Toronto-based Fairfax Monetary Holdings Ltd.’s scores are unaffected following final week’s announcement it has entered right into a definitive settlement to accumulate an extra 46.32% of Gulf Insurance coverage Group (GIG) from Kuwait Tasks Co. (KIPCO), in keeping with DBRS Morningstar, which has rated Fairfax “BBB (excessive)” with a optimistic pattern.
This transaction will enhance Fairfax’s possession stake to 90.01% from 43.69%, giving the corporate full management of GIG.
Underneath the phrases of the settlement, Fairfax can pay roughly US$860 million for KIPCO’s shares in GIG, which can be paid in Kuwaiti Dinar to KIPCO on the shut. The acquisition value is topic to a discount by the quantity of any dividends acquired by the KIPCO sellers after Jan. 1, 2023.
Instantly following the settlement of the transaction, KIPCO will return to Fairfax the complete buy value, much less an quantity of Kuwaiti Dinar equal to $200 million, along with a money fee equal to all dividends acquired by the KIPCO sellers from GIG after Jan. 1, 2023. Fairfax will then ship a fee deed requiring Fairfax to make 4 equal annual funds of $165 million to KIPCO, starting on the primary anniversary of closing of the transaction to KIPCO.
“We contemplate the phrases of the settlement to be beneficial for Fairfax. The acquisition value can be simply absorbed via Fairfax’s present liquidity with a restricted impression on its capital,” the DBRS Morningstar scores company continued.
The transaction shouldn’t be anticipated to have a cloth impression on leverage; nonetheless, GIG does have some debt regionally that can be consolidated on Fairfax’s stability sheet as soon as the deal is concluded.
As Fairfax has owned a large portion of GIG since 2010 and has had a profitable partnership with KIPCO, “we anticipate the optimistic outcomes reported to date by GIG ought to proceed,” mentioned DBRS. “We consider that the operational and integration dangers related to having a considerable presence inside a overseas regulatory atmosphere are manageable for Toronto-based Fairfax given its previous report of comparable worldwide acquisitions and prior presence within the area.”
In a separate scores announcement for Gulf Insurance coverage Group, AM Finest mentioned the corporate’s Monetary Energy Score of A (Wonderful) and the Lengthy-Time period Issuer Credit score Score of “a” (Wonderful) additionally stay unchanged with a steady outlook. The transaction shouldn’t be anticipated to end in a change in GIG’s enterprise technique or credit standing, mentioned AM Finest.
“We anticipate that Fairfax will handle the acquired firm as a stand-alone entity, offering it with a big diploma of independence, in step with how Fairfax manages its different main insurance coverage subsidiaries,” DBRS mentioned in a press release.
DBRS famous that the acquisition can be optimistic for Fairfax, regardless of exposures to further operational and geopolitical dangers.
“The acquisition will give Fairfax a number one place within the Center East and North Africa Area (MENA),” DBRS added.
Established in 1962, GIG is a publicly traded firm listed on the Kuwait inventory alternate, DBRS mentioned, noting that GIG is a market chief in Kuwait and is presently considered one of largest and most diversified insurance coverage teams within the MENA area, primarily based on premiums written.
GIG affords each property/casualty and life insurance coverage merchandise. Nevertheless, there’s a focus in medical insurance coverage, which accounted for 49.1% of premiums in 2022, DBRS continued. “Additional diversification of premium generated by traces of enterprise would scale back GIG’s reliance on the medical insurance coverage enterprise and mitigate focus threat.”
“We’re excited to extend our possession curiosity in GIG,” mentioned Prem Watsa, chairman and CEO of Fairfax. “GIG is among the many largest and most diversified insurance coverage teams within the Center East and North Africa area, with operations in 13 totally different nations and a market-leading presence in every of Kuwait, Jordan, Bahrain and Egypt.”
Since Fairfax’s first funding in GIG in 2010, it “has offered stellar outcomes over the long run and is run by an skilled and gifted administration staff led by Khaled Saoud Al Hasan. We’re grateful to our companions at KIPCO for giving us this chance to broaden our insurance coverage operations within the quickly rising Center East and North Africa market,” Watsa added.
“With this transaction Fairfax is exhibiting its long-term dedication to the GCC markets and to the GIG Group that has not too long ago posted a internet revenue of $124.7 million for the monetary yr 2022,” commented Khaled Saoud al Hasan, group CEO of GIG. “We’ll proceed to work with our decentralized working mannequin that permits all subsidiaries to function independently, whereas benefitting from Fairfax’s data and collective expertise in over 40 markets world wide. Within the coming months, we are going to work intently with every of the regulators of the GIG Group entities to make this transaction seamless and useful for all events.”
Supply: DBRS Morningstar, Fairfax Monetary Holdings and AM Finest
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