Transaction Capital Ltd. has found itself in the wrong place at the wrong time — financing minibus taxis amid rocketing fuel prices and a stagnant South African economy.
(Bloomberg) — Transaction Capital Ltd. has found itself in the wrong place at the wrong time — financing minibus taxis amid rocketing fuel prices and a stagnant South African economy.
Shares in the financial services provider plunged by a record 41% in Johannesburg after it said earnings in its SA Taxi business hadn’t yet returned to pre-pandemic levels. It flagged that a first-half earnings per share loss was likely and said the industry remained under strain.
The cost of the minibus taxis the industry relies on is increasing, while flooding at the manufacturer’s site added to headwinds, such as rising interest rates and fuel costs, lower commuter volumes and the inability of fleet owners to increase fares for cash-strapped commuters. South Africa’s crippling power blackouts are also slowing traffic, reducing the number of trips drivers can make.
Transaction Capital increased its bad debt provisions for SA Taxi by more than 1.8 billion rand ($98 million), while writing down the value of repossessed vehicle stock by 150 million rand. It’s the worst of times to be talking about bad loans. With the failure of Silicon Valley Bank and Signature Bank in the US sending shock waves through lenders across the globe, investors are spooked.
Still, the Johannesburg-based company, which started out buying distressed debt books before growing into a broader lending business, doesn’t have bonds or loans maturing until 2025, according to data compiled by Bloomberg. And the minibus taxi industry in South Africa isn’t going anywhere. Due to the lack of reliable and affordable public transport, about 250,000 of these taxis travel the country’s roads, helping millions of people to get to work every day.
Remodeling Underway
In response, Transaction Capital is reorganizing management at SA Taxi. The business model is being simplified and the cost base reduced, with a switch to higher quality credit risk loan origination. An existing inter-company loan of about 2 billion rand from the group holding company will also be capitalized as equity, according to Transaction Capital. Further, SA Taxi plans to sell its auto refurbishment and repairs business and related assets to a strategic partner.
When it comes to exposure, the biggest African fund manager the Public Investment Corp. is Transaction Capital’s largest shareholder, followed by Coronation Fund Managers Ltd.. FirstRand Ltd. unit Rand Merchant Bank is its debt sponsor. Its funders include more than 20 debt investors, according to its full-year report, and they range from development finance institutions to banks, so-called impact funders, institutional investors, fixed income funds and asset managers.
Transaction Capital’s shares were 37% lower by 11:35 a.m. local time.
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