Land Bank expects more defaults until end of April
The Land Bank expects more defaults on its obligations due until the end of April, a move that could drastically affect its ability to continue funding its operations.
The Land Bank, which provides 28% of agricultural loans, said: “The Land Bank is currently experiencing a liquidity shortfall and is, accordingly, engaging with various stakeholders with a view to addressing this challenge, especially in regard to financial obligations falling due, which may need to be deferred.”
About R738m is due to the creditors. Thursday’s announcement followed a similar one at the beginning of the week.
The bank said on Monday it had missed an obligation on a revolving credit facility and it was engaging in talks with the lender to waive the default clause, which could lead to creditors asking to be repaid debt guaranteed by the government. The development came as a shock to the market as the bank previously had a reputation as one of the better run state-owned entities, being profitable and relying on very little government guarantees to support its funding and activities.
To demonstrate this, the bank raised unguaranteed, sevenyear funding of R555m and 10-year funding of R925m in the financial year to end-March 2019, while generating a profit of R181m.
But the bank was finding it tough to extend loans, and the value of its loan book fell slightly in comparison to 2018, while bad debts rose sharply.
“Persistent droughts in several parts of the country have affected our loan book growth and non-performing loans,” it stated in its annual report for the year.
Net impairment charges rose 489% to R324m for the year. At the interim stage, when the bank presented to parliament, it had incurred a loss for the six months ending September. The Land Bank said it had now approached lenders to agree to a deferral of the payment of interest and capital to help it get back onto solid footing.
It was also in the process of looking to raise up to R5bn to meet its medium-term funding requirements.”
“The Land Bank currently has access to a R5.7bn government guarantee, of which approximately R4.3bn remains available to support the Land Bank’s capital raising initiatives,” it said.
It is now asking funders to cluster themselves into groups comprising commercial banks, listed note holders and ad hoc funders so it can discuss options with respect to resolving the situation.
The Land Bank said that the amount payable under the revolving credit facility would not trigger cross-default clauses because the amount fell below the threshold required under the provisions of the notes it had issued. That would be immaterial if further obligations were missed.