Farmer's Weekly (South Africa)
Land Bank defaults on loan amid mounting challenges
The Land Bank is experiencing a liquidity shortfall following two credit ratings downgrades by Moody’s Investor Service in January and March this year, leading to the bank defaulting on one of its loans.
Ayanda Kanana, CEO of the Land Bank, said the downgrades resulted in some of the bank’s lenders withdrawing their facilities, while others reduced the roll-over of maturing facilities. Most of the bank’s funders and investors also reviewed their risk appetite, all at a time when the bank had to contend with its peak period for loan drawdowns from customers.
In a Johannesburg Stock Exchange News Service statement, Kanana said that the bank was negotiating a “waiver and extension of the repayment date” with the lender, and also engaging with other funders to defer financial obligations and “institute appropriate arrangement and concomitant remedial actions until the long-term funding lines have been secured”.
In addition, the bank was undertaking a balance sheet optimisation exercise that would take into account the tenure of the debt and its essential development mandate.
National Treasury had increased guarantees to the bank to R5,7 billion in February, which the bank was using to raise funding. It was, however, uncertain whether government would honour these guarantees amidst the coronavirus disease (COVID-19) economic crisis, the statement said.
“With the poor economic situation and COVID-19 crisis, many people and organisations are vying for government support. Government will hopefully assist the Land Bank, because it is an essential service in terms of the country’s food security, and not just a mere ‘nice to have’,” said John Purchase, CEO of Agbiz.
While the Land Bank had a development mandate, more than 90% of its clients were commercial farmers and agricultural businesses, and, in effect, it played a critically important supportive role in the country’s food supply chain, he said.
“Some of the businesses on the Land Bank’s books are perceived as too high risk by commercial banks, so another commercial bank will not necessarily step in and fill the void if the Land Bank should close down. Certain commercial banks have also scaled down on their appetite for agriculture, because of the higher risks associated with production and poorer returns lately, especially in light of climate change and ongoing droughts.” – Glenneis Kriel