I'm sensing some weird vibes on this deal.

1) The circular still hasn't been published.

2) Atlas Mara was late posting interim results due in September, and when they did post, their tangible book value had dropped from $2.84 per share a year ago to $2.05 now (that's a pretty big hit - thanks mostly to currency devaluation). And, I have a hunch the meltdown could be seen as a material risk by Helios, because even after Fairfax buys ATMA and guarantees the $40 million facility, Fairfax Africa will still hold something like $40 million of ATMA bonds, which are collateralized with an African country's government bonds and a bank subsidiary's equity (woohoo). I also don't think ATMA can afford to pay the interest yet. (#redflag)

3) CIG is also late posting interim results. They were also due in September, and CIG issued a press release announcing they would be late. Last I checked CIG's market cap was in the neighborhood of $0. Fairfax Africa holds about $40 million of CIG loans, which like ATMA, CIG is failing to pay interest on. (#redflag)

4) Last week I noticed Fairfax Africa posted a link on the Events & Webinars page to a replay of their webinar with Helios. I watched the webinar, and had the following impressions:

- Helios's Tope Lawani is super impressive. He presents himself very well and communicates like an executive capable of managing billions of dollars.
- In contrast, Fairfax's Michael Wilkerson seemed out of control. He nonchalantly admitted the ATMA investment was inappropriately over-sized for the portfolio (and didn't strongly defend the investment thesis - a pet peeve of mine). I felt/detected he was deferring to Prem or hesitating with answers to questions about decisions made on his watch. And, I couldn't help but be distracted by Michael's disheveled office and ill-fitting attire - especially for a guy that needs to instill confidence/control to get a vitally important deal across the finish line. (#redflags)

After watching the webinar my first thought was, wow, Prem seriously nailed it with Helios - I can't wait to see what they bring to the table. But, my next thought was, why would Helios accept minority ownership of their life's work if in exchange they're being offered an illiquid dumpster fire? (I decided to sleep on it.)

NOW, here's the kicker... I returned to the Fairfax Africa website the next morning to grab the webinar link and post it on this forum. BUT, the link was removed!

Since the purpose of the webinar was to assure investors of the deal's merits, the sudden removal of the webinar before posting the circular seemed odd. (#redflag)

I have to say, a late financial report by ATMA, no financial report from CIG, a late circular, a leader with an ungodly amount of responsibility appearing in over his head, and the deleted webinar has sufficiently shaken my confidence on this one.

I had a small cigar butt position that I exited over the last 2 days at a whopping 6% annualized pre-tax gain. At this point I'll either wait for the deal to collapse to see if it presents another cigar butt opportunity, or wait for the ink to dry, and see if it can be purchased at a decent valuation based on the circular. Or, I'll throw it where it actually belongs, in the way too hard pile.

Hopefully that circular is published and the deal finalized asap.
Title: Re: Fairfax Africa
Post by: petec on October 13, 2020, 01:34:50 PM
I think Helios would have known, or could have figured out, all of this when they did the call. I can’t imagine any of it being a surprise.
Title: Re: Fairfax Africa
Post by: Xerxes on October 13, 2020, 02:48:17 PM
4) Last week I noticed Fairfax Africa posted a link on the Events & Webinars page to a replay of their webinar with Helios. I watched the webinar, and had the following

Thrifty3000
where do you see that. i have been desperately searching for that.
i can only see the event date on Sept 16
Title: Re: Fairfax Africa
Post by: Thrifty3000 on October 13, 2020, 02:57:17 PM
4) Last week I noticed Fairfax Africa posted a link on the Events & Webinars page to a replay of their webinar with Helios. I watched the webinar, and had the following

Thrifty3000
where do you see that. i have been desperately searching for that.
i can only see the event date on Sept 16

It WAS on their website last week on the Events and Webinars page. I found it on Thursday afternoon. The next morning it was gone! There was no messaging saying how long it would be made available.
Title: Re: Fairfax Africa
Post by: Xerxes on October 13, 2020, 03:16:14 PM
Damn ! that is weird.
I have send them an email.
The plot thickens.
Title: Re: Fairfax Africa
Post by: Thrifty3000 on October 13, 2020, 03:57:21 PM
Good luck. I’ve sent emails to Atlas Mara’s investor relations in recent months. No response. I HATE when publicly traded companies with highly paid Chief Financial Officers miss reporting deadlines (for anything other than technical complications or reasons that can be easily explained in a press release). It’s your F-ing job to report financials to your OWNERS on time. And, EVERYTHING these days is digital - so it ain’t hard! There’s no good excuse.

If they’re waiting on a well-worded chairman’s letter from an overcommitted chairman, then shame on them (they can release financials and announce a letter is  forthcoming). If they’re trying to figure out how to “legally” window-dress receivables they’ll never collect in a million years then shame on them. If they’re trying to delay reporting until after the ink is dry on a Helios deal then shame on them (that’s neither fair nor friendly) - and if Helios actually falls for that, then shame on anyone who trusts Helios’s judgment.

Reporting abnormally late is not a small issue!

In my book the only things worse than disrespecting owners via unexplained reporting delays are major lawsuits and abrupt CEO/CFO resignations. I try to be the first to the exit in those situations. 2 out of 3 times it’s the right decision.
Title: Re: Fairfax Africa
Post by: petec on October 13, 2020, 10:30:33 PM
For what it’s worth the webcast is still “public” in the sense that the audio is available to Bloomberg subscribers. They know they can’t suppress it, so I doubt they’re trying.

IIRC (which may well not be the case) this is not the first time ATMA has reported late. I’m not defending it, but it may not be a red flag for the deal.

Here’s hoping.
Title: Re: Fairfax Africa
Post by: hobbit on October 14, 2020, 07:56:46 AM
https://www.canadianinsider.com/company?ticker=FAH

FFH buying more FAH in the past couple of months
Title: Re: Fairfax Africa
Post by: petec on October 14, 2020, 09:22:14 AM
https://www.canadianinsider.com/company?ticker=FAH

FFH buying more FAH in the past couple of months

Why’s 2099 shares a day the magic number? Are they limited (as the issuer would be for an NCIB)?
Title: Re: Fairfax Africa
Post by: Thrifty3000 on October 14, 2020, 09:48:49 AM
https://www.canadianinsider.com/company?ticker=FAH

FFH buying more FAH in the past couple of months

Why’s 2099 shares a day the magic number? Are they limited (as the issuer would be for an NCIB)?

That's probably the amount of daily volume they can purchase without overly impacting the price. So they're investing around $7,000 daily.
Title: Re: Fairfax Africa
Post by: petec on October 14, 2020, 09:54:30 AM
https://www.canadianinsider.com/company?ticker=FAH

FFH buying more FAH in the past couple of months

Why’s 2099 shares a day the magic number? Are they limited (as the issuer would be for an NCIB)?

That's probably the amount of daily volume they can purchase without overly impacting the price. So they're investing around $7,000 daily.

If that was the case you’d see the odd 2098, 2101 etc. This is something else.
Title: Re: Fairfax Africa
Post by: Cigarbutt on October 14, 2020, 09:59:47 AM
^
https://www.fairfaxafrica.ca/News/Press-Releases/Press-Release-Details/2020/Fairfax-Africa-Enters-Into-Automatic-Share-Purchase-Plan-and-Announces-Intention-to-Make-Normal-Course-Issuer-Bid-for-Subordinate-Voting-Shares/default.aspx
Title: Re: Fairfax Africa
Post by: Thrifty3000 on October 14, 2020, 10:33:08 AM
https://www.forbes.com/sites/simonmoore/2019/01/30/the-hidden-signal-in-delayed-earnings-announcements/#246097ad5750

The article explains that significantly delayed earnings are statistically a legit red flag.

