Farmer Business Developments, the original FBD co-op, is investing €20m through a bond in insurer FBD. Farmer Business Developments is already the largest shareholder in FBD. The investment will attract a 5% coupon (interest) rate each year for 10 years. This will amount to an income for the investment company of €1m per year.

The investment comes after FBD agreed to pay €86m to buy back and cancel a €70m bond (loan) that it secured three years ago from Canadian investment group, Fairfax Financial Holdings.

FBD funded the purchase of the Fairfax bond through a combination of existing cash and the issuance of €50m in new debt, which took the form of this 10-year subordinated bond at a 5% interest rate.

Dilution

This move by FBD was welcomed by shareholders as it avoided any dilution of existing shareholders. Farmer Business Developments, as the largest shareholder, would have seen its stake in FBD diluted from 24.6% to 19.7% had Fairfax converted.

In order to stay at the same level, the farmer-owned investment vehicle would then have had to buy a further 5% of the FBD shares in issue, which would have cost more than €18m based on the price shares have traded at over the last month. Tuesday’s closing share price was €10.75 and shares are up 16% in the past year.

Farmer Business Developments chair Padraig Walshe described the transaction as “an excellent result for our shareholders, who founded FBD 50 years ago and would like to see it continue in Irish ownership”.

He added: “Crucially, we have avoided any dilution of our stake in FBD. Now, our company’s position is stronger as Fairfax exits its investment and we look forward to benefiting from the future growth of FBD Holdings.”

Balance sheet

Total shareholders’ funds in Farmer Business Developments plc balance sheet at the end of last year was €223m.

Its single largest asset is its property, hotels and leisure business, which operates two hotels in Ireland – Castleknock Hotel and Faithlegg – and two resorts located in Spain.

These assets are valued at €97m on its balance sheet and represent 43% of its shareholders funds. Its stake in FBD is valued today at some €92m.

Farmer Business Developments assumed full control of FBD Hotels in 2015 when it purchased the remaining 50% stake in the business from FBD Holdings for a total of €48.5m. The hotels business had earnings (EBITDA) last year of €9.3m. The investment will be funded through a combination of debt and cash reserves.