Land Bank defaults on loan obligation

The Land Bank, the stateowned specialist lender to commercial and emerging farmers, has skipped repayments on its revolving credit facility, triggering a default and potentially putting the government on the hook for as much as R5.7bn.

“The issuer failed to make a payment when due to a lender,” the Land Bank said.

“The nonpayment of this amount constitutes an event of default.”

The bank, which swung into a nearly R185m loss in the six months to end September due to muted loan book growth, is grappling with a liquidity shortfall and is in talks with stakeholders about potentially deferring financial obligations falling due, it said in a statement to bondholders on Monday.

The default is ill-timed for the government, which is using its stretched finances to combat the Covid-19 pandemic and to prop up small businesses fighting for survival and employees missing work and forfeiting their salaries during the lockdown.

The Land Bank said in February that the National Treasury had provided it with government guarantees amounting to R5.7bn.

The bank also said it was in discussions with the lender and was seeking a waiver in the event of default.

The bank has undertaken a strategy to increase the term loan of its debt by moving away from short-term funding and was one of the first institutions to warn about the dangers of expropriation without compensation, saying in 2018 it would require government assistance if enacted.

The Land Bank had loans and advances of R44bn as of March last year. It has not reported results for the financial year to end-March this year.

Moody’s Investors Service downgraded the bank in January, citing elevated credit risks, declining capital and low earnings generating capacity as well as policy uncertainty relating to the expropriation without compensation policy.

By its own count, the Land Bank provides 28% of the country’s agricultural debt and was previously lauded as an example of a well-run stateowned entity that relied on very low levels of government support by way of guarantees to fulfil its objectives.

It finally appointed a permanent CEO, after a string of interim CEOs, on March 1 when it announced Ayanda Kanana would lead the organisation. —