We already know Consolidated Infrastructure Group (CIG) is teetering on the brink of bankruptcy.

Consolidated Infrastructure Group was already having to include a section in their reports explaining why the board believes the company can actually be considered a going concern - despite being all but bankrupt (I mean they're literally at the over-drafting their bank accounts level of bankrupt). Management claims that the problems are confined to their largest division, and that the other divisions can stand on their own. They use the health of the company's other divisions as justification for going concern. They say they can draw from the other divisions to cover costs of restructuring and right-sizing the problem division. I'm not so sure though. Someone should look into this, but I think they have a ton of short term liabilities guaranteed at the corporate level. I don't think the liabilities are isolated among the divisions. I think if the company defaults it will be a difficult restructuring. I have a hunch Fairfax Africa's CIG loan is subordinate to all the rest of the debt.

CIG's value has plummeted from somewhere north of $500 million to less than $5 million in less than 4 years. It's a rotten company, and it's tied to some industries/geographies that are getting stomped on in Africa.

We all know Prem is a master of smoothing things over during acquisition talks. However, poor earnings surprises is one of the primary reasons deals fall apart. And, I think it's possible Helios is watching CIG implode and realizing they are very likely going to have to oversee an ugly bankruptcy proceeding, AND they are going to have to write off the CIG loan (and maybe the PRG2 loan - I don't know what the loan was for, I just know it's collateralized with CIG equity, ouch).

I assume the Helios deal was struck on the assumption each party is contributing around $400 million worth of value.

Depending on CIG's performance in the 3rd quarter - when combined with other issues in the portfolio - it probably isn't hard to make a case that $100 million of Fairfax Africa's book value is at risk (that's not including ATMA equity or the ATMA Facility).

But, here's the other psychological wrench. Helios almost certainly believes they are bringing at least $400 million of value to the table. They have the luxury of basing their value on future projections. By now the realization has sunk in that they are on the cusp of selling MAJORITY CONTROL of their $3 BILLION DOLLAR BABY to Prem Watsa's HEIRS.

They are watching the Fairfax Africa dumpster fire burn and asking why they are exchanging CONTROL of their own lives (yes, control, for the next 30+ years they will have to convene the board and ask Prem Watsa's children for permission to invest in any insurance operation, or to make any investment over $50 million), all in exchange for a DUMPSTER FIRE that they fully believe is worth less than what they are bringing to the table. (At the very least they should be jockeying for majority control right now.)

I know there's strong psychological bias not to re-trade a deal, etc. But, I think CIG is a deal breaker, and I have a hunch we're watching it play out in the form of:

- delayed CIG report
- delayed circular
- deleted webinar access

If the deal goes through I believe the stock is instantly worth 50% more. Easily! Which is why it's so hard to sit on the sidelines knowing it could bounce anytime now (on positive CIG news or more signs of deal confirmation).

But, right now, given the red flags, I personally think the odds of the deal succeeding have tipped below 50% in recent days (I hope I'm wrong). And, without the deal going through I don't have high confidence Fairfax Africa's current leadership will right the ship.
Title: Re: Fairfax Africa
Post by: hobbit on October 14, 2020, 10:41:17 AM
https://www.canadianinsider.com/company?ticker=FAH

FFH buying more FAH in the past couple of months

Why’s 2099 shares a day the magic number? Are they limited (as the issuer would be for an NCIB)?

 Capped at 25% of daily average trading volume
Title: Re: Fairfax Africa
Post by: hobbit on October 14, 2020, 10:43:05 AM
^
https://www.fairfaxafrica.ca/News/Press-Releases/Press-Release-Details/2020/Fairfax-Africa-Enters-Into-Automatic-Share-Purchase-Plan-and-Announces-Intention-to-Make-Normal-Course-Issuer-Bid-for-Subordinate-Voting-Shares/default.aspx

This is FAH purchasing their own shares. They have not done that since april 2020.

FFH acquiring shares of FAH in open market is a good sign for the deal.

Title: Re: Fairfax Africa
Post by: petec on October 14, 2020, 11:00:10 AM
https://www.forbes.com/sites/simonmoore/2019/01/30/the-hidden-signal-in-delayed-earnings-announcements/#246097ad5750

The article explains that significantly delayed earnings are statistically a legit red flag.

We already know Consolidated Infrastructure Group (CIG) is teetering on the brink of bankruptcy.

Consolidated Infrastructure Group was already having to include a section in their reports explaining why the board believes the company can actually be considered a going concern - despite being all but bankrupt (I mean they're literally at the over-drafting their bank accounts level of bankrupt). Management claims that the problems are confined to their largest division, and that the other divisions can stand on their own. They use the health of the company's other divisions as justification for going concern. They say they can draw from the other divisions to cover costs of restructuring and right-sizing the problem division. I'm not so sure though. Someone should look into this, but I think they have a ton of short term liabilities guaranteed at the corporate level. I don't think the liabilities are isolated among the divisions. I think if the company defaults it will be a difficult restructuring. I have a hunch Fairfax Africa's CIG loan is subordinate to all the rest of the debt.

CIG's value has plummeted from somewhere north of $500 million to less than $5 million in less than 4 years. It's a rotten company, and it's tied to some industries/geographies that are getting stomped on in Africa.

We all know Prem is a master of smoothing things over during acquisition talks. However, poor earnings surprises is one of the primary reasons deals fall apart. And, I think it's possible Helios is watching CIG implode and realizing they are very likely going to have to oversee an ugly bankruptcy proceeding, AND they are going to have to write off the CIG loan (and maybe the PRG2 loan - I don't know what the loan was for, I just know it's collateralized with CIG equity, ouch).

I assume the Helios deal was struck on the assumption each party is contributing around $400 million worth of value.

Depending on CIG's performance in the 3rd quarter - when combined with other issues in the portfolio - it probably isn't hard to make a case that $100 million of Fairfax Africa's book value is at risk (that's not including ATMA equity or the ATMA Facility).

But, here's the other psychological wrench. Helios almost certainly believes they are bringing at least $400 million of value to the table. They have the luxury of basing their value on future projections. By now the realization has sunk in that they are on the cusp of selling MAJORITY CONTROL of their $3 BILLION DOLLAR BABY to Prem Watsa's HEIRS.

They are watching the Fairfax Africa dumpster fire burn and asking why they are exchanging CONTROL of their own lives (yes, control, for the next 30+ years they will have to convene the board and ask Prem Watsa's children for permission to invest in any insurance operation, or to make any investment over $50 million), all in exchange for a DUMPSTER FIRE that they fully believe is worth less than what they are bringing to the table. (At the very least they should be jockeying for majority control right now.)

I know there's strong psychological bias not to re-trade a deal, etc. But, I think CIG is a deal breaker, and I have a hunch we're watching it play out in the form of:

- delayed CIG report
- delayed circular
- deleted webinar access

If the deal goes through I believe the stock is instantly worth 50% more. Easily! Which is why it's so hard to sit on the sidelines knowing it could bounce anytime now (on positive CIG news or more signs of deal confirmation).

But, right now, given the red flags, I personally think the odds of the deal succeeding have tipped below 50% in recent days (I hope I'm wrong). And, without the deal going through I don't have high confidence Fairfax Africa's current leadership will right the ship.

You make a compelling case, although you’re spending far more time than I would speculating about something we will have a definitive answer to soon.

One comment though. Read the parts you put in capitals. Do you honestly think Helio’s hadn’t considered these points before?

