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South African National Taxi Council acquires a 25% stake in SA Taxi Finance Holdings Proprietary Limited
Transaction Capital Limited
(Incorporated in the Republic of South Africa)
Registration number: 2002/031730/06
JSE share code: TCP
ISIN: ZAE000167391
(“Transaction Capital”)
SOUTH AFRICAN NATIONAL TAXI COUNCIL (SANTACO) ACQUIRES A 25% STAKE IN
SA TAXI FINANCE HOLDINGS PROPRIETARY LIMITED (“SA TAXI”) FOR R1.7 BILLION
1. INTRODUCTION
Transaction Capital is pleased to announce that an equity partnership transaction has been
concluded between SA Taxi (a major subsidiary of Transaction Capital) and SANTACO,
whereby a newly established entity, K2018582630 (South Africa) Proprietary Limited (to be
renamed Industry SPV (RF) Proprietary Limited) (“SANTACO SPV”) will subscribe for 25% of
the total increased issued share capital of SA Taxi valued at R1.701 billion (the “Transaction”).
The Standard Bank of South Africa Limited and Futuregrowth Asset Management Proprietary
Limited (acting as an asset manager on behalf of various persons) (collectively “Senior
Funders”) will co-fund the Transaction by way of preference shares (as described below) to the
value of R1.180 billion, with SA Taxi providing R521 million of vendor finance through the issue
of a new class of shares called “Notional Vendor Finance Shares”.
SANTACO SPV is indirectly held by SANTACO’s affiliated entities (being a company and a
trust representing SANTACO’s broad-based provincial structures (“SANTACO Trust”)),
ensuring that the economic benefits of this investment accrue to all levels of the minibus taxi
industry.
This ground-breaking Transaction is transformational to the minibus taxi industry and its
stakeholders, in addition to being earnings accretive to Transaction Capital in the medium term
due to the financial benefit of the Transaction (being improved net interest margins from the
lower leverage and interest expenses savings) as well as the operational benefits of an
enhanced relationship with the minibus taxi industry.
2. RATIONALE FOR THE TRANSACTION
SA Taxi and SANTACO have engaged over several years to formalise the industry’s
participation in revenue streams of the minibus taxi industry value chain, and to achieve
meaningful and sustainable commercial benefits for industry participants.
The relationship between SA Taxi and SANTACO has deepened considerably in recent years,
culminating in a unique transformational equity partnership transaction that formalises SA
Taxi’s relationship with SANTACO. The Transaction is truly ground-breaking. It provides broad-
based participation in the value chain of an entirely black-owned industry, comprised entirely of
small and medium-sized enterprises (SMEs).
This industry has developed without government subsidy into the largest and most critical
component of the South African integrated public transport network, which has, for many
decades, been a core pillar of the South African economy and is responsible for connecting
millions of South Africans to various centres of the economy every day.
SA Taxi’s unique market position enhances its ability to have a meaningful impact through
inclusive economic growth. SA Taxi’s social impact extends to financial inclusion, job creation,
skills development and economic transformation, all of which underpin the sustainability of the
minibus taxi industry. SA Taxi fills a critical funding gap, providing credit to entrepreneurs who
would otherwise be excluded from the formal economy and are underserved by traditional credit
providers.
Since 2008, SA Taxi has provided loans of more than R21.9 billion to taxi operators, supporting
the creation of an estimated 72 423 small SMEs resulting in more than 130 000 direct and more
than 215 000 indirect jobs created. Of the 7 734 SMEs created by SA Taxi in 2018, 100% are
black-owned, 23% are women-owned and 23% of these SME operators at the date of
origination, are under the age of 35, all contributing to SME empowerment.
More broadly, enabling taxi operators to replace old vehicles with new, safer and lower emission
minibus taxis improves this critically important component of South Africa’s integrated public
transport network.
The alignment of interests required to conclude the transaction has formalised the industry
ecosystem to an extent not achieved before, which will provide a framework for wide-reaching
initiatives to transform the minibus taxi industry from within, and to grow and support the
sustainability of the industry at all levels.
As socially responsible corporate citizens, Transaction Capital and SA Taxi are cognisant of
their businesses' responsibilities to the broader South African society and have accordingly
entered into this equity partnership transaction to include historically disadvantaged persons
that would, but for this transaction, remain excluded from the minibus taxi industry’s value
chain. Transaction Capital and SA Taxi have voluntarily taken on this initiative which delivers
positive social impact.
