Investors flee R11bn Mi-Plan unit trust after taxi debt default shock

Investors have fled the Mi-Plan Enhanced Income Fund, after it announced in February that it would ringfence nearly R1 billion in debt assets exposed to Bridge Taxi Finance.

The notes were in default and would be ‘side-pocketed’ in a separate fund (Mi-Plan Enhanced Income Retention Fund), from which no redemptions would be permitted.

The fund lost nearly one third of investments in February after it announced this.

At the end of January, the Enhanced Income fund had R11 billion in assets under management. According to its published fact sheet for February, this had declined to R7.1 billion (with the R950-odd million that was side-pocketed to be ‘added back’).

According to industry data for March, this has since dropped to R5.6 billion.

This means it has nearly halved in size since the end of January.

Popular fund

The fund, popular as a building block for client portfolios at wealth managers including PSG and Brenthurst Wealth, has generated an annual return of 8.2% versus 6.3% for the benchmark (Stefi).

This outperformance also helped attract over R3 billion in institutional money (as at 31 December, according to Asisa data).

At the beginning of March, Vunani Fund Managers – which manages the funds – impaired the ‘fair value’ of the four debt instruments in the side-pocketed fund. Each received a different adjustment, but the average across the four securitised structures is around 30%.

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Industry data shows that the retention fund’s size is now just R647 million (with a 31.84% ‘return’ in the past month, i.e. the impairment).

Background

In the most recent fund fact sheet (‘minimum disclosure document’) Vunani Fund Managers portfolio manager Rowan Williams-Short, who manages the Mi-Plan Enhanced Income Fund, for the first time offers a fairly detailed explanation of what happened at Bridge. (Strangely, this document is not yet available on Mi-Plan’s website; it is published on Vunani’s.)

He says the fund has “exposures to Martius and Redink notes which are securitised Special Purpose Vehicles (SPVs) that have ownership of a pool of minibus taxis and a pool of lease payments (ISAs [income share agreements]), with no overlap of underlying assets”.

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Both Martius and Redink debt is listed on the JSE. Martius comprised 4.74% of the fund’s assets, while Redink was a further 3.97%.

At around 8.8% – and with both linked to a single entity, Bridge – this was the second-largest exposure aside from South African sovereign debt (at 25.6%).

Williams-Short says these debt instruments “have performed perfectly since we first invested in June 2018, paying all coupons in full and on time each quarter”.

Death and overdue payment

“In January, the founder, CEO and largest shareholder of Bridge Taxi and its operating company Mokoro (Martin Bezuidenhout) passed away suddenly,” says Williams-Short.

“Then we learnt that Mokoro had an overdue payment to Imperial Logistics and that there had been an underpayment of interest due in a structure outside of either Martius or Redink.

“Those failures caused a so-called ‘Event of default’ under which all lenders must be informed even if their own investments have been fully serviced.”

Incidentally, Bezuidenhout was CEO of Transaction Capital’s SA Taxi Finance between 2008 and 2010. He founded Mokoro with Gerhardt van Wyngaard in 2013. It is unknown how he died.

Bridge says it “only finances high quality Chinese vehicles that are manufactured to comply with the highest international safety standards”.

Currently, these are across four brands – Jinbei, Golden Dragon, Foton and Joylong.

Poor collections

Vunani’s Williams-Short explains that Mokoro “operates as service provider, doing licencing of vehicles, sales, collections, and repossessions when those become necessary”.

Williams-Short also highlights that “the performance of the team at Mokoro has deteriorated”.

“We and some other lenders are looking at supplementing rather than supplanting that team.”

In earlier communication, Vunani says its “efforts include weekly and sometimes daily lender meetings with management that are driving towards enhancing the granularity of reporting and committing resources to the correct areas of the business.”

Williams-Short adds that “given the poor performance of the collections team in particular, the lease payments due to the notes held in the fund and therefore the coupons due must unfortunately be considered unlikely to be received in full at the next coupon dates”.

Impact

In mid-March, Martius announced on Sens that it would pay no interest on three class B notes due on the 18^th.

In total, the interest was over R40 million. The Mi-Plan fund had exposure to two of the three notes.

Vunani says that “as with African Bank (2014) and Land Bank (2020), we will work tirelessly towards the recovery of all assets”.

“Meanwhile, the ‘Main’ fund comprising some 92% of the combined fund continues to operate and perform satisfactorily.”

It won’t charge any management fees on the side-pocket fund.

Williams-Short says “the impact of impairments on performance on 1st March 2024 will be -3.77%”.

This will have a significant impact on its 9.1% return over the past year.

Listed Grindrod, too, is impacted as its ‘non-core’ private equity unit owns 35% of Mokoro (the owner of Bridge Taxi). It has written down the value of that stake from R241 million to zero.

Taxi industry trend?

This news follows the well-publicised impact of the struggling taxi industry on Transaction Capital, given that it owns the largest credit provider to that market (SA Taxi).

It is busy trying to restructure about R5.3 billion of debt by the middle of this year.

While there has been some recovery from the lows, shares of Transaction Capital are down more than 80% from their all-time high.

This article was republished from Moneyweb. Read the original here.

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