Transaction Capital’s SA Taxi division is undergoing a radical shift in strategy as it faces market challenges, such as high interest rates, increasing fuel prices, rising costs of vehicle parts and maintenance, and the effects of load shedding. WeBuyCars’ sister company, the largest taxi lender in the country, which also refurbishes and sells pre-owned taxis, has been repossessing hundreds of taxis every month.
- Transaction Capital’s SA Taxi division is undergoing an aggressive restructuring strategy to adapt to market challenges, including high interest rates, increasing fuel prices, rising vehicle maintenance costs, and load shedding effects.
- The company’s shares have experienced significant losses, but support from major shareholder Coronation Fund Managers and ongoing debt restructuring efforts demonstrate Transaction Capital’s commitment to resolving financial issues and maintaining a healthy balance sheet.
- Despite the challenging environment, Transaction Capital remains optimistic about the future of the minibus taxi sector in South Africa, focusing on supporting taxi operators who struggle to secure financing from traditional banks and contributing to the country’s economic growth and social development.
In recent weeks, Transaction Capital experienced a harsh sell-off after announcing that its SA Taxi business is unlikely to recover to pre-pandemic levels in the short to medium-term. Loan repayments have not yet returned to pre-pandemic rates, with September’s collection rates at 88% of the “normal” number, compared to 94% in August.
The company initially attempted small fixes, such as cost containment and hiring external field agents for collections, but soon realized these measures were insufficient. Transaction Capital now plans an “aggressive restructuring to right-size” the business and has increased its bad debt provisions by over R1.8 billion.
This change in business model is not due to a sudden, significant deterioration in the company’s financials, according to Transaction Capital CEO David Hurwitz. However, the revised model may result in the repossession of more taxis than the company sells. Before the Covid-19 pandemic, Transaction Capital would refurbish and refinance about 95% of repossessed taxis. Now, the company plans to sell only 200 refurbished taxis per month, down from 400 to 500 previously, in response to the pressure faced by “middle-market” operators interested in purchasing more affordable used vehicles.
As of the end of September, SA Taxi contributed two-thirds of the group’s R22 billion in debt. Despite this, the company maintains that its debt covenants have not been breached, as its operating subsidiaries are isolated from the implications of default in each other. SA Taxi’s debt comprises 13% for warehousing facilities, 5% for traditional bank funding, and 44% for private-structured finance, with 59% of the 16 debt investors being developmental financiers or impact investors.
Transaction Capital’s partnership with the South African National Taxi Council (Santaco), which acquired 25% of SA Taxi in a R1.7 billion deal in 2019, is currently “underwater” and may end up costing the company money. Restructuring talks are underway, but this debt is off the group’s balance sheet and is between funders and the industry. However, Transaction Capital may still be required to contribute a maximum of R285 million in equity to support the transaction.
Transaction Capital’s shares have recovered some losses but remain 53% lower than before its mid-March trading update. Coronation Fund Managers, the company’s second-largest shareholder, recently increased its stake to 16.57% from 14.41%. Coronation’s chief investment officer, Karl Leinberger, expressed confidence in Transaction Capital’s management team and the company’s potential for meaningful upside.
CEO Hurwitz emphasized the importance of the minibus taxi sector in South Africa, with approximately 250,000 minibus taxis and 84% of public transport users relying on them. However, Transaction Capital shareholders have been warned not to expect dividends for the next three years, with a headline loss expected for the half-year ending in March and a 375% slump in headline earnings from the previous period.