Rating agency Moody’s has downgraded South Africa’s Land Bank deeper into subinvestment grade, citing ongoing delays in the conclusion of the state-owned enterprise’s restructuring plan.
The downgrade follows the recent decision by Moody’s and Fitch to downgrade South Africa further into junk status. Moody’s cut the nation’s foreign- and local-currency ratings to Ba2, two levels below investment grade, from Ba1. Fitch cut them to BB-, three levels below investment grade, from BB.
Both rating agencies maintained a negative outlook for the country’s credit ratings.
Moody’s cut the Land Bank’s corporate family rating and long-term issuer ratings to Caa1 from B3, and its long-term national scale issuer rating to B2.za from Ba2.za. The outlook remains negative.
The rating agency said the negative outlook is largely driven by the high risks associated with the implementation of the bank’s restructuring plain and ongoing and protracted period of negotiations with lenders, where the bank continues to default on its payments.
The delay in implementing the restructuring plan is increasing “the risk and magnitude of potential losses to lenders” Moody’s said in a statement on Tuesday.
The Land Bank, which is currently in a default position, is also dealing with sinking capital following the four previous Moody’s downgrades this year and the impact of Covid-19. The bank cannot access new funding from the market until its default status has been reversed.
The majority of its short-term investors require a minimum credit rating of A on the national scale.
The bank’s restructuring plan includes providing a liability solution for creditors, which aims to cure the current defaults and term out debt maturities of existing debt and bonds. The bank had originally planned to implement the liability solution by the end of November, but announced on Monday that due to the “complexity” of the transaction, the liability solution would only be achieved at the end of March 2021.
The rating agency says negotiations are ongoing, on the possibility of lenders extending the maturity of their bonds in exchange for a partial government guarantee on the newly-issued bonds.
Although no agreements have been reached, the delays “increase both the risk that creditors will suffer economic losses, and the potential magnitude of such losses,” Moody’s said.
This year the bank received a R3 billion cash injection from the government after it defaulted on its payments. It was allocated a further R7 billion in the October medium-term budget. The details of this further cash injection are expected in the February 2021 budget.
Land Bank spokesperson Rebecca Phalatse told Moneyweb on Tuesday that once October’s allocations are given to the bank, it will be able to fully “cover the ground”and implement its restructuring plans.
Moody’s said the bank could be further downgraded if it fails to resolve its liquidity issues and implement its restructuring plan on time “such that creditor recovery rates are lower than those assumed at the current rating level”.