3. TRANSACTION CONSIDERATION
SANTACO SPV will acquire 25% of the enlarged issued share capital of SA Taxi via the
following transaction mechanism:
3.1. senior Funders will, in equal proportions, subscribe for preference shares issued by a
newly established company, K2018582884 (South Africa) Proprietary Limited (to be
renamed Industry Holdco) (“SANTACO Holdco”), consisting of “A Preference Shares”,
”B Preference Shares”, and “B1 Preference Shares” (collectively the “Preference
Shares”) for a total aggregate amount of R1.180 billion;
3.2. in turn, SANTACO Holdco will subscribe for ordinary shares in SANTACO SPV for
R1.180 billion; SANTACO SPV will utilise the proceeds received from issuing the
additional ordinary shares to SANTACO Holdco pursuant to 3.1 to subscribe for
ordinary shares in SA Taxi (equal to 15.69% of the enlarged issued share capital in SA
Taxi) for a total amount of R1.180 billion (“Ordinary Subscription Shares”); and
3.3. SA Taxi will provide vendor finance of R521 million by issuing a newly created class of
shares called Notional Vendor Finance shares (“NVF Shares”) (the terms of which are
set out in 7 below) to SANTACO SPV for a nominal amount. The NVF Shares to be
issued to SANTACO SPV will equate to 9.31% of the enlarged issued share capital of
SA Taxi.
4. SANTACO SPV
The Ordinary shares in SANTACO Holdco shall be held by an affiliated company of SANTACO
and the SANTACO Trust. SANTACO SPV, a wholly-owned subsidiary of SANTACO Holdco,
will subscribe for ordinary shares and NVF Shares in SA Taxi.
The beneficiaries of the SANTACO Trust comprise the broad-based provincial taxi councils.
The beneficiary structure will ensure that ownership and associated economic benefits of the
investment cascade down to provincial levels.
A governance framework has been instituted to:
(i) govern the powers of SANTACO Holdco, SANTACO SPV and the SANTACO Trust to
those commensurate with special purpose entities of this nature;
(ii) ensure strict governance of the appointments of SANTACO representatives in
SANTACO Holdco, SANTACO SPV and the SANTACO Trust; and
(iii) ensure that dividends and future value from the realisation of the SANTACO Trust’s
shareholding in SA Taxi flows back to minibus taxi associations, operators, commuters
and other stakeholders with benefits in the form of special projects. In this regard, a
committee with representatives from SANTACO and its affiliated entities and the Senior
Funders has been formed to consider each project for approval. Cash flows will support
relevant infrastructure and other developmental projects designed to create
sustainable value for the industry and commuters. Partnerships with local government
will be sought to leverage this investment in infrastructure for greater socio-economic
impact.
Post the implementation of the Transaction, 90% of the dividends declared and paid by SA Taxi
to SANTACO SPV and, ultimately to SANTACO Holdco, will be applied towards servicing the
Preference Shares. A 10% trickle dividend will flow from the outset.
SANTACO SPV will be entitled to nominate 3 directors to the board of SA Taxi.
5. USE OF PROCEEDS AND EFFECT OF TRANSACTION
SA Taxi will raise net proceeds of approximately R1.167 billion (after transaction costs) from
the issue of the Ordinary Subscription Shares to SANTACO SPV. Of this, SA Taxi will use
approximately R1 billion to settle external and shareholder debt, with the remainder retained by
SA Taxi to fund growth.
In the medium-term, SA Taxi will continue to grow earnings organically at rates similar to prior
years. However, the financial benefit of the Transaction (being improved net interest margins
from the lower leverage and interest expenses savings) and the operational benefits of a
stronger enhanced relationship with SANTACO will support higher growth rates over the
medium term.
This capitalisation of SA Taxi’s balance sheet increases its net asset value by approximately
R1.2 billion. This will reduce gearing significantly and position SA Taxi strongly for its next wave
of organic growth. This growth will be funded predominantly by more efficiently priced senior
debt. Despite the capitalisation, strong earnings growth in the coming financial year will enable
SA Taxi to generate a return on equity of approximately 20% over the medium term.
