FBD chief awaits Fair­fax move on its stake

Irish Independent - Business Week - - Front Page - John Mul­li­gan

FAIR­FAX may seek a sweet­ened deal to con­vert its FBD bond into shares while fore­go­ing in­ter­est, CEO Fiona Mul­doon has in­di­cated.

Fair­fax – the Cana­dian fi­nan­cial gi­ant founded by bil­lion­aire Prem Watsa – can con­vert a bond into a 19.1pc eq­uity stake in FBD from Septem­ber 23 un­der the terms of a 2015 deal.

FBD, Ire­land’s only stock mar­ket-listed in­surer, sourced the €70m, 10-year con­vert­ible bond from Fair­fax to shore up its cap­i­tal sol­vency.

Fair­fax re­ceives 7pc in­ter­est a year on the bond.

The con­ver­sion price for the bond is €8.50 per FBD share. But shares in the in­surer are cur­rently trad­ing at about €10.40. While the bond can be con­verted to shares from next month, it must be con­verted to the eq­uity stake by next March if the shares have been trad­ing above €8.50 for 180 days prior to that date.

Fair­fax has al­ready re­ceived more than €10m in in­ter­est from FBD, while it’s also sit­ting on a pa­per profit of more than €21m based on FBD’s share price yes­ter­day. When the €8.50 con­ver­sion price was set in 2015, it was a 37pc pre­mium to the FBD share price at the time.

FBD CEO Fiona Mul­doon told the Ir­ish In­de­pen­dent that man­age­ment at the firm are “very con­scious” of the loom­ing con­ver­sion win­dow.

She said that the Cana­dian com­pany has been a “very sup­port­ive in­vestor”.

“They in­vested at the right time and have made a good re­turn on their in­vest­ment, as have all of our or­di­nary share­hold­ers who’ve seem the share price go from a low of €5.50 to where it sits to­day,” she said.

“We talk to all of our in­vestors. We’re very con­scious that those dates are com­ing,” she added. Ms Mul­doon said ear­lier this year that she ex­pected Fair­fax to keep tak­ing in­ter­est pay­ments on the bond for as long as it could.

“Ev­ery­thing in life is ne­go­tiable,” she said yes­ter­day. “I’m sure if some­thing were to hap­pen, they’d just price that coupon into ev­ery­thing that might hap­pen. It’s im­pos­si­ble to spec­u­late.”

Ms Mul­doon was speak­ing as FBD re­ported in­terim re­sults yes­ter­day that saw its pre-tax profit soar al­most 55pc to €18.4m. Its gross writ­ten pre­mi­ums edged 1pc higher in the pe­riod to €191.8m.

The prof­its came de­spite €11m in claims that FBD paid out as a re­sult of Storm Emma. The cost to FBD net of rein­sur­ance was €6.6m.

The in­surer also re­ported that on an an­nu­alised ba­sis, its to­tal in­vest­ment re­turn turned neg­a­tive dur­ing the first half of the year for the first time ever, at -0.4pc. In­sur­ance com­pa­nies in­vest pol­icy money that is held to cover claims.

“The neg­a­tive re­turns ... are driven by credit spreads widen­ing more gen­er­ally on the cor­po­rate bond port­fo­lio and spread widen­ing on sov­er­eign bonds fol­low­ing the po­lit­i­cal tur­moil in Italy and in a gen­er­ally un­cer­tain in­vest­ment en­vi­ron­ment,” noted FBD.

Ms Mul­doon con­firmed it was the first time FBD had recorded a neg­a­tive re­turn.

“It’s not some­thing we want to see re­peated, but we’re sub­ject to the same volatil­ity as the in­vest­ment mar­ket,” she said.

Ms Mul­doon de­clined to com­ment on an in­ter­nal in­ves­ti­ga­tion at FBD ini­ti­ated in June on foot of a com­plaint made against her by the group’s hu­man re­sources di­rec­tor.

“It’s an in­de­pen­dent process,” said Ms Mul­doon. “It’s very hard for me to make any com­ment on it other than to say it’s on­go­ing. We are all work­ing to try and get it con­cluded.”

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