If it’s only just occurred to them that they’re giving up control then they’re morons and I hope the deal doesn’t go through.
Title: Re: Fairfax Africa
Post by: Thrifty3000 on October 14, 2020, 11:02:28 AM
One other key consideration...

Much of the value of this deal for Helios is for future publicity and marketing. In fact, the success of Helios's private equity efforts long term will be directly tied to the success of Fairfax Africa.

In the future, any prospective Helios PE investor will have complete visibility into the publicly available Fairfax Africa investment performance. If this deal creates negative press for Helios (like having 25% or more of book value evaporate within a year or two of doing the deal) then it will become a vicious cycle for Helios and Fairfax Africa. A massive blunder like that could set Helios back by a decade.
Title: Re: Fairfax Africa
Post by: petec on October 14, 2020, 11:18:48 AM
Again, what’s new? Do you really think they thought CIG was healthy 3 months ago? Because I can tell you it wasn’t.
Title: Re: Fairfax Africa
Post by: SharperDingaan on October 14, 2020, 11:46:54 AM
Reporting delays are because 'independents' are balking at signing off - typically 'cause it's not what it seems.
Long-term holders (FFH, FAH) believe going concern is not a problem? but have had to demonstrate it by supporting the market, versus just injecting more equity? Kind of implies that without the support ... they expect a run on the FAH share-price, and a 're-set'.

Hopefully we're wrong.
We wish them luck.

SD
Title: Re: Fairfax Africa
Post by: elliott on October 14, 2020, 12:08:47 PM
Again, what’s new? Do you really think they thought CIG was healthy 3 months ago? Because I can tell you it wasn’t.

petec, we could say the same in relation to FAH and their injecting more capital into CIG. It really wasnt so long ago, and they had insiders. Yet they made the move... Such a clever move.

Title: Re: Fairfax Africa
Post by: petec on October 14, 2020, 12:17:17 PM
Again, what’s new? Do you really think they thought CIG was healthy 3 months ago? Because I can tell you it wasn’t.

petec, we could say the same in relation to FAH and their injecting more capital into CIG. It really wasnt so long ago, and they had insiders. Yet they made the move... Such a clever move.

That’s slightly different. They already owned it. Injecting capital could have saved the investment. That can’t be said of Helios. Again, I’m just wondering what’s new, if anything, other than the late filing.
Title: Re: Fairfax Africa
Post by: elliott on October 15, 2020, 01:36:15 AM
That’s slightly different. They already owned it. Injecting capital could have saved the investment. That can’t be said of Helios. Again, I’m just wondering what’s new, if anything, other than the late filing.

True.
From a different point of view, I hope CIG was not a case of sunken costs fallacy.
Title: Re: Fairfax Africa
Post by: Thrifty3000 on October 15, 2020, 08:52:08 AM
Reporting delays are because 'independents' are balking at signing off - typically 'cause it's not what it seems.
Long-term holders (FFH, FAH) believe going concern is not a problem? but have had to demonstrate it by supporting the market, versus just injecting more equity? Kind of implies that without the support ... they expect a run on the FAH share-price, and a 're-set'.

Hopefully we're wrong.
We wish them luck.

SD

Darn, still no CIG results or circular. Clock is ticking, and time kills deals.

I found a headline from 2 weeks ago (Oct. 1) announcing changes to CIG's board of directors and sub-committees. But, I can't access the article's content, and I can't find an official release from CIG. But, it may lend support to SD's theory that the CIG board is the hold up. The CIG board certainly understands the deal disrupting consequences of tardiness and discord. Bad form.
Title: Re: Fairfax Africa
Post by: Thrifty3000 on October 16, 2020, 10:13:34 AM
I went ahead and dug into the CIG-related investments as of the last quarterly report, just to try to ring fence the bankruptcy-related risk:

- CIG stock = $6 million
- CIG loan = $15.5 million
- PGR2 loan = $18.5 million

Total = $40 million

Bankruptcy scenario:

- CIG stock = $0
- CIG loan appears to be secured against CIG assets, so I'm completely guessing there might be a 30% recovery: $5 million
- PGR2 - some good news here is that even though it's collateralized against CIG equity, the loan was to Peregrine so Peregrine could buy CIG shares during the rights offering. It accrues 15% interest annually for FAH, and has to be repaid by Peregrine in 2021 (Peregrine was recently acquired and appears healthy/solvent): $20 million

Total value after bankruptcy: $25 million

So, it looks like the financial risk in the event of a CIG bankruptcy is maybe $15 million. I wouldn't think that amount on it's own would derail the deal with Helios.

I think CIG is only a deal-breaking risk if Helios is concerned about the reputational risk/optics, distraction, and general headache of overseeing a bankruptcy proceeding immediately after a merger. But, like Petec said, that's purely speculation.
Title: Re: Fairfax Africa
Post by: Thrifty3000 on October 16, 2020, 11:45:38 AM
Just for kicks I reached out to an M&A investment banker to hear his thoughts. He said over the course of a quarter if negative developments cause a revaluation of 10% the deal is virtually guaranteed to get renegotiated (or dissolve).

He said pulling the webinar from the website is super shady - a giant red flag. Posting the webinar signaled the deal was progressing. However, removing the webinar is almost a sure sign that Helios contacted FAH and said we no longer have a deal.

He said the standard M&A playbook for a negative development would be for Helios to jockey for a significant downward revision of FAH's valuation (maybe from $400 million to $300 million) to provide a margin of safety in the event of further negative surprises. Obviously that would throw a huge wrench in Prem's desire to maintain control.

If a CIG bankruptcy will destroy $15 million of value, then there only needs to be $20 million or so worth of additional negative developments this quarter to spook Helios. Considering AGH and GroCapital experienced declining valuations totaling $13 million last quarter, I don't think it's farfetched to think we might see similar declines in those or other assets this quarter.
Title: Re: Fairfax Africa
Post by: hobbit on October 16, 2020, 01:26:13 PM
Just for kicks I reached out to an M&A investment banker to hear his thoughts. He said over the course of a quarter if negative developments cause a revaluation of 10% the deal is virtually guaranteed to get renegotiated (or dissolve).

He said pulling the webinar from the website is super shady - a giant red flag. Posting the webinar signaled the deal was progressing. However, removing the webinar is almost a sure sign that Helios contacted FAH and said we no longer have a deal.

He said the standard M&A playbook for a negative development would be for Helios to jockey for a significant downward revision of FAH's valuation (maybe from $400 million to $300 million) to provide a margin of safety in the event of further negative surprises. Obviously that would throw a huge wrench in Prem's desire to maintain control.

If a CIG bankruptcy will destroy $15 million of value, then there only needs to be $20 million or so worth of additional negative developments this quarter to spook Helios. Considering AGH and GroCapital experienced declining valuations totaling $13 million last quarter, I don't think it's farfetched to think we might see similar declines in those or other assets this quarter.

Lets assume deal does not happen, whats the downside at these prices with 100 + 40 mil in cash and zero debt
Title: Re: Fairfax Africa
Post by: Thrifty3000 on October 18, 2020, 06:50:09 PM
Just for kicks I reached out to an M&A investment banker to hear his thoughts. He said over the course of a quarter if negative developments cause a revaluation of 10% the deal is virtually guaranteed to get renegotiated (or dissolve).

He said pulling the webinar from the website is super shady - a giant red flag. Posting the webinar signaled the deal was progressing. However, removing the webinar is almost a sure sign that Helios contacted FAH and said we no longer have a deal.

He said the standard M&A playbook for a negative development would be for Helios to jockey for a significant downward revision of FAH's valuation (maybe from $400 million to $300 million) to provide a margin of safety in the event of further negative surprises. Obviously that would throw a huge wrench in Prem's desire to maintain control.

