According to the Budget Review, the bank’s main source of revenue — net interest income — has declined over several years because lending rates have not increased alongside rising funding costs. The cost of funding increased as the Land Bank tried to reduce liquidity risk caused by the mismatch in its long-dated assets and short-term liabilities. In addition, impairment charges have been increasing, primarily due to persistent drought, further reducing profitability.
In January, Moody’s Investors Service downgraded the Land Bank’s credit rating, citing its deteriorating financial position, a constrained agricultural sector and fiscal constraints that may reduce financial support.
The Budget Review noted that the downgrade led to a significant liquidity shortfall as numerous investors did not refinance debt.
“Despite government guarantees of R5.7bn, the Land Bank could not raise adequate funding and defaulted on its debt obligations on April 1 2020. The National Treasury is supporting the Land Bank and its corporate finance advisors as it engages its lenders to negotiate solutions to its default position and craft a long-term restructuring plan to ensure sustainability,” the Budget Review stated.
The Land Bank is seeking an emergency liquidity bridge facility of R3bn while the restructuring plans are finalised. The government is allocating R3bn as an equity investment to recapitalise the bank enabling the settlement of this facility. According to the Budget Review, the restructuring plan will inform possible further funding requirements to ensure the Land Bank’s sustainability.
With Linda Ensor
Troubled Land Bank gets more funding
The government will be allocating R3bn to recapitalise the Land Bank, the troubled state-owned specialist lender to commercial and emerging farmers, finance minister Tito Mboweni announced in his supplementary budget speech on Wednesday.
The bank holds 29% of SA’s agricultural debt. It has become the latest state-owned entity (SOE) to hold out a begging bowl after asking for a R22bn cash injection to plug holes in its balance sheet.
The Land Bank, which skipped payments on some of its debt in April, triggering a cross default on bonds worth R50bn, has been trying to get money after lenders refused to saddle it with more debt and roll over maturing loans. The government has guaranteed R5.7bn of Land Bank debt.
“The National Treasury is supporting the Land Bank to find a solution to its default and craft a long‐term restructuring plan,” Mboweni said in his speech.
The bank, which, until recently, was held up as an example of a financially sustainable SOE, has reached an arrangement with creditors whereby no interest or capital payments are currently being made.
According to the Budget Review, the bank’s main source of revenue — net interest income — has declined over several years because lending rates have not increased alongside rising funding costs. The cost of funding increased as the Land Bank tried to reduce liquidity risk caused by the mismatch in its long-dated assets and short-term liabilities. In addition, impairment charges have been increasing, primarily due to persistent drought, further reducing profitability.
In January, Moody’s Investors Service downgraded the Land Bank’s credit rating, citing its deteriorating financial position, a constrained agricultural sector and fiscal constraints that may reduce financial support.
The Budget Review noted that the downgrade led to a significant liquidity shortfall as numerous investors did not refinance debt.
“Despite government guarantees of R5.7bn, the Land Bank could not raise adequate funding and defaulted on its debt obligations on April 1 2020. The National Treasury is supporting the Land Bank and its corporate finance advisors as it engages its lenders to negotiate solutions to its default position and craft a long-term restructuring plan to ensure sustainability,” the Budget Review stated.
The Land Bank is seeking an emergency liquidity bridge facility of R3bn while the restructuring plans are finalised. The government is allocating R3bn as an equity investment to recapitalise the bank enabling the settlement of this facility. According to the Budget Review, the restructuring plan will inform possible further funding requirements to ensure the Land Bank’s sustainability.
With Linda Ensor
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