Fairfax plans to exit India’s IIFL Finance to unlock funds for IDBI purchase, sources say

Fairfax Financial Holdings FFH-T plans to sell its nearly 11-per-cent stake in Indian non-bank lender IIFL Finance, two people familiar with the discussions said on Wednesday.

The sale is intended to unlock funds for Fairfax’s purchase of a 60-per-cent stake in IDBI Bank from India’s federal government and the Asian country’s largest insurer. The IDBI deal, valued at 528.78-billion rupees (US$5.56-billion), is among India’s largest cross-border banking transactions.

To fund part of the deal, Fairfax is looking to complete the IIFL Finance exit “soon,” one of the people said.

At the current market price, Fairfax’s stake in IIFL Finance will be worth roughly 30-billion rupees or US$320-million.

Fairfax will likely sell its stake in the secondary markets and the controlling shareholders of the non-bank lender do not intend to buy the stake, one of the persons said.

Both people declined to be identified as the discussions are confidential.

Fairfax and IIFL did not immediately respond to e-mails seeking comment.

Fairfax bought a nearly 22-per-cent stake in IIFL Finance in 2015, but the stake has since been diluted to 11 per cent following an expansion of the non-bank lender’s capital base.

David Berman: The Fairfax rally has stalled. For new investors, maybe that’s a good thing

On Tuesday, IIFL Finance said that it would expand its capital base, with US investment fund Blackstone purchasing 16 per cent of equity via convertible shares and warrants.

Separately, Fairfax has a 38-per-cent stake in IIFL Capital Services, which runs investment banking and wealth management businesses, and is in the process of raising the stake to 51 per cent through an open offer, according to the Canadian firm.

In case Fairfax cannot raise its stake in IIFL Capital through the open offer, which ends on Monday, the controlling shareholders will reduce their stake in the company, the first person said.

IIFL Capital and IIFL Finance have the same controlling shareholders.

IIFL Capital did not immediately respond to a request for comment.

Fairfax is also looking to fold its investments in IIFL Capital and insurance firm Digit into IDBI Bank, the firm said last month.