The Canadian financial services company Fairfax's request to convert its holdings in Go Digit Infoworks Services' compulsory convertible preferred shares (CCPS) into equity shares was denied by the insurance regulator IRDAI.
Go Digit Insurance's parent company is Go Digit Infoworks Services, which has its headquarters in Pune. Go Digit Infoworks, which owns an 83 percent stake in Go Digit General Insurance, is currently 45.3% owned by Fairfax.
According to The Indian Express, the group's stake in Go Digit General Insurance would have increased to 74% under the Fairfax proposal.
"In June 2022, Digit Insurance and Fairfax Financial Holdings applied to the IRDAI for approval to convert the company's holdings in compulsory convertible preferred shares issued by Go Digit Infoworks into equity shares of Go Digit Infoworks," the holding company's statement from Fairfax Financial Holdings read.
According to Fairfax, "The IRDAI subsequently communicated that the application cannot be considered in its current form as conversion of the Digit CCPS would result in Digit (currently classified as an Indian promoter of Digit Insurance) becoming a subsidiary of the company, which is currently forbidden for Indian promoters. This is true even though the foreign direct investment rules have been amended to allow foreign investors to own up to 74% in an Indian insurance company.
Fairfax announced that it will move forward with its plan to convert the company's Digit CCPS in order to increase its stake in the Indian insurance venture. When it obtains majority ownership of Digit, "the company expects to report a gain of approximately $375 million," it said.
The IRDAI is likely to stipulate that no convertible instruments of any kind may be issued by an insurance company promoted by a special purpose vehicle or a non-operative financial holding company, and no stock options or sweat equity may be granted to the employees and directors of an SPV or NOFHC.
In August 2022, Go Digit General Insurance submitted preliminary documents for an IPO. Through a new equity share issue and an additional offer for sale (OFS) of 109.4 million shares by a promoter and existing shareholders, the company hopes to raise INR12.5 billion ($155.3 million).
