Treasury mulls recapitalising Land Bank after default on R50bn debt

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CAPE TOWN – The National Treasury is considering recapitalising the Land and Agricultural Bank, and providing it with further guarantees, after the bank warned it might not be able to make repayments on its R50billion debt, due to liquidity constraints.

But the Treasury said yesterday any further assistance “would have to be accompanied by balance sheet optimisation of the Land Bank to correct the structural liquidity risk embedded in the balance sheet”.

In January, the Land Bank sought financial support from the Treasury in the form of equity recapitalisation as well as government guarantees. This was as a result of the downgrade of the global credit rating, and consequence liquidity challenges.

In February the Treasury approved R5.7bn in government guarantees for the Land Bank.

This month the Land Bank, supported by the Treasury, met with lenders where an appeal was made to lenders not to exercise the rights they may have to call on debt that is at risk of default, but to continue supporting and lending to assist in managing pressure on the fiscus at a time of limited fiscal space, and constrained market liquidity, Treasury said.

The bank warned holders of R50bn of its debt that it had defaulted on a revolving credit repayment, and that it was trying to negotiate a payment waiver. It said that the only reason for the default was that it was experiencing a liquidity shortfall.

In its half year to end September, according to its interim report released in February, the bank claimed that its cash and liquidity position were “still healthy”, as it had access to R6.5bn cash and access to further liquidity from R2.15bn of committed and R0.5bn of uncommitted funding facilities.

At the end of its 2019 financial year, the bank was still one of the government’s few profit-making organisations, with a R168.3million net profit, but this plunged into a R184.7m loss at the end of the first half of its 2020 financial year, with the bank blaming slow economic growth; the effects of prior year droughts; muted loan book growth; and higher impairment charges for its poor operational performance.

The percentage of non-performing loans had increased sharply to 9.9percent at the end of the interim period, from 5.4percent at its June 2019 year-end, ostensibly due to shifting seasons, fluctuating agricultural product prices, disease outbreaks, and fluctuating agricultural product prices.

The bank warned that there was a potential default for note holders holding the Land Bank’s JSE-listed R20bn DMTN 2010 programme, and its R30bn DMTN 2017 programme.

“The issuer failed to make a payment when due to a lender under the terms of a revolving credit facility. The non-payment of this amount constitutes an event of default under the affected RCF,” the bank said.

On January 21, Moody’s reduced the bank’s rating to Ba1 from Baa3/P-3, and its long-term rating to Aa3.za from Aa1.za, reflecting what Moody’s described as the bank’s “ongoing fiscal challenges”.

DA spokesperson for agriculture, Annette Steyn, said in a statement Parliament’s agriculture, land reform and rural development portfolio committee should discuss the future of the Land Bank urgently.

She said the Land Bank’s woes had been brought on because the government had, for years now, been slow in its response to various droughts and other agricultural disasters.

“The recent drought and outbreak of diseases such as foot and mouth disease have placed the South African agricultural sector at massive risk. Agricultural debt is growing and is estimated at R200bn currently, 25percent of the debt book of agriculture is funded directly through the Land Bank,” Steyn pointed out.

BUSINESS REPORT 

 

By Edward West

Credit: www.iol.co.za

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