Fairfax Financial Holdings Ltd. is plotting more growth in Africa with plans to launch a new public company that would invest in the continent's businesses, according to people familiar with the plans.
The Toronto-based insurance and investment firm is set to file on Friday a prospectus for an initial public offering for Fairfax Africa Holdings Corp. amid a dearth of new offerings this year. The company is seeking to raise as much as $1-billion. Fairfax has already secured about $500-million from cornerstone investors and its own funds, the sources said.
Subordinate voting shares in Fairfax Africa will be made available for $10 (U.S.) a piece in the IPO. A Fairfax subsidiary will take on the role of portfolio manager and will bring on a local partner to do investment research and help find potential deals, those people said.
Fairfax Africa plans to embark on an investment safari, putting money into a wide range of businesses in pockets of the continent where gross domestic product growth is forecast to be swift. A recent study of economic growth in Africa done by the World Bank Group indicated that some countries, such as Ethiopia, Rwanda and Tanzania, are growing at annual average rates of more than 6 per cent, although not all countries have posted such gains.
The push to launch this new company on the Toronto Stock Exchange comes at the end of a historically quiet year for IPOs in Canada. There were just two new issuances that made it to the TSX in 2016, while some expected IPOs were postponed.
Fairfax Africa Holdings would be the investment firm's second geography-specific investment company. In 2014, it launched Fairfax India Holdings Corp., after chief executive officer Prem Watsa spent years contemplating opportunities related to urbanization, the development of new transport systems and the rise of the technology sector.
Mr. Watsa, who was born in India, said the South Asian country offered more investment potential than Fairfax could handle on its own, so it sought co-investors through the public markets. Since its launch, Fairfax India has purchased a stake in a commercial airport, dipped into agriculture and seen its stock climb by about 15 per cent since trading commenced in early 2015.
Fairfax has already had some success investing in Africa after participating in the 2014 privatization of agricultural services company called AFGRI, which had been listed on the Johannesburg Stock Exchange. This gave Fairfax access to the largest grain handler and vendor of John Deere machinery in Africa, and the biggest non-bank financial group. AFGRI would be rolled into the new Fairfax Africa company as its first investment.
That deal for AFGRI offered Fairfax new relationships in the region and access to investment opportunities in sectors such as infrastructure, financial services and consumer products. Fairfax also has other insurance and power investments in Africa.
Africa is compelling to investors like Fairfax because of demographic changes such as population growth and the rise of the middle-class family, as well as because of the improvements to governance, political participation and human rights that several countries have made over the past decade.
But not all countries will be equally attractive to the newly formed company. Fairfax Africa plans to use a risk matrix that looks at several criteria such as safety, political participation and economic opportunity, according to those familiar with the plans. Countries such as Somalia and South Sudan that score poorly won't likely be considered for investment.
But South Africa would be compelling for its stronger rule of law and developed infrastructure scores. And Ethiopia also qualifies for investment based on projections for speedy GDP growth and low corruption levels, sources said.
Fairfax Africa will invest in its portfolio of businesses such as a fund, but similar to Fairfax India, it won't have to deal with the intermittent capital return requirements that are standard for many private equity firms.