PIC to reap harvest of sorrow at Land Bank
The Public Investment Corporation (PIC) is preparing to take a hit of as much as R6.8bn to its portfolio as it writes down the value of its investment in the embattled Land Bank.
The PIC is a creditor to the Land Bank, having invested as much as R9.69bn in the stateowned agricultural financier as at the end of March 2019, the most recent audited results for the bank show. Its support has been consistent over the past few years, hovering between a low of R9.47bn and a high of R9.85bn at successive year ends since 2016.
Until about April, the Land Bank was held up as an example of a financially stable stateowned company, enjoying an extended period of profitability. But a combination of slower loan growth and bad debts was slowly eating away at the company’s financial health.
It said on Thursday it would not be able to make interest payments until the end of the month, including a R29.1m instalment due on July 13, the latest missed repayment since April.
The PIC ’ s investment, which comprises the purchase of short-term money market instruments such as promissory notes and bonds that are repayable within a year, may now be written off by as much as 70%, implying the PIC could incur losses of nearly R6.8bn. That is in line with the hit taken by the Reserve Bank’s Corporation for Public Deposits (CPD) division, which has put money in exactly the same instruments in the Land Bank as the PIC.
The CPD, which invests the government’s cash over short durations, said in its latest annual report that it would be writing off 70c for every R1 invested in Land Bank, prompting the Bank to step in with a bailout package.
In response to Business Day’s questions, the PIC said it invests in the Land Bank “on behalf of various clients”, including the Government Employees Pension Fund, the Unemployment Insurance Fund and the National Skills Fund.
It declined to confirm how much was invested in the bank as at the end of March 2020 but said it was continuing to engage
with the bank on the debt restructuring.
The state-owned asset manager is itself still reeling from the findings of the Mpati commission of inquiry, which directed it to recover billions lost from poor and dubious investments under its former CEO, Dan Matjila.
The PIC recently named Abel Sithole as the permanent successor to Matjila. Sithole has yet to take office.
Other state-owned entities that have lent money to the Land Bank and are also susceptible to writing off a portion of their investments include the Industrial Development Corporation (R618m), Petro SA (R957m) and Post Bank (R460m).
State support for the Land Bank has come indirectly by way of R5bn worth of utilised government guarantees on the R44.2bn it has borrowed from investors. Guarantees are effectively an undertaking from the national government to step in and stand good for the portion of the debt that is covered in the event that the institution has difficulty meeting its obligations.
In April the bank notified creditors it would not be able to meet capital and interest payments coming due. It appointed Rand Merchant Bank to advise on a debt-restructuring plan and has received an additional R8.7bn in government guarantees to help raise funding. The bank expects to table a plan to restructure its debt shortly.