The issue of the Ordinary Subscription Shares and the notional vendor finance made available
by SA Taxi through the issue of the NVF Shares will result in Transaction Capital consolidating
81.4% of SA Taxi’s earnings. Although Transaction Capital’s proportionate share of SA Taxi’s
earnings will be smaller, earnings are expected to increase due to the settlement of debt and
together with the benefits of greater alignment with the minibus taxi industry, this ground-
breaking Transaction is expected to be earnings accretive to the Transaction Capital group in
the medium-term. Furthermore, Transaction Capital's net asset value per share is estimated to
increase by approximately 105 cents per share immediately after the implementation of the
Transaction.
The use of notional vendor finance by way of the issue of the NVF Shares has resulted in a
once off (non-cash) share based payment cost, to be recognized in SA Taxi’s income statement
in the current financial period. This cost, together with other once off costs related to the
Transaction will be excluded from core earnings in SA Taxi and the Transaction Capital group’s
financial results.
6. PREFERENCE SHARE TERMS
6.1. Each A Preference Share and each B Preference Share will confer on its holder the
right to receive a preferential cumulative cash dividend from date of issue to the
redemption date of such A and B Preference Shares. The A Preference Shares shall
be required to be compulsorily redeemed at various intervals during a period of 7 years
calculated from the date on which they are issued. In this regard, all A and B Preference
Shares must be redeemed on the day immediately prior to the seventh anniversary of
the date on which they are issued (“Maturity Date”). If there are any breach or
insolvency events that occur prior to such date, SANTACO Holdco shall be obliged to
redeem the Preference Shares earlier.
6.2. Each B1 Preference Share will confer on its holder the right to receive a preferential
once off cash dividend after the A and B Preference Shares have been redeemed,
based on the net asset value of SANTACO Holdco exceeding R500 million (before tax).
7. NVF TERMS
The terms of the NVF Shares, being a new class of shares to be created in SA Taxi, shall
include, inter alia, the following:
7.1. a notional vendor finance balance of R521 million will initially be established on the
date on which the NVF Shares are subscribed for (“NVF Balance”). The NVF Balance
will:
7.1.1. increase by (i) the equity cure balance paid by TC Corporate Support (Pty)
Ltd, a wholly-owned subsidiary of Transaction Capital, (“TCCS”) in terms
of the Equity Cure mechanism (as more fully described in 0 below); and
(ii) a notional growth rate of 4% (nominal annual rate compounded semi-
annually); and
7.1.2. decrease by (i) the amount of any notional dividends (as contemplated in
7.3.2 below)
7.2. holders of the NVF Shares shall be entitled to the same voting rights in respect of the
NVF Shares as the holders of the ordinary shares in SA Taxi are entitled to;
7.3. holders of the NVF Shares shall be entitled to receive dividends declared by SA Taxi
from attributable cash profits pro rata to the total number of both classes of shares in
issue. 10% of the proceeds of such dividends will be distributed to SANTACO SPV,
which will in turn distribute the amounts to SANTACO Holdco for the benefit of it and
its shareholders. The remaining 90% of dividend proceeds (which will be distributed to
SANTACO SPV, which will in turn distribute the amounts to SANTACO Holdco) will be
applied as follows:
7.3.1. firstly, to settle amounts owing by Industry Holdco in terms of, inter alia,
the Preference Shares;
7.3.2. secondly, after settlement of amounts owing by Industry Holdco in terms
of, inter alia, the Preference Shares, to reduce the NVF Balance (via the
declaration of a notional dividend and notional offset against the NVF
Balance); and
7.3.3. thirdly, once the NVF Balance is reduced to nil, be paid out to SANTACO
SPV, to the extent that there are NVF Shares remaining after a
determination has been made regarding the number of NVF Shares that
may be redeemed by SA Taxi to reduce the NVF Balance to nil;
7.4. if the NVF Balance, at any time is nil, the NVF Shares (to the extent that there are any
remaining NVF Shares) shall convert into ordinary shares in SA Taxi on a one-for-one
basis at that time; and
7.5. the Ordinary Subscription Shares and the NVF Shares will be pledged to Senior
Funders as security for SANTACO SPV’s obligations to Senior Funders (as guarantor
for the obligations of SANTACO Holdco under the subscription agreement referred to
in 3.1). If the security provided by the Ordinary Subscription Shares to Senior Funders
is insufficient, after realisation, to settle all amounts owing by SANTACO SPV to Senior
Funders, Senior Funders shall be entitled to realise their security in respect of the NVF
Shares which shall immediately convert into ordinary shares on a one-for-one basis.