If a CIG bankruptcy will destroy $15 million of value, then there only needs to be $20 million or so worth of additional negative developments this quarter to spook Helios. Considering AGH and GroCapital experienced declining valuations totaling $13 million last quarter, I don't think it's farfetched to think we might see similar declines in those or other assets this quarter.

Lets assume deal does not happen, whats the downside at these prices with 100 + 40 mil in cash and zero debt

I think you're referencing cash & equivs from the 2019 annual report. Their position is radically different now. During the financial panic earlier this year they basically had to step in as the de facto Federal Reserve for their bank investees.

Now their cash & equivs position is down to $68 million of unrestricted cash (and an additional $18 million of restricted cash - locked in bank accounts at investee banks to help them avoid being forced by regulators to raise super-expensive capital).

Regarding downside risk of a failed Helios deal I think you have to look at:

- liquidation value of the assets after a failed deal
- future value of assets in a deteriorating portfolio that has been poorly managed since inception (improperly sized investments in geographies and businesses outside of management's circle of competence)
- odds Prem will either liquidate the portfolio and return more cash to shareholders than the current market price, or find new management that can shore up the portfolio and better execute the Africa investment strategy.

If the Helios deal fails you might be able to make the case for a liquidation value of as much as, say, $325 million. But, I don't think there's as much margin of safety as you might think. I think the portfolio is basically one negative economic shock - like war or another oil price collapse - away from being impaired to $225 million or less.

Also, the portfolio's current manager is not right for the job, but how do you attract a new management team with the requisite talent to manage such a small portfolio? I'm assuming you would need at least a billion dollar portfolio to attract/compensate an effective management team. Further, how would Prem be able to raise a billion dollars to right-size the portfolio given the failed track record?

Honestly, I think Prem pretty much HAS to either do the deal with Helios or liquidate ASAP - and both sides know it. I think Prem and Tope are reasonable and will deal fairly with each other. But, I think Prem is in a tough situation. Does he give up majority control (I doubt it, but it might be the best solution)? Does he commit Fairfax to buy/guarantee more of the assets (tough call)? Does he infuse more cash into FAH by issuing more FAH shares - diluting current owners (another tough one)?

After all those considerations my opinion is the range of outcomes is too broad for FAH to be a sound investment for a minority equity owner. I think there are plenty of scenarios resulting in permanent loss of capital, thereby making this a value investing anathema.

(PS. I'm going to feel REALLY dumb when this deal sails through as it was originally laid out and the stock price jumps 50%. Haha. Oh well.)
Title: Re: Fairfax Africa
Post by: hobbit on October 18, 2020, 10:40:06 PM
Just for kicks I reached out to an M&A investment banker to hear his thoughts. He said over the course of a quarter if negative developments cause a revaluation of 10% the deal is virtually guaranteed to get renegotiated (or dissolve).

He said pulling the webinar from the website is super shady - a giant red flag. Posting the webinar signaled the deal was progressing. However, removing the webinar is almost a sure sign that Helios contacted FAH and said we no longer have a deal.

He said the standard M&A playbook for a negative development would be for Helios to jockey for a significant downward revision of FAH's valuation (maybe from $400 million to $300 million) to provide a margin of safety in the event of further negative surprises. Obviously that would throw a huge wrench in Prem's desire to maintain control.

If a CIG bankruptcy will destroy $15 million of value, then there only needs to be $20 million or so worth of additional negative developments this quarter to spook Helios. Considering AGH and GroCapital experienced declining valuations totaling $13 million last quarter, I don't think it's farfetched to think we might see similar declines in those or other assets this quarter.

Lets assume deal does not happen, whats the downside at these prices with 100 + 40 mil in cash and zero debt

I think you're referencing cash & equivs from the 2019 annual report. Their position is radically different now. During the financial panic earlier this year they basically had to step in as the de facto Federal Reserve for their bank investees.

Now their cash & equivs position is down to $68 million of unrestricted cash (and an additional $18 million of restricted cash - locked in bank accounts at investee banks to help them avoid being forced by regulators to raise super-expensive capital).

Regarding downside risk of a failed Helios deal I think you have to look at:

- liquidation value of the assets after a failed deal
- future value of assets in a deteriorating portfolio that has been poorly managed since inception (improperly sized investments in geographies and businesses outside of management's circle of competence)
- odds Prem will either liquidate the portfolio and return more cash to shareholders than the current market price, or find new management that can shore up the portfolio and better execute the Africa investment strategy.

If the Helios deal fails you might be able to make the case for a liquidation value of as much as, say, $325 million. But, I don't think there's as much margin of safety as you might think. I think the portfolio is basically one negative economic shock - like war or another oil price collapse - away from being impaired to $225 million or less.

Also, the portfolio's current manager is not right for the job, but how do you attract a new management team with the requisite talent to manage such a small portfolio? I'm assuming you would need at least a billion dollar portfolio to attract/compensate an effective management team. Further, how would Prem be able to raise a billion dollars to right-size the portfolio given the failed track record?

Honestly, I think Prem pretty much HAS to either do the deal with Helios or liquidate ASAP - and both sides know it. I think Prem and Tope are reasonable and will deal fairly with each other. But, I think Prem is in a tough situation. Does he give up majority control (I doubt it, but it might be the best solution)? Does he commit Fairfax to buy/guarantee more of the assets (tough call)? Does he infuse more cash into FAH by issuing more FAH shares - diluting current owners (another tough one)?

After all those considerations my opinion is the range of outcomes is too broad for FAH to be a sound investment for a minority equity owner. I think there are plenty of scenarios resulting in permanent loss of capital, thereby making this a value investing anathema.

(PS. I'm going to feel REALLY dumb when this deal sails through as it was originally laid out and the stock price jumps 50%. Haha. Oh well.)

one of the conditions of closing

"
As of immediately prior to Closing, the Buyer Entities shall have Cash equal to at
least the sum of $102,000,000, including Cash deposits held at any Portfolio Investment of the
Buyer, plus the undrawn amount under the Atlas Mara Facility less any Transaction Expenses paid
for by any Buyer Entity prior to such calculation of Cash;
Title: Re: Fairfax Africa
Post by: Thrifty3000 on October 19, 2020, 07:49:18 AM
Just for kicks I reached out to an M&A investment banker to hear his thoughts. He said over the course of a quarter if negative developments cause a revaluation of 10% the deal is virtually guaranteed to get renegotiated (or dissolve).

He said pulling the webinar from the website is super shady - a giant red flag. Posting the webinar signaled the deal was progressing. However, removing the webinar is almost a sure sign that Helios contacted FAH and said we no longer have a deal.

He said the standard M&A playbook for a negative development would be for Helios to jockey for a significant downward revision of FAH's valuation (maybe from $400 million to $300 million) to provide a margin of safety in the event of further negative surprises. Obviously that would throw a huge wrench in Prem's desire to maintain control.

If a CIG bankruptcy will destroy $15 million of value, then there only needs to be $20 million or so worth of additional negative developments this quarter to spook Helios. Considering AGH and GroCapital experienced declining valuations totaling $13 million last quarter, I don't think it's farfetched to think we might see similar declines in those or other assets this quarter.

Lets assume deal does not happen, whats the downside at these prices with 100 + 40 mil in cash and zero debt

I think you're referencing cash & equivs from the 2019 annual report. Their position is radically different now. During the financial panic earlier this year they basically had to step in as the de facto Federal Reserve for their bank investees.

Now their cash & equivs position is down to $68 million of unrestricted cash (and an additional $18 million of restricted cash - locked in bank accounts at investee banks to help them avoid being forced by regulators to raise super-expensive capital).

