For Fairfax Financial Holdings Ltd., a mix of politics and investor mistrust are creating valuable opportunities in Greece.
The investment and insurance firm took its second stake in a Greek company in the last four months on Monday, buying 5 per cent of mining and energy-focused company Mytilineos Holdings SA, for about $41-million (U.S.).
The purchase comes on the heels of the $224-million real estate deal that Fairfax did back in June.
It may be a small stake, making Fairfax the third-largest shareholder of Mytilineos, but the purchase signals Fairfax's commitment to the region.
And Fairfax's president Paul Rivett says that there are still other sectors in Greece that the company has an investment interest in, although he's not ready to say where.
Fairfax's confidence in the beleaguered state is buoyed by the government of Greek Prime Minister Antonis Samaras, which is turning the country around. After hovering on the verge of leaving the euro zone, Greece's credit rating has improved and government bond yields have retreated. The yield on the 10-year Greek government bond has fallen nearly four percentage points since the start of the year to its current rate of 8.25 per cent.
In a release accompanying the deal today, Fairfax chief executive officer Prem Watsa said the government's actions – which include continued austerity measures – will lead to increased employment and infrastructure development.
Fairfax has also identified similarities between the opportunity in Greece and a 2011 deal the company entered with several investment partners to inject the Bank of Ireland with $1.5-billion (Canadian). This helped the struggling lender avoid becoming fully nationalized by the Irish government. Ireland was dealing with a troubled property market and tanking economy, but Fairfax thought the credit culture at the Bank of Ireland was strong. It's a bet that has paid off for the investors. The Bank of Ireland stock price has climbed more than 150 per cent in the past two years.
"Much like with Bank of Ireland, the current situation in Greece has tarred all companies, even good ones, with the same brush," Mr. Rivett said. While the country is recovering now there are still many great companies trading at historically low multiples.
Fairfax is, of course, also in the ring with a $4.7-billion (U.S.) offer for smartphone maker BlackBerry Inc. It's a deal that the company has also compared to its Irish deal because of the consortium of investors required to make the bid.
Mr. Watsa told The Globe in 2011 that Fairfax started with many prospective investors in advance of the Bank of Ireland deal "but some of them after their [due diligence] work didn't feel comfortable, and some of them did. And that's how it should be. Take your time, do the work."
In the case of BlackBerry, a final offer from the consortium is expected in early November.