Announcements Financial Institutions Rating Alerts

Transaction Capital’s international scale rating downgraded to B from B+, on heightened country & sector risk, A-(ZA)/A2(ZA) national scale ratings affirmed.

Rating Action

Johannesburg, 10 July 2020 – GCR Ratings (‘GCR’) has downgraded Transaction Capital Limited’s long-term international scale rating to B, from B+, with a Stable outlook. At the same time, the South African long and short-term issuer ratings have been affirmed at A-(ZA)/A2(ZA), and outlook is Negative.

Rated Entity / Issue Rating class Rating scale Rating Outlook / Watch
Transaction Capital Limited Issuer Long Term National A-(ZA) Negative Outlook
Issuer Short Term National A2(ZA)
Issuer Long Term International B Stable Outlook

Rating Rationale

The downgrade of Transaction Capital Limited’s (‘the group’) international scale rating reflects the strained operating environment of South Africa (‘SA’) and increasing banking sector risk post COVID-19. The national scale ratings on the group primarily reflect the strengths and weakness of its two major subsidiaries, SA Taxi Holdings (‘SA Taxi’) and Transaction Capital Risk Services (‘TCRS’). Further rating support is derived from the NOHCs (non-operating holding company) ungeared and highly liquid balance sheet, the absence of regulatory structural subordination, and the diversification benefits from different business lines of subsidiaries.

The competitive position of SA Taxi and TCRS balances their small but defendable niche positions, and strong track record of revenue stability. SA Taxi, with 100% of its operations in SA, is a strong niche with a developmental focus on the country’s taxi industry. We consider its market position to be defendable, and revenues are stable and modestly diversified. TCRS, a buyer of NPL books, has a leading domestic market position, although its operations in Australia are relatively small but growing. TCRS’ pricing advantages and strong collections infrastructure supports revenue stability.

SA Taxi’s financial profile is moderately strong, balancing strong capitalisation, high cost of risk, and moderate funding and liquidity risks. Capitalisation is strong, measured by the GCR total capital ratio of 18% as of 31 March 2020. We expect the ratio to range between 16-18% over the next 2 years, supported by good earnings and moderate loan growth. The financial profile is moderated for higher than sector average credit losses of 6.1% (COVID adjusted), although through the cycle they have ranged 3-4%. GCR expects credit losses to improve to around 5.8% by end of FY20, supported by improved collections from reopening of the economy. Funding is broadly diversified for a non-bank institution, consisting of international and local DFIs, on-balance sheet structures, warehousing facilities, and structured finance and securitisation vehicles. Additional liquidity support is derived from excess capital and unutilised bank facilities from the NOHC totalling R800mln.

TCRS’ financial profile balances the modest levels of leverage at year end 2019, with net debt to EBIT of approximately 2x and funds from operations accounting for just 48% of net debt. Free operating cash flow is negative due to the fairly rapid expansion of TCRS’ purchased book debts. Earnings are fairly strong, reflected by EBIT margin over 30%. Risk position is also fairly strong, with average collection multiple of 3x purchase price. We also factor in adequate levels of liquidity, with further support derived from the NOHC.

Outlook Statement

The national scale rating outlook is negative, reflecting the potential impact from the strained operating environment. We expect SA Taxi to be more affected by the economic downturn and the restrictions triggered by the COVID-19 pandemic, with earnings and asset quality likely to be hit quite hard. Concurrently, a deterioration in asset quality or capital could lower the ratings on the parent. For TCRS, lower than anticipated receipting on acquired books, pressurising cash flows, could also lower the parent’s ratings.

Rating Triggers

A downgrade in the group credit profile could stem from weakening SA operating environment, and reduction in the financial profiles for the sister subsidiaries. The upside to the ratings is limited, however sustained reduction in credit losses, increased revenue generation by TCRS in low risk markets, improved business line diversification, and stronger internal capital generation could result in a ratings improvement.

Analytical Contacts

Primary analyst Simbarake Chimutanda Financial Institutions Analyst
Johannesburg, ZA SimbarakeC@GCRratings.com +27 11 784 1771
Committee chair Matthew Pirnie Group Head of Ratings
Johannesburg, ZA MatthewP@GCRratings.com +27 11 784 1771

Related Criteria and Research

Criteria for the GCR Ratings Framework, May 2019
Criteria for Rating Financial Institutions, May 2019
Criteria for Rating Financial Services Companies, May 2019
GCR Ratings Scale, Symbols & Definitions, May 2019
GCR Country Risk Scores, May 2020
GCR Financial Institutions Sector Risk Score, June 2020

Ratings History

Transaction Capital Limited

Rating class Review Rating scale Rating class Outlook Date
Issuer Long Term Initial National A-(ZA) Stable November 2016
Last National A-(ZA) Stable October 2019
Issuer Short Term Initial National A1-(ZA) — November 2016
Last National A2(ZA) — October 2019
Issuer Long Term Initial International BB- Stable November 2016
Last International B+ Stable October 2019