Regarding downside risk of a failed Helios deal I think you have to look at:

- liquidation value of the assets after a failed deal
- future value of assets in a deteriorating portfolio that has been poorly managed since inception (improperly sized investments in geographies and businesses outside of management's circle of competence)
- odds Prem will either liquidate the portfolio and return more cash to shareholders than the current market price, or find new management that can shore up the portfolio and better execute the Africa investment strategy.

If the Helios deal fails you might be able to make the case for a liquidation value of as much as, say, $325 million. But, I don't think there's as much margin of safety as you might think. I think the portfolio is basically one negative economic shock - like war or another oil price collapse - away from being impaired to $225 million or less.

Also, the portfolio's current manager is not right for the job, but how do you attract a new management team with the requisite talent to manage such a small portfolio? I'm assuming you would need at least a billion dollar portfolio to attract/compensate an effective management team. Further, how would Prem be able to raise a billion dollars to right-size the portfolio given the failed track record?

Honestly, I think Prem pretty much HAS to either do the deal with Helios or liquidate ASAP - and both sides know it. I think Prem and Tope are reasonable and will deal fairly with each other. But, I think Prem is in a tough situation. Does he give up majority control (I doubt it, but it might be the best solution)? Does he commit Fairfax to buy/guarantee more of the assets (tough call)? Does he infuse more cash into FAH by issuing more FAH shares - diluting current owners (another tough one)?

After all those considerations my opinion is the range of outcomes is too broad for FAH to be a sound investment for a minority equity owner. I think there are plenty of scenarios resulting in permanent loss of capital, thereby making this a value investing anathema.

(PS. I'm going to feel REALLY dumb when this deal sails through as it was originally laid out and the stock price jumps 50%. Haha. Oh well.)

one of the conditions of closing

"
As of immediately prior to Closing, the Buyer Entities shall have Cash equal to at
least the sum of $102,000,000, including Cash deposits held at any Portfolio Investment of the
Buyer, plus the undrawn amount under the Atlas Mara Facility less any Transaction Expenses paid
for by any Buyer Entity prior to such calculation of Cash;

Hmm. In the Liquidity Risk and Subsequent Events sections of the recent quarterly report that statement is worded a bit differently:

"Furthermore, immediately   prior   to closing of the Transaction, the   company must hold at least $102,000 in cash and cash   equivalents, restricted cash   and marketable securities, less any Transaction expenses."

I guess it's not really specific enough to know whether they're falling short on that one. The $40 million Atlas Mara Facility has been fully drawn. No telling if they're able to pay some of it down.
Title: Re: Fairfax Africa
Post by: hobbit on October 26, 2020, 12:34:34 PM
https://www.moneyweb.co.za/mny_sens/consolidated-infrastructure-group-limited-cautionary-announcement-and-changes-to-the-board-of-directors/

All Fairfax Africa nominated directors resigning from CIG
Title: Re: Fairfax Africa
Post by: wondering on October 29, 2020, 05:05:41 PM
the information circular is on sedar.  sorry I couldn't attached it.

I am still digesting it, but I saw they are going to pay a 2% dividend yield.
Title: Re: Fairfax Africa
Post by: Thrifty3000 on October 29, 2020, 05:20:02 PM
https://www.fairfaxafrica.ca/News/Press-Releases/Press-Release-Details/2020/Fairfax-Africa-Holdings-Corporation-Third-Quarter-Financial-Results/default.aspx
Title: Re: Fairfax Africa
Post by: elliott on October 30, 2020, 02:11:21 AM
Lets assume deal does not happen, whats the downside at these prices with 100 + 40 mil in cash and zero debt

We only need for things not to change to see the company going further down.

Btw, thanks Thrifty3000 for your informative posts!
Title: Re: Fairfax Africa
Post by: hobbit on October 31, 2020, 12:30:39 AM
Michael Wilkerson in Annual Letter , Q1 investor call , ATMA earnings --

- Tangible book value of $2 ( June 2020 )
- UBN doing well even in COVID. NPAs stable
-"All operating banks maintained capital adequacy ratios above the regulatory minimum, reflecting stable balance sheets." ( june 2020 )

Michael Wilkerson in circular -

- happy to sell ATMA stake at 0.55 without ever trying to market it to a third party apart from Fairfax. And since its a related party transaction they need a majority of minority shareholder to approve this.
- The reason Fairfax is paying 40mil is because they cannot pay more than 25% of market value of FAH without a formal valuation , this being a related party transaction. Its hard to imagine a scenario where they try to sell their stake at a 50% discount to TBV and there are no takers . But they didn't even try.

"MI 61-101 provides that, unless exempted, an issuer proposing to carry out a related party transaction
described in paragraphs (a) through (g) of the definition of “related party transaction” is required to obtain
a formal valuation in respect of the transaction. Fairfax Africa is relying on the formal valuation exemption
in section 5.5(a) of MI 61-101 given that, at the time the Atlas Mara Transaction was agreed to, neither the
fair market value of the subject matter of, nor the fair market value of the consideration for the Atlas Mara
Transaction, exceeded 25% of Fairfax Africa’s market capitalization."

Moreover Michael Wilkerson/Prem has taken 'zero' responsibility for the destruction of shareholder capital. Not in one annual/interim report/call the mgmt has admitted that they made terrible investments one after the other. Until announcing this deal they have maintained ( until as recently as April 2020 call) that the prices are just depressed and provide no insight into the intrinsic value of businesses. I don't understand on what basis Mr Wilkerson is being retained as an executive chairman of the new entity.

As per the circular Helios brings the the depth and local connections including knowledge of french which is now apparently necessary for making good returns in Africa  ;D. Idk on what basis was the current mgmt investing in Africa if as per the circular they had such limited knowledge of African market .

This situation provides a good deal of insight into the muddled thinking at Fairfax group where they have been blaming market for being overvalued over the past decade while investing in gems like BB, ATMA, RFP, CIG etc . No wonder their shares are being sold at a 50% discount to BV across FFH, FIH and FAH. They have given market no reason to believe that they are trustworthy , transparent and will actually admit/learn from their mistakes going forward. Contrast this behavior with someone like Pabrai who has also had pretty underwhelming returns over the past 3 years but admits to his mistakes openly in letter and hopes to draw some lessons.
Title: Re: Fairfax Africa
Post by: petec on October 31, 2020, 12:49:10 AM
What makes you think that, in the middle of a pandemic, they could have sold ATMA for 50% of book when it hasn’t traded that high in years and there are plenty of FAR better banks available at or below that price (Wells, Lloyds, even Eurobank)?

And even if they could, what makes you think they could have done it fast enough to satisfy Helios and get this deal done?

They’ve made some huge errors here, so they have sold the whole entity (as opposed to stakes) and given operating control to a third party. That’s a fairly clear admission of failure in my book and actions speak louder than words so I value it more than even the most groveling apology.
Title: Re: Fairfax Africa
Post by: elliott on November 01, 2020, 01:50:23 AM
Did anyone actually say that?

As I see it, you dont sell something worth $1 for 50 cents it you really think it is worth $1.
I have not followed this drama that  much, but if Helios was "forcing" FAH to sell Atma to close the deal, they you have to think why. Why would they force selling something worth $1 for 50 cents. Well, yes, because they do NOT agree with that valuation.
Another reason FAH may do such a sale is because they think they can turn the 50 cents back into $1. Good luck Wilkerson! Good luck Mr. Watsa!

Title: Re: Fairfax Africa
Post by: petec on November 01, 2020, 02:28:25 AM
Did anyone actually say that?

