Transaction Capital’s share price plummeted 36% on Wednesday, wiping R3 billion off the company’s market cap.
The share price rout followed the release of Transaction Capital’s results for the 6-month period that ended in March 2023.
The company reported a colossal loss of R1.9 billion which is 390% worse than the corresponding period in 2022.
The largest contributor was a significant impairment loss of R2.4 billion on loans and advances that the company realised during the half-year period.
These impairment losses relate to SA Taxi. Since the Covid-19 outbreak in South Africa, the taxi industry experienced significant headwinds.
As economic activity slowed and interest rates increased, SA Taxi experienced a large number of defaults on taxi loan accounts.
On the back of these headwinds, SA Taxi implemented a debt rehabilitation program in 2022 to increase its efforts in taxi loan collections.
7,922 loan accounts were restructured by applying relief measures such as extending the term of the contracts.
However, the debt rehabilitation was unsuccessful and had no material impact on the company’s financial performance.
Transaction Capital reported an R18.7 billion modification expense related to debt rehabilitation.
To address the problems with SA Taxi, Transaction Capital CEO David Hurwitz said they would change everything within the business.
The company used to rely heavily on a model that repossessed all taxis not being repaid by the operator. These taxis would then be refurbished and refinanced.
Hurwitz said that this model worked very well until the pandemic.
However, this model is highly resource intensive, and with many operators unable to afford their repayments lately, it turned out to be incredibly costly.
A new business structure would now be built on doing better credit quality checks to avoid doing many taxi repossessions and refurbishments.
With the new model, SA Taxi would no longer require large refurbishment facilities, and these assets will be sold to a strategic investor.
Taxis will now be refurbished on a service level agreement instead of “in-house”. It will shift the company’s expenses to being driven more on a variable, case-by-case basis instead of needing to cover large fixed expenses every month.
This new business model will be formed by a new partnership between SA Taxi and Gomo – a mobility finance and insurance partner of WeBuyCars.