8. EQUITY CURE
If a financial covenant given by SANTACO Holdco and/or SANTACO SPV to Senior Funders
in relation to the Preference Shares (and the terms upon which the Preference Shares were
subscribed for), is breached, TCCS undertakes to pay an amount not exceeding R250 million
(“Equity Cure”) into a ring-fenced bank account which may be utilised as cash collateral or may
be utilised by SANTACO Holdco to redeem all or a portion of the Preference Shares.
9. CONDITIONS PRECEDENT
The Transaction is subject to fulfilment or waiver (where appropriate), inter alia, of the following
suspensive conditions by 31 March 2019 or such later date as may be agreed by the relevant
parties to the Transaction:
9.1. resolutions passed by the boards and/or shareholders of SANTACO Holdco,
SANTACO SPV and SA Taxi to implement the Transaction;
9.2. the filing of the amended memoranda of incorporation of both SANTACO Holdco and
SANTACO SPV to include, inter alia, ring-fencing provisions required by the Senior
Funders;
9.3. the conclusion of the amended and restated trust deed relating to the SANTACO Trust
to the satisfaction of SA Taxi and the Senior Funders;
9.4. the obtaining of the consent of certain SA Taxi funders to implement the Transaction;
9.5. the delivery of various documents by SANTACO Holdco and/or SANTACO SPV to the
Senior Funders including payment instructions and formalities certificates confirming
certain factual representations to the Funders;
9.6. the furnishing of legal opinion/s in respect of the Transaction relating, inter alia, to the
enforceability of the funding documents.
10. EFFECTIVE DATE
The effective date of the Transaction shall be the date on which Senior Funders subscribe for
the Preference Shares in SANTACO Holdco.
11. FURTHER INFORMATION REGARDING TRANSACTION CAPITAL AND SA TAXI
Transaction Capital owns businesses that operate in highly specialised, under-served
segments of the South African and Australian financial services markets. Its divisions, SA Taxi
and Transaction Capital Risk Services (TCRS), are diversified and scalable business platforms
that leverage their specialised expertise, proprietary data and technology to create value for
customers.
Positioned deliberately in relation to socio-economic dynamics, both divisions are highly
defensive businesses able to deliver good commercial returns and positive social impact in
different economic conditions. Each of them has an entrepreneurial and experienced
management team and operates according to a mature governance framework.
Since Transaction Capital listed on the JSE Limited in June 2012 it has achieved compound
annual growth in earnings per share of about 20%, with high cash conversion rates.
SA Taxi is a vertically integrated business platform that provides a comprehensive financial and
allied services offering to minibus taxi operators. The division offers a unique blend of vehicle
procurement, retail, repossession and refurbishment capabilities with asset-backed
developmental finance and insurance specifically designed for the minibus taxi industry.
12. FINANCIAL INFORMATION
12.1. For the 6 months ended 31 March 2018, the net assets of SA Taxi were R1 463 million,
inclusive of gross loans and advances of R8 907 million and interest-bearing liabilities
of R7 364 million.
12.2. SA Taxi delivered profit after tax of R176 million for the 6 months ended
31 March 2018. These unaudited figures were prepared in accordance with the
International Financial Reporting Standards.
Full year results for Transaction Capital to be released on the Stock Exchange News Service
(SENS) on or about 20 November 2018.
13. CATEGORISATION
The Transaction is a Category 2 transaction as contemplated in the Listings Requirements of
the JSE Limited.
14. FURTHER ANNOUNCEMENT
Shareholders will be notified once the last of the conditions precedent set out in 0 has been
fulfilled or waived.
Any forecast financial information contained in this announcement has not been reviewed or
reported on by Transaction Capital’s external auditors.
Dunkeld West
19 November 2018
Enquiries:
Phillipe Welthagen - Investor Relations
Telephone: +27 (0) 11 049 6700
Financial Advisor, Lead Mandated Arranger and Transaction Sponsor
The Standard Bank of South Africa Limited
Date: 19/11/2018 05:45:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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