Go Digit General Insurance, an Indian-based subsidiary and part of the Fairfax group, is set to raise approximately $200 million in new equity shares, valuing the company at approximately $3.5 billion.
Agreements have been entered with firm’s such as Faering Capital, Sequoia Capital India, IIFL Alternate Asset Managers and certain other parties.
It’s important to note however, that when the new equity issuances by Digit Insurance close, the increased valuation of Digit Insurance will result in Fairfax recording a net unrealized gain on investments of approximately $1.4 billion on its investment in Digit.
In addition at that time, the pre-tax excess of fair value over carrying value of Fairfax’s equity accounted interest in Digit will increase by approximately $0.4 billion, which will not be reflected in Fairfax’s consolidated net earnings or in the calculation of book value per share until the Indian government gives final approval of its announced intention to increase foreign ownership limits in the insurance sector from 49.0% to 74.0% and Fairfax obtains regulatory approval specific to its holdings in Digit.
Fairfax’s 49.0% equity interest in Digit is comprised of a 45.3% interest in Digit common shares and a 3.7% interest through Digit compulsorily convertible preference shares that are considered in-substance equity.
Foreign direct ownership in the insurance sector in India is currently limited to 49.0% and, as a result, the remainder of Fairfax’s investment in Digit compulsorily convertible preference shares is recorded at fair value through profit.