‘Want good leadership, don’t care about sector’

Billionaire Prem Watsa of the Fairfax Group is often known as the Canadian Warren Buffett. Besides being in the insurance and investment business like Buffett, he has the ability to make long-term investments when others are running scared. He started out in India as a JV partner in ICICI Lombard, which is now the most valuable non-life company. He is an owner of several companies including Bengaluru Airport, Digit Insurance, Thomas Cook and Quess. In an interview, he speaks about why being business-friendly is good for the economy. Excerpts:
You are extremely bullish on India. What makes you so optimism?
I am biased, I think India is fortunate to get a guy like (PM Narendra) Modi. He is totally focused on India. I think he has done an exceptional job in terms of electricity, cooking gas, health insurance, and now the campaign to bring drinking water to all. When you get all these bases covered, you get a huge opportunity. The other thing I like is he is coming out with divestment of the caliber of (former UK PM) Margaret Thatcher. Countries that are business-friendly do very well. We are also putting back into the community. Before the pandemic, I had asked Madhavan Menon (Thomas Cook CEO) to look at setting up dialysis machines. I met him in Chennai, and he told me that they have put up 1,200 machines and are going for 2,000. We, together with Quess, have signed an agreement to fund a $40-million state-of-the children’s hospital at CMC Vellore, which will come up in three years.
Would you be interested in bidding for divestments in the financial sector?
We look at everything in terms of investing. But what we are always looking for is very good people. We don’t care so much about the sector. Good leadership is what it is all about, and when we look at companies, we are looking for good leadership.
Since the last time you were in Bengaluru, Digit Insurance has increased its market share and turned into a unicorn several times over. What is the road ahead?
Digit has a market share of 2.4%, which should go up to 5% in the next 6-10 years. If you pick the 5% share of a sector growing significantly in a decade, the business can grow to $5 billion from $700 million with an underwriting profit. So, the opportunity is immense, and Kamesh (Kamesh Goyal, founder & chairman of Digit Insurance) knows insurance.
The company has gained market share but is consuming a lot of capital… Are you willing to put in more money?
Digit has done so well that there is a lineup of people who want to put in capital and partner with us. We think that this is the best country to invest in the world, and insurance is, of course, our business. So whatever Kamesh needs, we will put the money in. In our meetings with Kamesh, we discussed looking at other countries, but the opportunity is in India first.
In 2019, the investments you led in India accounted for $5 billion out of $40 billion of funds managed by Fairfax…. How much is it now?
We have around $7 billion of the $50 billion we manage in India. When I say $7 billion, this includes Fairfax India, which we own about 35-36%, but we control the company. In Fairfax India, there is around $3.5 billion, and then there is the money that we put directly into India like Thomas Cook and Quess. The Bengaluru International Airport is in Fairfax India.
How long will you hold on to Bengaluru airport?
There is a massive amount of construction going on in the Bengaluru airport, and when it is complete, it will be the best in the world. There is none in North America like it. That will be a huge asset for Bengaluru. Its opening is planned for October 2022 and, with a little bit of luck, the Prime Minister will come to open it. Hari Marar, who runs the airport, is an exceptional guy. So, when you have an exceptional guy, you back them with everything you have. We plan to own this forever. There is also a 200-acre airport city being developed.
What is your approach to other investments? You made some exits recently…I think you are referring to IIFL, which got split into four companies. In IIFL Wealth, General Atlantic was a partner, and they wanted to sell, and Bain wanted to buy, and they really wanted to buy more so that they could use this as a platform. So, that is how the sale came about. But in the IIFL NBFC and in IIFL Securities, we continue to be partners. We are big fans of Nirmal (Nirmal Jain, founder of IIFL). He is a very smart guy and a terrific entrepreneur who built the company from scratch.
What about CSB Bank?
CVR Rajendran, who ran the bank, did a job but he retired for health fantastic reasons. He had hired Pralay Mondal as the president who is interim and will be CEO, subject to RBI approval, and Paresh Sukthankar, formerly with HDFC Bank, is an adviser for us. They are expanding all over the place, and the bank has branches mainly in Kerala, and now they are moving into surrounding states. What does the rise in interest rates mean for insurance companies?
It is good for us because we make more money on our float fund. Most other companies have been reaching for yield, meaning they have been going for longer duration bonds. Unlike other companies, our duration in Fairfax is around a year and a half, and others have an average duration of five years and above. So, they take a big hit when interest rates go up. We don’t take a hit, but we make more investment income.

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