This is what I was responding to:

“Its hard to imagine a scenario where they try to sell their stake at a 50% discount to TBV and there are no takers .”

And if it was not clear (tone does not always come across well) my question was a genuine one not an aggressive/rhetorical one. I’m genuinely interested to know why anyone thinks ATMA could have fetched more right now.

It might be worth more later, which might be why FFH remain bullish on its value, but there is room to disagree, which might be why Helios isn’t. 
Title: Re: Fairfax Africa
Post by: jfan on November 04, 2020, 11:13:08 AM
Did a brief scan over the management circular for the upcoming transaction with Helios. Petec summarized the transaction in a prior post quite succinctly. Thought I would add a few rough details and a bit of math.

Helios generated ~ $3.6 million in base management fees (aka excess fees) on 3.6 billion of AUM. Their net profit margin margin was ~ 14% with a ~$5 million after expenses (they paid no tax).

Of the 4 fund vintages (I, II, III, IV), they have closed out I completely on Sept 2020, and sold 2/8 positions from II. Fund I, had an initial value of $303M. Fund II, had an initial value of $908M.

The carried interest on Helios Holdings Limited (HHL)was $11M. This amounts to 50% of total carried interest generated from the funds of which the other 50% is earned by the investment team. The hurdle rate was 8% and the performance fee was 20%. The exited positions (by my rough approximation) probably had an original capital contribution from investors at an amount of $532 M ($303M + 2/8*$908M). By my math, their achieved CAGR over a ~12 year period was 8.7%.

For Helio Fairfax Partners (HFP), they will pay a base management fee of 1.5% of NAV for deployed capital and 0.5% on undeployed capital. They will have a 5% hurdle rate with a 20% performance fee.

Assumptions:
- if Helio's AUM stays at 3.6 Billion, running ~ 3 x $1 billion funds at any point in time
- tax rate of 26% for HFP
- current price of FAH being $3.50/share on 59 M shares
- 9% dilution with the deal spread over 10 years

1) Total fee generation after-tax will be ~ $7.4 M (at current market price --> gives a 3.6% return)
2) With the $391 M of current FAH equity in Helios' hands compounding at 8.7% into the future, the 10-year future value after carried interest payout will be $847 M. (at current market price gives a 15% return from NAV growth)
3) 1.5% drag due to base management fee
4) 1% stock dilution drag due to one-time stock dilution over 10 years
5) African inflation ranging from 3-12%

Total personal return will be 3.6% + 15% - 1.5% - 1% - (3 to 12%) =

4 - 13% annual return.

Title: Re: Fairfax Africa
Post by: Thrifty3000 on November 05, 2020, 02:45:43 PM
Did a brief scan over the management circular for the upcoming transaction with Helios. Petec summarized the transaction in a prior post quite succinctly. Thought I would add a few rough details and a bit of math.

Helios generated ~ $3.6 million in base management fees (aka excess fees) on 3.6 billion of AUM. Their net profit margin margin was ~ 14% with a ~$5 million after expenses (they paid no tax).

Of the 4 fund vintages (I, II, III, IV), they have closed out I completely on Sept 2020, and sold 2/8 positions from II. Fund I, had an initial value of $303M. Fund II, had an initial value of $908M.

The carried interest on Helios Holdings Limited (HHL)was $11M. This amounts to 50% of total carried interest generated from the funds of which the other 50% is earned by the investment team. The hurdle rate was 8% and the performance fee was 20%. The exited positions (by my rough approximation) probably had an original capital contribution from investors at an amount of $532 M ($303M + 2/8*$908M). By my math, their achieved CAGR over a ~12 year period was 8.7%.

For Helio Fairfax Partners (HFP), they will pay a base management fee of 1.5% of NAV for deployed capital and 0.5% on undeployed capital. They will have a 5% hurdle rate with a 20% performance fee.

Assumptions:
- if Helio's AUM stays at 3.6 Billion, running ~ 3 x $1 billion funds at any point in time
- tax rate of 26% for HFP
- current price of FAH being $3.50/share on 59 M shares
- 9% dilution with the deal spread over 10 years

1) Total fee generation after-tax will be ~ $7.4 M (at current market price --> gives a 3.6% return)
2) With the $391 M of current FAH equity in Helios' hands compounding at 8.7% into the future, the 10-year future value after carried interest payout will be $847 M. (at current market price gives a 15% return from NAV growth)
3) 1.5% drag due to base management fee
4) 1% stock dilution drag due to one-time stock dilution over 10 years
5) African inflation ranging from 3-12%

Total personal return will be 3.6% + 15% - 1.5% - 1% - (3 to 12%) =

4 - 13% annual return.

jfan, thanks for breaking it down. I think one of the main reasons Helios did a deal with Prem was to boost their brand and get a seat at the "Value Investor Legends Club" table - similar to what Charlie Munger did for Li Liu. I'm assuming much of the appeal of associating with Prem is an ability to at least triple or quadruple AUM over the next few years. To be honest I don't know why they'd give up half their future earnings stream in exchange for a group of somewhat crappy, illiquid, assets, if they didn't think associating with Prem would pretty much guarantee at least $12 billion AUM in 10 years (they could have probably pretty easily grown to $6 billion AUM on their own).

I know the payout ratios for future funds will be more favorable for Fairfax Helios. What would the returns look like 10 years out if Helios grows AUM to $10 or $15 billion?
Title: Re: Fairfax Africa
Post by: jfan on November 06, 2020, 08:11:45 AM
Assuming that they don't achieve scale economics on their current roster of specialists, and other profitability measures staying the same, the fees should increase proportionally to AUM growth.

So from a 3.6B fund --> 10B-15B AUM, the approximate additional growth --> ~ 10-15% on top of the 4-13% that I estimated, for a total of return of 14%-28%. Lots of assumptions obviously, with future fund performance, AUM size, and their skill in managing inflation risk.

It makes sense for Fairfax to salvage their mistake and gives Helios a brand boost.

Title: Re: Fairfax Africa
Post by: Xerxes on November 28, 2020, 08:39:21 PM
Here is an interview with Mike Wilkerson for the FAH die hard fans.
You directly watch on YouTube as well.

https://www.google.ca/amp/s/seekingalpha.com/amp/article/4391791-michael-wilkerson-ceo-of-fairfax-africa-holdings-america-in-danger
Title: Re: Fairfax Africa
Post by: petec on November 30, 2020, 10:17:59 PM
Here is an interview with Mike Wilkerson for the FAH die hard fans.
You directly watch on YouTube as well.

https://www.google.ca/amp/s/seekingalpha.com/amp/article/4391791-michael-wilkerson-ceo-of-fairfax-africa-holdings-america-in-danger

I can’t help but think he should have focussed on running the company rather than writing this book.
Title: Re: Fairfax Africa
Post by: Xerxes on December 01, 2020, 01:32:32 PM
Here is an interview with Mike Wilkerson for the FAH die hard fans.
You directly watch on YouTube as well.

https://www.google.ca/amp/s/seekingalpha.com/amp/article/4391791-michael-wilkerson-ceo-of-fairfax-africa-holdings-america-in-danger

I can’t help but think he should have focussed on running the company rather than writing this book.

100% agreed.
i was excited to listen to him, but then 1/4 through I realized it was more about his book.
Title: Re: Fairfax Africa
Post by: hobbit on December 04, 2020, 09:43:41 AM
What makes you think that, in the middle of a pandemic, they could have sold ATMA for 50% of book when it hasn’t traded that high in years and there are plenty of FAR better banks available at or below that price (Wells, Lloyds, even Eurobank)?

And even if they could, what makes you think they could have done it fast enough to satisfy Helios and get this deal done?

