Taxi lender and used-car dealer Transaction Capital insists its taxi-lending business is “robust”, even as it restructures the unit and faces increasing numbers of repossessed vehicles that it cannot resell.
While insisting that taxis are “built into the structure of SA and the country cannot operate without taxis”, SA Taxi faces multiple challenges.
Transaction Capital flagged “structural” issues at the business in a trading update two weeks ago and warned that core earnings, the group’s preferred measure of profitability, would drop 41%-46% in the six months to end-March.
At the headline level, the loss per share is forecast at 182.4c-186c compared with headline earnings per share of 72.6c a year earlier.
Group executives faced many questions at a webinar on Thursday after its share price plummeted almost 70% after the trading update, including about the viability of the minibus taxi business. Taxis receive just 1% of SA government transport subsidies, according to the Competition Commission’s 2021 market inquiry into the public transport industry.
“In SA, unfortunately, our subsidy goes to the wrong place, it goes to bus and train, which don’t actually move enough people around. Minibus taxis are left to be self-sufficient,” chief investment officer Mark Herskovits said.
“I think it’s only Turkey, which has a public transport infrastructure, which is not government subsidised and actually operates properly. Elsewhere in the world there is a subsidy [provided].”
Still, Herskovits said taxis were a “viable sector ... what we need to say here is that we are absolutely committed to the minibus taxi industry”.
Taxi fares are “non-discretionary” or essential spend for consumers, he added, noting that the first R1 that SA’s 15-million taxi commuters spend each day as they head to work is usually for a minibus.
Transaction Capital typically targets financed taxis since wealthy bosses generally pay cash for their vehicles, but it is regarded as a high-risk business that banks have traditionally avoided.
Part of Transaction Capital’s business model includes repossessing taxis when debt is unpaid, refurbishing and reselling them to recoup the losses. But the model is coming under pressure as buyers struggle with rising fuel costs, running costs and cash-strapped commuters.
That has prompted the group to refinance fewer refurbished taxis and sell only 220 of those units — down from about 400 a month in 2021, leaving the group with a glut of repossessed vehicles.
CFO Sean Doherty said: “Just to use numbers by way of example, we’ve mentioned we will finance 220 refurbished vehicles [monthly]. If, for example, I were to repossess 300 units, I’ve got an overhang of 80. What do I do with that 80?”
Transaction Capital has started a new division, Gobid, to help it find ways to sell the extra taxis it has repossessed. Some could possibly be sold via WeBuyCars.
Doherty said the group has attempted several adjustments to its taxi lending business in the past two years in a bid to stabilise the unit. That included looking into refinancing Chinese vehicles and owning a spare parts business for taxis, called Auto, to reduce repair costs. However, Auto is up for sale now.
More than half the R15.4bn that taxi drivers owed Transaction Capital at the end of September 2022 (the group’s most recent full financial year) is in arrears.
Of the total, R3.2bn, or 21%, is so-called stage three debt, it said. Under International Financial Reporting Standards, stage three debt is impaired and less likely to be repaid, but not written off.
About R4.6bn is in arrears, or at stage two, while about R7.5bn is in good standing or at stage 1.
Transaction Capital is setting aside an extra R2bn for debt that it expects will not be repaid. The group also said it ill not pay dividends from the SA Taxi finance division for three years, though there will be payments from its debt collection business Nutun and used-car dealer WeBuyCars.
Doherty emphasised that each of the group’s divisions — WeBuyCars, Nutun and SA Taxi — lend separately and there are “no cross defaults”.
“Were any one of the underlying subsidiaries to default, that would not contaminate or somehow link up with any of the other subsidiaries. [This is] just something that we absolutely have to make sure that everybody understands.”
Transaction Capital had about 20bn in debt at the end of September 2022, according to its financial statements. Of that, R5bn was due in the next six months to year end.
That amount has been repaid or refinanced, meaning it is not in any breach of debt covenants with its many lenders, the group said.
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