Transaction Capital Ltd. (TCP), which finances minibus taxis used by millions of commuters in South African townships, is seeking a bank loan so it can extend credit to plumbers and gardeners to buy pickup trucks.
The company plans to take a syndicated loan of as much as 150 million rand ($14 million) this year, Chief Executive Officer David Hurwitz said in an interview from Johannesburg this month. That’s after spending 60 million rand in a pilot project for financing pickup trucks, known locally as bakkies, for mainly black entrepreneurs over the past 12 months, he said.
Transaction Capital provided 5.5 billion rand of funding through its SA Taxi Finance Pty Ltd. unit for minibus taxis, the main mode of transport for the majority of black South Africans since apartheid, which forced non-whites to live on the outskirts of cities. If Transaction Capital can run a profitable bakkie business, it will be “worth investing in,” said Andrew Canter, chief investment officer at Futuregrowth Asset Management in Cape Town.
“It’s been a profitable organization which has managed SA Taxi very well, so they have good credentials,” Canter said in a phone interview on March 26. “The challenge is to prove it and build a track record.”
SA Taxi raised 2 billion rand in 2013, including bonds, structured finance and syndicated loans from offshore development finance institutions, Transaction Capital Chief Financial Officer Mark Herskovits said in an e-mailed response to questions yesterday. The average cost of funding last year was 10.1 percent, he said, declining to provide more detailed pricing.
SA Taxi financed 23,453 minibus taxis in the 12 months ended September 2013 with an average loan of 268,479 rand. The taxis are nicknamed Zola Budds after the barefoot, South Africa-born runner who competed in the 1984 Los Angeles Olympics.
“If the syndicated loan is similar to SA Taxi’s bonds and structures, then it would be priced from about 350 basis points to 450 basis points” over the three-month Johannesburg Interbank Agreed Rate for the bakkie financing, Bronwyn Blood, who helps oversee the equivalent of about $1.8 billion in bonds at Cape Town-based Cadiz Asset Management, said yesterday. “The spreads have narrowed on SA Taxi as people have become more comfortable with it.”
In the past 12 months, four syndicated loans totaling $1.3 billion have been signed in Africa for development financing, according to data compiled by Bloomberg. The borrowers included the Bakubung platinum mine project, a unit of Wesizwe Platinum Ltd. (WEZ), which took a $650 million loan from China Development Bank at the rate London-based lenders pay for six-month loans plus 350 basis points.
SA Taxi’s Class A notes were confirmed at A3, the fourth-lowest investment grade, by Moody’s Investors Service in August.
Transaction Capital’s bakkie financing, with the syndicated loan probably a secured structure, “could be right up at the top in terms of credit ratings,” Bruce Stewart, head of debt origination at Nedbank Capital in Johannesburg, said in a phone interview on March 26.
The syndicated loan will allow Transaction Capital to finance 30 bakkie deals a month for the next 18 months, Hurwitz said March 10. The company typically charges annual interest rates of 18 percent to 26 percent on five-year bakkie loans that average 260,000 rand, he said.
South Africa’s central bank yesterday kept its benchmark lending rate unchanged at 5.5 percent, while saying it may raise borrowing costs in future meetings to curb an inflation rate that threatens to exceed its target. The rand was little changed at 10.5820 per dollar by 3:55 p.m. in Johannesburg, having gained 6.9 percent since policy makers raised the key rate on Jan. 29 for the first time in more than five years.
Funding pickups trucks will support entrepreneurs and help spur South African economic growth that slowed to a four-year low in 2013. The country hasn’t done enough to support small business and “greater synergies” are needed with the private sector to create jobs, Finance Minister Pravin Gordhan said on Feb. 3. South Africa’s unemployment rate is 24 percent, the highest of more than 40 emerging markets tracked by Bloomberg.
“The bakkies are being used for jobs like garden services, moving furniture, plumbers, electricians,” Hurwitz said. “The non-performing loans are particularly low -- it’s less than 1 percent so the book is performing well.”
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