EDITORIAL: Land Bank debacle points to failures of the state
Left rudderless for too long, the company is now in a sorry state
The last thing President Cyril Ramaphosa needs right now is for another state-owned company to hold out a begging bowl.
Unfortunately, the president might have to add Land Bank, whose debt is government-guaranteed to the tune of R5.7bn, to the list of companies from Eskom to SAA that survive on taxpayer money.
Earlier this week, Land Bank, a specialist lender to commercial and emerging farmers, issued a brief statement in which it warned investors that it will skip repayments on a revolving credit facility, erroneously implying that it had triggered a cross default under the terms of two tranches of bonds worth a combined R50bn.
Upon further analysis, Land Bank found the missed payment amount on the credit facility fell below the threshold required to trigger a cross default under terms of bonds issued in 2010 and 2017.
Still, Land Bank is likely to miss payments worth about R738m due between this week and the end of April, resulting in it breaching the threshold for the cross default, which would give bondholders the right to demand immediate principal and interest payment unless it obtains waivers and raises R5bn from lenders to ease the cash crunch.
Until about a few years ago, Land Bank was held up as an example of a financially stable state-owned company, raking in net income of about R300m, as well as an enviable cost-to-income ratio of just over 50% and a quality loan book in 2015.
By 2019, the company profit had dropped to R181m, its cost-to-income ratio — a measure of non-interest expenses as a proportion of income — had crept above 60% while the quality of its loan book had deteriorated, with the percentage of bad loans doubling to about 6% compared with 2015.
Land Bank is on course to suffer operational losses in the 2020 financial year after its half-year results showed it had swung into a hefty R185m loss. The bank, whose debt was sent to junk territory months before Moody’s Investors Service assigned SA’s sovereign credit rating to non-investment status, blamed the worsening financial situation on slow loan book growth and bad debts.
It is true that some of the problems faced by Land Bank were beyond management control. These include the climate change-induced droughts that could have sapped appetite for credit from farmers or led some of them, especially emerging farmers, to renege on their loan repayments.
Even so, Land Bank’s board and shareholder, the government, cannot escape blame for the crisis. The bank has been rudderless since December 2018 after CEO Tshokolo Nchocho resigned, kicking off a revolving-door policy in the corner office with a string of acting CEOs.
First, it was Bennie van Rooy, who doubled up as CFO and CEO until he resigned from both positions in May 2019 to pursue personal interests. Then Konehali Gugushe, who was the chief risk officer, took over from Van Rooy before resigning in January 2020 and leaving Sydney Soundy, the head of strategy and communications, to run the show on a temporary basis.
The door finally broke in February when accountant Ayanda Kanana was appointed permanent CEO of the company that also runs a crop insurance business.
It was too late.
The uncertainty about the strategic direction of the company because of the lack of a permanent CEO, alongside the possible tightening of funding from banks, led Moody’s Investors Services a month before to assign a non-investment grade rating to Land Bank’s debt.
Citing responses to its questions, Bloomberg reported on Tuesday that the Treasury is considering bailing out Land Bank, a move that would swell its guarantees to state-owned companies from the current R480bn.
It is difficult to argue against a bailout for a bank that funds 30% of the farming industry, and that should play a critical role in the government’s laudable efforts to include more black people in the agricultural industry.
But while Ramaphosa and finance minister Tito Mboweni are trawling state coffers for every cent to help the country fight Covid-19 and soften the economic blows on households and businesses, it is worth asking if SA’s sophisticated banking industry cannot easily take up that role?