Risk Score Summary

Rating Components & Factors Risk scores
Operating environment 13.25
Country risk score 7.75
Sector risk score 5.50
Business profile (2.00)
Competitive position (2.00)
Management and governance 0.00
Financial profile (0.25)
Capital and Leverage 2.00
Risk (2.25)
Funding and Liquidity 0.00
Comparative profile 1.00
Group support 0.00
Government support 0.00
Peer analysis 1.00
Total Score 12.00

Glossary

Capital The sum of money that is invested to generate proceeds.
Cash Funds that can be readily spent or used to meet current obligations.
Cash Flow The inflow and outflow of cash and cash equivalents. Such flows arise from operating, investing and financing activities.
Credit Rating An opinion regarding the creditworthiness of an entity, a security or financial instrument, or an issuer of securities or financial instruments, using an established and defined ranking system of rating categories.
Debt An obligation to repay a sum of money. More specifically, it is funds passed from a creditor to a debtor in exchange for interest and a commitment to repay the principal in full on a specified date or over a specified period.
Liquidity The speed at which assets can be converted to cash. It can also refer to the ability of a company to service its debt obligations due to the presence of liquid assets such as cash and its equivalents. Market liquidity refers to the ease with which a security can be bought or sold quickly and in large volumes without substantially affecting the market price.

Salient Points of Accorded Ratings

GCR affirms that a.) no part of the ratings were influenced by any other business activities of the credit rating agency; b.) the ratings were based solely on the merits of the rated entity, security or financial instrument being rated; c.) such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument.

The credit rating has been disclosed to Transaction Capital Limited. The ratings above were solicited by, or on behalf of, the rated entity, and therefore, GCR has been compensated for the provision of the rating.

Transaction Capital Limited participated in the rating process via face-to-face management meetings, and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible. The information received from Transaction Capital Limited and other reliable third parties to accord the credit rating included:

  • Interim financial results of Transaction Capital Limited as at 31 March 2020;
  • Audited financial results of SA Taxi and TCRS as at 30 September 2019;
  • Latest internal and/or external audit report to management;
  • Industry comparative data.
image_pdfPDF View


ALL GCR CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS, TERMS OF USE OF SUCH RATINGS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS, TERMS OF USE AND DISCLAIMERS BY FOLLOWING THIS LINK:HTTP://GCRRATINGS.COM. IN ADDITION, RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLIC WEB SITE AT WWW.GCRRATINGS.COM/RATING_INFORMATION. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. GCR's CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THIS SITE.

CREDIT RATINGS ISSUED AND RESEARCH PUBLICATIONS PUBLISHED BY GCR, ARE GCR’S OPINIONS, AS AT THE DATE OF ISSUE OR PUBLICATION THEREOF, OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. GCR DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL AND/OR FINANCIAL OBLIGATIONS AS THEY BECOME DUE. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: FRAUD, MARKET LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND GCR’S OPINIONS INCLUDED IN GCR’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. CREDIT RATINGS AND GCR’S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND GCR’S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL OR HOLD PARTICULAR SECURITIES. NEITHER GCR’S CREDIT RATINGS, NOR ITS PUBLICATIONS, COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. GCR ISSUES ITS CREDIT RATINGS AND PUBLISHES GCR’S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING OR SALE.

Copyright © 2021 GCR INFORMATION PUBLISHED BY GCR MAY NOT BE COPIED OR OTHERWISE REPRODUCED OR DISCLOSED, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT GCR’S PRIOR WRITTEN CONSENT. Credit ratings are solicited by, or on behalf of, the issuer of the instrument in respect of which the rating is issued, and GCR is compensated for the provision of these ratings. Information sources used to prepare the ratings are set out in each credit rating report and/or rating notification and include the following: parties involved in the ratings and public information. All information used to prepare the ratings is obtained by GCR from sources reasonably believed by it to be accurate and reliable. Although GCR will at all times use its best efforts and practices to ensure that the information it relies on is accurate at the time, GCR does not provide any warranty in respect of, nor is it otherwise responsible for, the accurateness of such information.GCR adopts all reasonable measures to ensure that the information it uses in assigning a credit rating is of sufficient quality and that such information is obtained from sources that GCR, acting reasonably, considers to be reliable, including, when appropriate, independent third-party sources. However, GCR cannot in every instance independently verify or validate information received in the rating process. Under no circumstances shall GCR have any liability to any person or entity for (a) any loss or damage suffered by such person or entity caused by, resulting from, or relating to, any error made by GCR, whether negligently (including gross negligence) or otherwise, or other circumstance or contingency outside the control of GCR or any of its directors, officers, employees or agents in connection with the procurement, collection, compilation, analysis, interpretation, communication, publication or delivery of any such information, or (b) any direct, indirect, special, consequential, compensatory or incidental damages whatsoever (including without limitation, lost profits) suffered by such person or entity, as a result of the use of or inability to use any such information. The ratings, financial reporting analysis, projections, and other observations, if any, constituting part of the information contained in each credit rating report and/or rating notification are, and must be construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any securities. Each user of the information contained in each credit rating report and/or rating notification must make its own study and evaluation of each security it may consider purchasing, holding or selling. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY GCR IN ANY FORM OR MANNER WHATSOEVER.