Wednesday, 7 September 2011

Is Blue back in the Blue?

So it seems like Blue Financial Services is back in the blue and available is about One Billion Rand to finance the growth of its loan book over the next period of time. Blue made the announcement as it outlined a major thrust to expand in SA and Africa, where it already has more than 300000 customers. The pan-African micro-lender plans to have more than trebled loan distribution centres it has in Africa by the end of next year, Blue said in its latest annual report.

Blue has a presence in 14 African countries including SA, but operates in 12 of these, with SA having the bulk of the customer base.

Blue was rescued from possible collapse by private equity firm Mayibuye, which last year acquired a controlling stake after injecting loan and equity funding of R463m.

Soon afterwards, Mayibuye approached Blue’s institutional lenders, who include Absa and multilateral development finance organisations, to convert debt owed to them into equity.

Blue CEO Johan Meiring said in the report the restructure had allowed the company to ring-fence the old loan book, on which only the interest would be paid for up to three years. This would give the company breathing space to start lending to generate income.

"The way in which the debt restructuring agreement was formulated will allow shareholders to benefit from the future business generated, while debts remaining from the past are ring-fenced to the old loan book," Mr Meiring said.

"The successful conclusion of the transaction means that Blue will have access to almost R1bn over the next three years for the growth of the group’s loan books," he said.

This was made up of R300m in terms of a claim purchase agreement facilitated by Mayibuye, while nearly R700m would be provided by existing funders in terms of the debt rescheduling agreement.

Mr Meiring said Blue’s turnaround was gathering pace, marking a reversal of the desperate times it endured last year when it was on the verge of collapse.

In addition to the capital injection, Blue had been cutting costs, tightening lending procedures and improving debt collection.  This had helped to improve revenue and also to cut its losses.  In the year to February last year, it made a record loss of R1,03bn, which fell to nearly R285m in the following year.

Losses for the six months to last month were expected to be lower by as much as 90% compared with the R168,2m loss made in the same period last year, the firm said in a recent regulatory update.

Blue outlined in a preamble to its annual report a series of measures planned for next year to consolidate the recovery of the firm.

These included growing its footprint from 213 distribution points to more than 750 across Africa, concluding a black economic empowerment transaction, recapitalising all subsidiaries and further strengthening the balance sheet.