Land Bank expecting further defaults until the end of April

The Land Bank expects further defaults to occur on its obligations due between today and the end of April, a move that could drastically affect its ability to continue funding its operations.

The Land Bank provides 28% of the country’s agricultural loans.

“The Land Bank is currently experiencing a liquidity shortfall and is, accordingly, engaging with various stakeholders with a view to addressing this challenge, especially in regard to financial obligations falling due, which may need to be deferred,” it said.

About R738m is due to the creditors. Thursday’s announcement followed a similar one at the beginning of the week.

On Monday, the bank said that it had missed an obligation on a revolving credit facility and that it is engaging in talks with the lender to waive the default clause, which could lead to creditors asking to be repaid debt guaranteed by the government.

The development came as a shock to the market as the bank had previously enjoyed a reputation as one of the better run state-owned entities, remaining profitable and relying on very little government guarantees to support its funding and ongoing activities. 

To demonstrate this the bank raised unguaranteed, seven-year funding of R555m and 10-year funding of R925m in the financial year to end March 2019, while generating a profit of R181m. 

But the bank was finding it tough to extend loans, and the value of its loan book fell slightly in comparison to 2018, while it saw bad debts rise sharply. 

“Persistent droughts in several parts of the country have affected our loan book growth and non-performing loans,” it stated in its annual report for the year. 

Net impairment charges rose 489% to R324m for the year, and at the interim stage, when the bank presented to parliament, it had incurred a loss for the six months ending September. 

The Land Bank says it has now approached lenders to agree to a deferral of the payment of interest and capital to help it get back onto solid footing. It is also in the process of looking to raise up to R5bn to meet its medium-term funding requirements.”

“The Land Bank currently has access to a R5.7bn government guarantee, of which approximately R4.3bn remains available to support the Land Bank’s capital raising initiatives,” it said.

It is now asking funders to cluster themselves into groups comprising commercial banks, listed note holders, and ad hoc funders so it can discuss options with respect to resolving the situation.

The Land Bank says the amount payable under the revolving credit facility will not trigger cross default clauses because the amount falls below the threshold required under the provisions of the notes it has issued. That would be immaterial if further obligations were missed.

Update: April 23 2020
This article has been updated throughout.

thompsonw@businesslive.co.za