They’ve made some huge errors here, so they have sold the whole entity (as opposed to stakes) and given operating control to a third party. That’s a fairly clear admission of failure in my book and actions speak louder than words so I value it more than even the most groveling apology.
https://ca.finance.yahoo.com/news/atlas-mara-limited-announces-strategic-155000677.html

The transaction will include upfront cash consideration payable at closing equal to approximately 0.8 times book value as of 30 June 2020, plus additional cash consideration payable 24 months after closing of the transaction, subject to certain conditions.


https://www.benzinga.com/pressreleases/20/11/ac18543273/atlas-mara-limited-announces-strategic-transaction-with-kcb-group-plc

As part of the Transaction, KCB will acquire Atlas Mara's 62.06% shareholding in Banque Populaire du Rwanda Plc ("BPR") for cash consideration representing approximately 1.09 times book value and, through the Company's subsidiary ABC Holdings Limited, all of Atlas Mara's indirect interests in African Banking Corporation Tanzania Limited ("BancABC Tanzania") for cash consideration representing approximately 0.42 times book value. The actual cash consideration payable by KCB will be determined based on the final book value of the two banks at completion of the transactions. The transactions are expected to close during the first half of 2021, assuming regulatory approvals are received by then.

https://www.bnnbloomberg.ca/nigeria-s-biggest-bank-in-talks-to-buy-atlas-mara-assets-1.1530545

Do not be surprised if this happens close to BV as well which leaves them with UBN and following are the latest results for the same

https://thenationonlineng.net/union-bank-grosses-n118-8b-in-q3/

Chief Financial Officer, Union Bank of Nigeria (UBN) Plc, Joe Mbulu noted that the bank’s asset quality has continued to improve with non-performing loans (NPLs) down to 3.6 per cent from 5.8 per cent as at December 2019, supported by ongoing efforts to diversify loan book to include viable businesses and households.

“Our Capital Adequacy Ratio remains robust at 19.5 per cent, well above the regulatory threshold. With the $40 million financing secured from the International Finance Corporation for on-lending to trade finance customers, we are continuing to expand our funding engagements with DFIs to support our strategic business initiatives.

Again not surprised with zero transparency from FFH and FAH mgmt on why ATMA was sold to FFH for 0.25*BV except saying helios did not want it . FAH is  leaving close to 100 mil on the table by doing this deal with Helios which brings only 5 mil to bottom line for now on annual basis. If Helios was so keen on partnering with FFH , they could have done this deal with Helios and kept ATMA at the same time . They can sell it for 40 mil whenever they want or much more if they market it properly. And moreover FFH is only paying 20mil upfront. What a joke. I do not know why helios did not want it , may be they got the jitters after the deal with Equity group fell through. The only explanation is that FFH benefits at the expense of FAH shareholders and no one seems to care since there is no 'smart' money in FAH to seek an explanation from FFH.


Title: Re: Fairfax Africa
Post by: petec on December 05, 2020, 01:15:28 AM
What makes you think that, in the middle of a pandemic, they could have sold ATMA for 50% of book when it hasn’t traded that high in years and there are plenty of FAR better banks available at or below that price (Wells, Lloyds, even Eurobank)?

And even if they could, what makes you think they could have done it fast enough to satisfy Helios and get this deal done?

They’ve made some huge errors here, so they have sold the whole entity (as opposed to stakes) and given operating control to a third party. That’s a fairly clear admission of failure in my book and actions speak louder than words so I value it more than even the most groveling apology.
https://ca.finance.yahoo.com/news/atlas-mara-limited-announces-strategic-155000677.html

The transaction will include upfront cash consideration payable at closing equal to approximately 0.8 times book value as of 30 June 2020, plus additional cash consideration payable 24 months after closing of the transaction, subject to certain conditions.


https://www.benzinga.com/pressreleases/20/11/ac18543273/atlas-mara-limited-announces-strategic-transaction-with-kcb-group-plc

As part of the Transaction, KCB will acquire Atlas Mara's 62.06% shareholding in Banque Populaire du Rwanda Plc ("BPR") for cash consideration representing approximately 1.09 times book value and, through the Company's subsidiary ABC Holdings Limited, all of Atlas Mara's indirect interests in African Banking Corporation Tanzania Limited ("BancABC Tanzania") for cash consideration representing approximately 0.42 times book value. The actual cash consideration payable by KCB will be determined based on the final book value of the two banks at completion of the transactions. The transactions are expected to close during the first half of 2021, assuming regulatory approvals are received by then.

https://www.bnnbloomberg.ca/nigeria-s-biggest-bank-in-talks-to-buy-atlas-mara-assets-1.1530545

Do not be surprised if this happens close to BV as well which leaves them with UBN and following are the latest results for the same

https://thenationonlineng.net/union-bank-grosses-n118-8b-in-q3/

Chief Financial Officer, Union Bank of Nigeria (UBN) Plc, Joe Mbulu noted that the bank’s asset quality has continued to improve with non-performing loans (NPLs) down to 3.6 per cent from 5.8 per cent as at December 2019, supported by ongoing efforts to diversify loan book to include viable businesses and households.

“Our Capital Adequacy Ratio remains robust at 19.5 per cent, well above the regulatory threshold. With the $40 million financing secured from the International Finance Corporation for on-lending to trade finance customers, we are continuing to expand our funding engagements with DFIs to support our strategic business initiatives.

Again not surprised with zero transparency from FFH and FAH mgmt on why ATMA was sold to FFH for 0.25*BV except saying helios did not want it . FAH is  leaving close to 100 mil on the table by doing this deal with Helios which brings only 5 mil to bottom line for now on annual basis. If Helios was so keen on partnering with FFH , they could have done this deal with Helios and kept ATMA at the same time . They can sell it for 40 mil whenever they want or much more if they market it properly. And moreover FFH is only paying 20mil upfront. What a joke. I do not know why helios did not want it , may be they got the jitters after the deal with Equity group fell through. The only explanation is that FFH benefits at the expense of FAH shareholders and no one seems to care since there is no 'smart' money in FAH to seek an explanation from FFH.

The Access/Mozambique and KCB transactions are certainly positive, although small. It would be a very positive sign if Access buys the rest, and I think you're right that that could go at around or above 1x bv since the major asset there is ABC Botswana which has a stub trading at 1.3x book on the local exchange. A control stake would presumably go for more.

The only thing you neglect to mention wrt the valuation of ATMA is that UBN trades for 0.6x bv and is a melting ice cube in real terms (ROE<inflation) in a market where the downside risk is meaningful (e.g. Central Bank sets a floor for the loan/deposit ratio, which has the potential to be very scary). The benchmark asset in this space is Guaranty Trust Bank, which has nearly 3x UBN's ROE. I think UBN is probably a very valuable asset in the long term but I am not totally sure it is there yet. (Idle speculation: I wonder whether FFH's UBN stake might end up in CIB.)

But even allowing for that, it is clear that ATMA trades (and the FFH deal was done) below SOTP value. I don't dispute that, and in fact I think I have made that case at various points upthread. I've certainly pointed out that if ATMA ever gets >50% of UBN (not sure why that is taking so long) the optics of its financial statements will change overnight.

