The Land Bank holds out its begging bowl for a R10bn bailout from the Treasury
The Land Bank is the latest troubled state-owned enterprise to ask Finance Minister Tito Mboweni for additional financial support ahead of the crucial Medium-Term Budget Policy Statement (MTBPS) later in October.
The Land Bank, which provides loans to emerging and established farmers, has asked for a R10-billion “equity injection” – over and above the R3-billion that Mboweni allocated to the bank in the June supplementary budget. An equity injection is a government bailout and seeks to provide financially distressed companies with emergency money.
“However, this [the request money] is still subject to consideration of the National Treasury and following of government’s due budgeting processes,” the Land Bank told Business Maverick.
Additional funding for the Land Bank might be allocated in the MTBPS on 28 October. The MTBPS sets out SA’s fiscal policy and government budget allocations over three years.
Phumulo Masualle, deputy minister of public enterprises, which oversees stateowned enterprises (SOEs), told Parliament on Wednesday that the MTBPS would detail how the government planned to provide further financial support to ailing SOEs.
Land Bank is ‘too big to fail’
The Land Bank’s financial problems have been caused by an exodus of executives in recent years, “junk” downgrades to its credit rating by Moody’s, and drought, making it difficult for farmers to repay their loans.
Mboweni is sympathetic to the Land Bank’s financial requirements, previously saying the bank is “too big to fail” because it provides 28% of SA’s agricultural debt.
Paying the debt load
Of the R10-billion that the Land Bank has requested, it has proposed a R7-billion cash injection from the government for its financial year 2021/22, and the remaining R3-billion to be released in tranches of R1-billion per year for the following three years. Most of the requested funding will go towards paying the Land Bank’s debt load, which stood at R45-billion during its financial year 2019, comprising mostly short-term debt that matures in less than 12 months.
The bank has also asked Mboweni for more government guarantees, which it can use to solicit more funding from lenders. In February, the National Treasury gave it government guarantees of R5.7-billion, but it has only used R1.4-billion.
The Land Bank has become another basket case; missing loan and interest payments of more than R1-billion since April 2020 to its lenders through two domestic medium-term note (DMTN) programmes that were launched in 2010 and 2017. The DMTN programmes are debt instruments – like a sophisticated credit card facility used by a company – to fund operational activities. To raise money in the open market, a company would issue debt or notes to lenders with a promise of paying back the money with a fixed or floating interest rate at a later stage.
Since 11 August 2020, the bank said it had paid all outstanding interest on its debt, which was made possible by the R3-billion equity injection it received from Mboweni in June. But the Land Bank’s actual outstanding debt amounts (excluding interest) have not been paid because the bank is in ongoing negotiations with lenders about repayment terms. DM168