Land Bank must be saved ‘at all costs’
• Treasury director-general Dondo Mogajane says the department is in talks with creditors to come up with arrangements after the SOE defaulted in April
The government is fully committed to saving the Land Bank “at all costs”, Treasury director-general Dondo Mogajane says. The Treasury is in discussions with creditors of the bank to come to an arrangement following its failure to pay its obligations in April.
The government is fully committed to saving the Land Bank, “at all costs”, Treasury director-general Dondo Mogajane said on Tuesday.
The Treasury is in discussions with creditors of the Land Bank to come to an arrangement after the bank’s failure to pay its obligations in April. The bank warned those holding R50bn of its bonds that it was in default, which triggered default provisions for its other debt.
Mogajane told MPs that the state-owned specialist lender to commercial and emerging farmers plays a major role in terms of food security, which would be negatively affected were the bank to collapse.
“We took a strategic decision in Treasury and broadly in government — including the latest meeting we had of the ministers’ committee on the budget — that the Land Bank cannot be left to collapse and should be supported at all costs.”
The Land Bank’s default affects the bondholders group’s 2010 R20bn note programme, and its R30bn 2017 programme and means that bondholders could immediately demand repayment. According to Bloomberg, the bank failed to make repayments on a revolving credit facility, triggering the default event on R13.8bn of debt.
The bank is asking creditors to waive the default clause, which could lead to creditors asking to be repaid debt guaranteed by the government and it is seeking a one-year deferral of interest and capital payments, which fall due within the next six months. The government has guaranteed Land Bank debt to the tune of R5.7bn.
The government’s finances are already under severe strain, with economists predicting the budget deficit for 2020 could be double the 6.8% tabled in the February budget.
Ratings agencies have also flagged guarantees as a major risk to the economy.
Mogajane told MPs that efforts are under way to minimise the government’s exposure to the bank, pointing out that it is also in the interests of investors, bondholders and lenders to find a solution in terms of supporting the bank, as a total of about R40bn would be lost if it collapsed.
“It is all in the interest of the shareholder, in this case government, as well as the interest of various investors and bondholders to come to a solution in terms of how to support Land Bank moving forward,” he said.
Mogajane was participating in a joint meeting of parliament’s two finance committees, which deliberated on a report on their interactions with the Treasury and the SA Revenue Service on their annual performance plans and strategic plans.
He said at the meeting that while the Land Bank had to be supported, its business approach and strategy must change and reflect the challenges facing the country.
“One huge challenge facing us is how to bring emerging farmers into the fold, and how to ensure that the development mandate of the bank is enhanced. These are things that we are grappling with,” Mogajane said.
“As Treasury, having overseen the Land Bank for a number of years, we have had always had issues with the business model of the Land Bank where they borrow on a shortterm basis and lend on a longterm basis. The business model is skewed and this is now coming to haunt us.”
In January, Moody’s Investors Service downgraded the Land Bank to junk status. The Reserve Bank has also temporarily suspended Land Bank bills as a high-quality liquid asset, which means banks and investment firms cannot use their Land Bank debt as collateral at central bank auctions.
The Treasury and the Land Bank will brief parliament’s standing committee on appropriations on Wednesday on the financial issues affecting the entity.
WE TOOK A STRATEGIC DECISION IN TREASURY AND BROADLY IN GOVERNMENT .... THAT LAND BANK CANNOT BE LEFT TO COLLAPSE
IT IS ALL IN THE INTEREST OF THE SHAREHOLDER AS THE INTEREST OF VARIOUS INVESTORS AND BONDHOLDERS TO COME TO A SOLUTION