FARMERS INCREASINGLY TURN TO COMMERCIAL LENDERS

SOUTH African farmers are increasingly turning to commercial lenders to top up their working capital as the Land and Agricultural Development Bank battles a liquidity crisis. The Land Bank, which supplies about 30 percent of loans in the agricultural industry, missed a loan repayment in April that triggered a crossdefault provision in some of its bonds. As the state-owned lender works with its funders and the National Treasury to restore its financial affairs, farmers are looking elsewhere. “Some Land Bank clients are adopting a proactive approach in exploring new financial partners as they do not want to wait until the last moment,” said John Hudson, head of agriculture at Nedbank Group’s businessbanking unit. “Some are starting to test the water, whereas others are certainly being far more direct and saying, ‘we want to move’.” The country’s largest commercial lender to the sector, Absa Group, has started extending workingcapital facilities to clients it shares with the Land Bank, as farmers are unable to access pre-approved funds from the state-owned company. “For us, at the moment, the critical piece is to make sure there is working capital available to make sure these farms get production finance to plant for the next season so that the factory keeps on operating,” said Abrie Rautenbach, the head of Absa’s agribusiness unit. Trouble at the Land Bank comes as the agricultural industry grapples with the fallout from the coronavirus on some of its infrastructure and suppliers. It also follows persistent droughts over the past five years that have curbed the ability of farmers to repay loans. Although food production remained essential under restrictions to curb the spread of the virus, non-food sectors suffered. Commercial banks have extended relief to farmers hit by Covid-19 on a case-by-case basis. The lockdown also means lenders are seeking new ways to solve their clients’ problems, such as the use of satellite imaging and drones to monitor crops, said Standard Bank Group’s agriculture business head Nico Groenewald. The Land Bank, which last month appointed Firstrand’s Rand Merchant Bank as corporate finance adviser to recommend ways to strengthen its balance sheet, will take all options into account, a representative said by email. It has asked funders for an urgent liquidity facility of R3 billion. | Bloomberg