Land Bank loans not affected by downgrade
Little direct impact on $300m
SPECIALIST agricultural bank, the Land Bank, said on Friday it did not expect the loan facilities to have a negative bearing on its books should the economic conditions change in the country if it gets a downgrade from the rating agencies.
In June, the Land Bank received a $300 million (R4.19 billion) loan facility with a 10-year maturity period.
Vukani Makalima, a senior specialist: marketing and branding at the Land Bank, said the bank swops the hard currency to rand on day one, both from a capital and interest rate perspective.
“There will be very little direct impact on the $300m loan, of which $200m is executed to date, should the sovereign rating be downgraded, save for the last tranche of $100m still to be executed by the end of November, for which there could be an increased day-one cost if the sovereign is downgraded and rand/dollar reacts accordingly,” Makalima said.
He added that while the cost would increase, there was some trade-off as the rand volume would also increase in direct relation to any currency movement.
“Subsequent to the execution of the last tranche there will be no further impact on the cost as there are no ‘rating triggers’ contained in the loan,” he said.
The bank is a development finance institution guided by a government mandate to provide financial services to the commercial farming sector and to agri-business and to make available new, appropriately designed financial products that would facilitate access to finance by new entrants to agriculture from historically disadvantaged backgrounds.
The $300m loan facility is backed by the Multilateral Investment Guarantee Agency, the political risk insurance and credit enhancement arm of the World Bank Group.
The specialist agricultural lender said the loan was facilitated by Standard Chartered, which would also act as a book runner. The Land Bank said the funds would play a huge role in supporting farmers in South Africa.
In April, the Land Bank also received a R1.3bn loan facility from the World Bank, which has a 25-year maturity period, to support its core business of promoting agricultural productivity, growth and job creation as well as food security.