Fairfax hires advisers as it considers offloading potential 19% stake in FBD

Canadian financial group has a €70m bond it can convert into shares by March 2019

FBD chief executive Fiona Muldoon: share price was trading at €10.40 in Dublin on Thursday. Photograph: Eric Luke

FBD chief executive Fiona Muldoon: share price was trading at €10.40 in Dublin on Thursday. Photograph: Eric Luke

 

Canadian investment group Fairfax Financial Holdings Ltd has hired IBI Corporate Finance to advise it on its options for a €70 million bond in FBD that the Canadian group could potentially convert into shares from September 23rd, The Irish Times has learned.

Under the terms of a deal signed three years ago, Fairfax has the right to convert the bond into 8.2 million ordinary shares in FBD from September 23rd at an exercise price of €8.50. This would give it a 19 per cent stake in the Irish-listed insurer, which has traditionally served the farming community.

FBD’s share price was trading at €10.40 in Dublin on Thursday, which puts Fairfax in line for a €15.6 million profit.

Given that FBD operates in a small market, and that the stock is relatively illiquid given the farmer holdings on its share register, Fairfax would always have been expected to sell its shares post-conversion. Its decision to appoint IBI, which advised Fairfax on the original bond deal, to examine its options would seem to point to this outcome.

A sale of the stock could involve Toronto-listed Fairfax placing one or more blocks of shares with other investors.

Fairfax signed the bond deal with FBD in September 2015. The conversion price was set at €8.50, a 37 per cent premium to the shares at the time, and can be exercised from September 23rd. If the share price exceeds €8.50 for a period of 180 days post-conversion, the bond automatically converts into ordinary shares.

Investment guru

Fairfax has already made a healthy return on the FBD bond, which carries a 7 per cent coupon that is worth €4.9 million a year.

The Canadian group, which is led by investment guru Prem Watsa, has enjoyed good fortune with its Irish investments over the past decade. To date, it has made a €566 million return on its rescue investment in Bank of Ireland, which dates back to 2011 when Fairfax and Wilbur Ross led a group of investors that took at 34.9 per cent stake in the bank at the height of the financial crisis. This kept the lender out of majority State ownership and Fairfax still has a residual shareholding in Bank of Ireland.

At the time of the FBD bond deal, Prem Watsa, chairman and chief executive of Fairfax said he was “delighted” to become an investor in FBD. “We have been a long-standing follower of FBD and its deserved reputation as a leader in the farm insurance sector in Ireland,” he said. “This investment underlines our belief in the strength of Ireland’s ongoing economic recovery and in FBD’s core franchise in the farming and agri-business sectors.”

On Wednesday, FBD reported a 70 per cent rise in pre-tax profits to €18.4 million for the first six months of this year. This was in spite of an extra €6.6 million in damage caused by snow storms in March.

FBD said premiums rose 1 per cent to €192 million, with chief executive Fiona Muldoon adding that it paid out €11 million to customers to cover damage resulting from the Storm Emma blizzards in March. Reinsurance cut this bill to €6.6 million.