I just don't think the undervaluation is relevant in the way you do. To my mind there are three key points:

1. Helios don't want ATMA. They don't see the value. (That alone tells you something, given their record. In fact, they saw so much risk that they wanted FFH to guarantee FAH's loan to ATMA.) This leaves Fairfax with a choice:
2. FFH cannot pay much more than market for ATMA. Even ignoring the fact that a pandemic is just getting started which could erode significant book value, the fact is that FFH board's key responsibility is to FFH shareholders. ATMA trades on a recognised stock exchange. There is a market price at which FFH can buy if they want to. Accepted, the stock is not liquid, so perhaps a block premium is justified. If so, it is nearer 20% than 100%. If you were complaining that the price should have been $0.45, or $0.50, I wouldn't be arguing with you. But you think FAH left $100m on the table. If FFH had paid that full of a price, I guarantee you that this board would be full of the Prem haters saying that he'd used the FFH balance sheet to save face by bailing out FAH to get a deal done, and couldn't be trusted. And they'd be right.

3. The Helios deal is transformational and may well create more future value for FAH minorities than has been "lost" on the ATMA trade. Last week FAH was a failed holding company, with no track record of creating value and a number of very challenged subsidiaries. Next week, when the deal closes, it will become a more diversified, more cash generative, better run company with the ability to leverage 3rd party capital to grow in an asset-light manner. Unfortunately there is no amount of disclosure that will help you figure out how much value the deal creates, because what you need to know is how much 3P capital the new company will raise and the IRR on its future deals. Only time will tell.

Bottom line is that I just don't think FFH had many choices here, and I think they deserve some credit for getting a potentially superb deal over the line.[/list]
Title: Re: Fairfax Africa
Post by: petec on December 11, 2020, 12:57:31 AM
Deal complete. The future will be very interesting.
Title: Re: Fairfax Africa
Post by: petec on January 22, 2021, 07:20:07 AM
Latest twist: https://www.heliosinvestment.com/uploads/files/HFP-Portfolio-Insurance-Arrangement-Jan-21-2021.pdf

The interesting bit is that Fairfax has underwritten a bunch of the investments that Helios inherited.

Title: Re: Fairfax Africa
Post by: petec on January 22, 2021, 07:23:20 AM
Also interesting: https://uk.finance.yahoo.com/news/atlas-mara-mulls-nigerian-bank-141929345.html
Title: Re: Fairfax Africa
Post by: hobbit on January 22, 2021, 09:14:17 AM
Latest twist: https://www.heliosinvestment.com/uploads/files/HFP-Portfolio-Insurance-Arrangement-Jan-21-2021.pdf

The interesting bit is that Fairfax has underwritten a bunch of the investments that Helios inherited.

I thought the plan for Helios was that partnering with Fairfax will give them more cred in the global market and help them with fund raising at their end . This is just asking Fairfax for money right after the close. and why is Fairfax bothered with Helios' second best ideas ( the first will go to the helios' fund I presume ) . Fairfax can get better exposure by investing directly in Fund 4 of Helios. And Fairfax has to underwrite the ' reference investments' ? why is that... what a mess...
Title: Re: Fairfax Africa
Post by: petec on January 22, 2021, 09:38:34 AM
Why is Fairfax bothered with Helios' second best ideas (the first will go to the helios' fund I presume).

What makes you think this?
Title: Re: Fairfax Africa
Post by: TwoCitiesCapital on January 22, 2021, 09:42:07 AM
Latest twist: https://www.heliosinvestment.com/uploads/files/HFP-Portfolio-Insurance-Arrangement-Jan-21-2021.pdf

The interesting bit is that Fairfax has underwritten a bunch of the investments that Helios inherited.

I thought the plan for Helios was that partnering with Fairfax will give them more cred in the global market and help them with fund raising at their end . This is just asking Fairfax for money right after the close. and why is Fairfax bothered with Helios' second best ideas ( the first will go to the helios' fund I presume ) . Fairfax can get better exposure by investing directly in Fund 4 of Helios. And Fairfax has to underwrite the ' reference investments' ? why is that... what a mess...

I, too, am a little confused.

It seems Fairfax has underwritten an at the money put option in exchange for $3 million in annual premium and at-the-money warrants. Seems like this just leverages the exposure they currently have to FAH. 

If it goes well, they stand to make tens of millions. If it doesn't go well, they stand to lose tens of millions. All around though - not terribly concerning. The $3 million in annual premiums means that the fund has to have a -9% return over the next 3-years before Fairfax is out any cash.

That is certainly possible - maybe even likely - but seems to be giving Fairfax cheap exposure to the upside via the warrants and the downside is finite ($91 million), at a distance (-9% away minimum), and in the future (3 years before Fairfax has to pay the claims).

Seems like a decent way to leverage the exposure, but I'm not certain as to how portfolio insurance typically works or is priced to know how this compares to arms-length transactions.

Title: Re: Fairfax Africa
Post by: hobbit on January 22, 2021, 10:07:17 AM
Why is Fairfax bothered with Helios' second best ideas (the first will go to the helios' fund I presume).

What makes you think this?
they had a section in circular describing the conflicts policy --
 
The interests of Helios may conflict with the interests of the Corporation.

The Corporation will rely on the expertise of Helios (including the Partnership and the Manager, in its role
as sub advisor), in identifying and advising on investment opportunities, transaction execution and asset
management capabilities. Helios also provides similar services to other subsidiaries of funds it manages.
The advisory services to be provided by the Partnership under the IMA are to be provided on a nonexclusive basis to the Corporation and its subsidiaries, and accordingly, there are no restrictions on Helios
from providing similar services to other entities, including certain funds managed by Helios, or from
engaging in other activities in the future (whether or not their investment objectives, strategies and policies
are similar to those of the Corporation). The Corporation acknowledges that Helios will allocate investment
opportunities among the Corporation and its subsidiaries and the other portfolio clients of Helios in
accordance with Helios’ Conflicts Policy. As a result of this Conflicts Policy, the Corporation may, from time
to time, be precluded from participating in an investment opportunity available to the Partnership and the
Manager, in its role as sub advisor, that would otherwise be compatible with the Corporation’s investment
objectives and restrictions.

Title: Re: Fairfax Africa
Post by: petec on January 22, 2021, 10:38:37 AM
That is legal wording about a possibility. It doesn’t justify your presumption.

Plus, the Helios fees go to HFP so success in other funds is a good thing.
Title: Re: Fairfax Africa
Post by: SafetyinNumbers on January 22, 2021, 04:33:10 PM
Are the “Reference Investments” legacy FAH investments or Helios?
Title: Re: Fairfax Africa
Post by: SafetyinNumbers on January 23, 2021, 05:07:42 AM
Are the “Reference Investments” legacy FAH investments or Helios?

I guess that question was already answered.

This deal seems like it’s all about aligning incentives. New management did not want to underwrite legacy investments and Fairfax gets more leverage to the upside on the whole portfolio. Better for Helios shareholders but good for both.
Title: Re: Fairfax Africa
Post by: petec on January 23, 2021, 09:29:47 AM
Are the “Reference Investments” legacy FAH investments or Helios?

I guess that question was already answered.

This deal seems like it’s all about aligning incentives. New management did not want to underwrite legacy investments and Fairfax gets more leverage to the upside on the whole portfolio. Better for Helios shareholders but good for both.

I think that’s right although new management’s scepticism about these investments didn’t stop them closing the deal.
Title: Re: Fairfax Africa
Post by: SafetyinNumbers on January 23, 2021, 11:36:30 AM
Are the “Reference Investments” legacy FAH investments or Helios?

I guess that question was already answered.

This deal seems like it’s all about aligning incentives. New management did not want to underwrite legacy investments and Fairfax gets more leverage to the upside on the whole portfolio. Better for Helios shareholders but good for both.

I think that’s right although new management’s scepticism about these investments didn’t stop them closing the deal.

That's true but mitigating any losses on the "Reference Investments" now should theoretically materially reduce Helios's cost of capital resulting in an increase in the share price which benefits everyone.