SA Taxi needs debt solution to keep going
SA Taxi, the market leader in financing and insuring minibus taxis, could be forced to wind down if it fails to reach a debt restructuring deal with lenders by March, parent Transaction Capital warned on Tuesday.
But Transaction Capital is confident it will reach an agreement with lenders to ensure the long-term survival of SA Taxi as a smaller, more sustainable division that now only finances used, more affordable taxis.
The group, which owns almost 75% of used vehicle dealer WeBuyCars, SA Taxi and debt collector Nutun, is struggling with an enormous debt pile of R33.6bn, while its taxi division is making losses.
SA Taxi, the biggest taxi financier in the country, plunged into a hefty R3.7bn loss in the year to end-September.
Taxi owners, who are part of the lifeblood of SA’s economy as millions of South Africans use minibus taxis as their primary mode of transport, owe about R17bn to SA Taxi in vehicle finance loans. They have not been repaying their debts as fares have not risen in line with vehicle prices, interest rates and skyrocketing petrol prices.
SA Taxi lends to taxi owners who do not qualify for bank funding or who cannot afford to pay cash for their vehicles. It was funding about 40% of new taxis in the SA market before running into trouble earlier in 2023.
The R17bn debt is largely owed by taxis to lenders, and even if it is not repaid it is ringfenced from the WeBuyCars and Nutun business divisions within Transaction Capital, keeping them sustainable. But SA Taxi is trying to restructure that debt, which would include lengthening the terms of the loans.
Sasfin analyst Alec Abraham said: “The key thing is that SA Taxi’s existing debt, which includes previous delinquent loans, must be restructured and reduced because the new envisaged sustainable business is much smaller and can’t sustainably repay the quantum of existing large debt funding.”
If the taxi debt is not repaid, Transaction Capital will not be able to access new debt from finance corporations to continue lending on to new owners, which would lead to the SA Taxi division’s demise.
Executive director Mark Herskovits said in the presentation: “It’s really important to recognise that no finance business can survive without funders. It’s simply not possible. And therefore if we can’t reach an agreement [with lenders], the business [SA Taxi] will enter into a wind-down scenario.
“I think it would be really suboptimal for all stakeholders, and we’re going to do everything we can to avoid that.”
Herskovits said he was confident that lenders would agree to restructure the debt so the business could access new capital.
There is a universal agreement between all the lenders and the business that it is in all parties’ interest for the business to continue to operate as normally as possible and that the best outcome for all stakeholders is the continuation of SA Taxi, Herskovits said.
Transaction Capital executive director Jonathan Jawno said the
only way to make the taxi business sustainable is to finance cheaper taxis so owners have a lower monthly loan repayment.
This means SA Taxi will finance 180-200 second-hand and refurbished taxis a month, down from at least 800 taxis, which included new and refurbished taxis. The division is also repossessing more taxis than it can resell.
It said a move to selling only used vehicles “will help SA Taxi reduce its repossessed vehicle stock and improve its liquidity”.
Jawno apologised to all stakeholders, including shareholders, for the results in which Transaction Capital swung from a R1.6bn profit to a loss of R1.3bn.
This loss is not as severe as its operating loss of R2.77bn, due to accounting adjustments on its books. The group showed a headline loss per share of 99c, down 144%.
Transaction Capital said it would not give money anymore from the holding structure to SA Taxi, having loaned it R2.2bn in March.
WeBuyCars, the group’s biggest division, will remain in business, even if SA Taxi’s debt is not restructured.
Abraham said the share price reflects the market view of Transaction Capital as the owner of a motor vehicle retailer.
“Transaction effectively went from a niche, high-growth bank with a competitive advantage through its taxi refurbishment capability to a motor vehicle retailer.”
Transaction Capital said it is looking at listing WeBuyCars on the JSE, which would allow it to sell some of its stake.
Transaction Capital is also seeking an equity partner or business to buy a stake in SA Taxi, which would help it repay some of its debt.
Jawno said it would search for an investor after a debt restructure.
A new equity partner “is predicated on a successful outcome on debt restructuring.
“To the extent the debt is restructured, SA Taxi is very relevant to the SA context.
“There is no other player that facilitates financial inclusion for people who aren’t able to access funding from the formal banks. And the taxi sector is crucial to the SA economy,” he said.