CSB deal: Fairfax to reap Rs130cr windfall from Re fall

Fairfax-CSB deal scheduled to be closed in Sept

KOCHI: The wait for the Fairfax-CSB deal may seem to have gone a bit long for many. But for Fairfax, it has paid rich dividends as it will be required to shell out fewer dollars than it would have paid otherwise.

If the rupee-dollar exchange market remains the same, Fairfax India Holdings will make a windfall gain from the fall in rupee in the share deal with the Thrissur-based Catholic Syrian Bank (CSB) that would make the Canadian company majority owner in the bank with 51 per cent stake.

When Fairfax signed the agreement on February 20, 2018, to buy a majority stake in CSB at a total consideration of about Rs1200 crore, i.e.at Rs140 per share, the total deal size was $186 million as the rupee-dollar exchange rate was Rs64.75 per dollar (average).

But down the line, as of today (September 17, 2018) after about seven months, the rupee has nosedived to Rs72.4 per dollar, a fall of around 12 per cent. If Fairfax chooses to strike the deal today, the total consideration of the deal in dollar terms will shrink to around $168 million – giving a notional gain of about $18 million from the February levels.

This would translate to around Rs130 crore at today’s exchange rate or in other words, Fairfax would make a gain of about Rs15 per share that is priced at Rs140.

Incidentally, timing so favours the Fairfax Group, that the deal has already been planned to be closed during the third quarter (July-September) of Fairfax’s fiscal year. Fairfax itself has mentioned this as part of its interim financial report for the second quarter ending June 30, 2018. “The transaction is expected to close in the third quarter of 2018, subject to regulatory approvals and customary closing conditions,” Fairfax has stated about the CSB deal in its directors’ report.

 

 

 

 

 

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