Land Bank: Possible default on R50 billion notes

Moody’s has downgraded it twice this year.
DRYING UP. Non-performing loans increased from 5.4% to 9.9% for the half-year. Image: Getty Images

The Land and Agricultural Development Bank of South Africa (Land Bank) has warned holders of debt amounting to R50 billion that it is in danger of defaulting.

In a Sens statement, it advised noteholders in its R20 billion Domestic Medium-Term Note (DMTN) Programme for 2010 and those, who held notes in its R30 billion DMTN Programme for 2017 that there was a “potential” default event.

The Land Bank gave no explanation for the possible default, but said it’s currently experiencing a “liquidity shortfall” and that it’s “engaging with various stakeholders with a view to addressing this challenge.”

It added that its management team is committed to a “transparent process and undertakes to work with all stakeholders to mitigate risks identified” and that “noteholders will be kept appraised of developments.”

In unaudited results for the half-year to end-September, released on February 5, it incurred a R168.6 million loss, and saw its net interest margin reduce from 2.8% to 2.4% and its non-performing loans increase from 5.4% to 9.9%.

It said at the time, the reasons for the increase in non-performing loans were:

  • The shifting in seasons that continue to affect primary agriculture resulted in late harvests and loan repayment
  • Clients were still recovering from the prior year’s drought
  • Fluctuations in prices, armyworm and foot-and-mouth outbreaks
  • “Base-effect” in the calculation of the non-performing loan ratio due to the disposal of Profert and the reduction of the Afgri Grain Silico Company exposure as at March 31 2019, as well as a seasonal reduction in the loan book adversely impacting the denominator in the calculation.

According to its latest annual report, it classifies non-performing loans as loans that are at least 90 days in arrears; have failed to meet the terms and conditions of the credit agreement; and unlikeliness to be repaid.

Although non-performing loans have increased, the bank did double cash and cash equivalents to R6.6 billion and had further liquidity through “R2.15 billion committed and R0.5 billion uncommitted facilities.”

News of the default follows credit rating’s agency Moody’s downgrading the Land Bank twice this year.

On January 21 Moody’s reduced its rating to Ba1 from Baa3/P-3 and its long-term rating to Aa3.za from Aa1.za. It said the downgrade reflects the bank’s “ongoing fiscal challenges.” Moody’s said the government would probably be “more selective in dispersing financial support to state-owned enterprises,” including to the Land Bank.

A month later, National Treasury gave the bank R5.7 billion in guarantees.

Despite this support from the government, Moody’s downgraded it once again on March 31, from Ba1 to Ba2, soon after it downgraded South Africa’s sovereign credit rating to below investment grade.

The problems the Land Bank is in have to be sorted out by a relatively new executive team. Its chief financial officer Khensani Mukhari only joined on February 3, and its CEO Ayanda Kanana, the previous CEO of the Johannesburg Fresh Produce Market, only took charge on March 1.

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Another part of a once functional Government in final collapse.

VIVA ANC VIVA !!!!

R1.2bn set aside to address effects of COVID-19 – Tuesday, March 24, 2020
Agriculture Minister Thoko Didiza says her department has set aside a package of R1.2 billion to address the effects of the Coronavirus and to ensure sustainable food production during and after the pandemic.
https://www.sanews.gov.za/south-africa/r12bn-set-aside-address-effects-covid-19

Further commentary to this statement goes on to say – “According to the Minister, the department has also availed R100 million to the Land Bank to assist farmers under distress.”

So there should be no shock this this announcement of a possible default as the writing was on the wall for quite some time now. The disturbing thing is that our government continues to hold up and finance non-performing SOE’s. The sad truth is that now more so than every this is probably one that needs nurturing for the sake of our food security. However this can only have in an environment of clear and transparent government policy on land and labour. Both of which do not exist at present. If government wants to be serious about food security then get rid of maladministration and corruption. Then remove socialist and electioneering policies and put serious professionals in charge who understand agriculture, climate change, agricultural finance and food security and then maybe we can start to not only win the war on food security but also build a serious base of export revenue and foreign reserves. I must state that I am not and expert in agriculture, climate change, agricultural finance or food security; however I am very concerned that we will one run out of food either because there is none or even worse because we won’t be able to afford to buy the food.

This is how the socialist Minister of Trade and Industry, Ebrahim Patel, and his deputy, the CEO of the DTI, Lionel October, bankrupt the Land Bank. The deplorable myopic socialist policies of the DTI allows the dumping of agricultural products that are subsidized in the country of origin. In this way, the DTI puts pressure on the profit margins of local farmers.

The DTI effectively forces local farmers to seek assistance from banks, including the Land Bank, to fund wages, fertilizer, seed, chemicals and implements. This highly unstable situation was pushed over the edge by the drought. A myriad of government failures, of which the foot and mouth outbreak is one, caused the situation to deteriorate further.

This is how one arm of the government bankrupts another arm of the government. Between the Department of Minerals and Energy and the DTI, they will bankrupt the entire country. The Land Bank is regulated and supported by the Reserve Bank as lender of last resort. If the Reserve Bank is forced to step in, then the purchasing power of the social grant will be eroded. This means that the poor will be paying for the thoughtless, shortsighted and detrimental policies of Ebrahim Patel and Lionel October.

The DTI is a local arm of government that ensures food security in Developed Nations and food insecurity in South Africa. They export food security. The DTI exports employment opportunities to those countries who are allowed to export their cheap surpluses to us, and imports unemployment from them. Our unemployment stats show that the DTI is very successful in this trade.

South Africa cannot afford the socialist DTI or its mother, the ANC. This is what the problems at the land Bank show us. It is not the farmers’ fault, and they can’t blame it on the weather either. We are paying for the incompetence of clueless senior officials.

Is one of the characteristics of a DEPRESSION not banks going bust?

Did the Land Bank not get involved with financing luxury housing/golf estates for the wig wearing connected cadres?

Does anyone here know whether a Land Bank default would trigger cross-defaults similar to those on Eskom debt?

Yes cross -default is very much in play. Both on Land Bank debt and also the sovereign debt.

I would just like to thank Moneyweb for moderating my comments for hours at a time, even if it is only one sentence. Your thorough German standards are like breath of fresh air here in darkest Africa.

The stable door may be locked, but the horse has bolted..
Only competency can save the day.

is this really happening to a COMPANY who gave me a lecture on AFFORDABILITY OF REPAYING a loan although i had no debt and all properties and assets paid for.

And these people think a state bank is a good idea when they cannot even run a small agricultural bank.
Hopefully the IMF will put a lid on this and other idiotic ideas. (land reform, Russian built nuclear power stations and heaven forbid resuscitating SAA ….)

End of comments.

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