SA’s land bank warns expropriation could trigger default

If expropriation without compensation is poorly executed it could result in the land bank’s main sources of funding drying up, chairman warns.
The lender has approximately R9 billion of debt that includes a standard market clause on expropriation as an event of default. Picture: Waldo Swiegers/Bloomberg

South Africa’s Land and Agricultural Development Bank has warned expropriating farm land without compensation could cost the government R41 billion if it’s forced to repay the state company’s debt immediately.

The lender has approximately R9 billion of debt that includes a standard market clause on expropriation as an event of default, the Land Bank’s chairman Arthur Moloto said in the company’s annual report on Monday. If expropriation without compensation happens without protection of the bank’s rights as a creditor, it would be required to repay that at once. If it can’t, a cross default clause would be triggered.

“This would make our entire R41 billion funding portfolio due and payable immediately, which we would not be able to settle,” Moloto said. “Consequently, government intervention would be required to settle our lenders.”

The nation’s ruling African National Congress decided in December to change the constitution to allow seizure without payment to speed up giving black people more land. Access to land is one of the symbols of inequality in the nation of about 56 million where wealth and poverty are largely divided along racial lines.

Higher risk

The purpose of the amendment is to promote redress, advance economic development, increase agricultural production and food security, the ANC said last month.

South Africa’s commercial banks had almost R90 billion of farm debt on their balance sheets at the end of 2016, according to the Department of Agriculture, Forestry and Fisheries.

If expropriation without compensation is poorly executed it could result in the Land Bank’s main sources of funding drying up as investors might not be willing to continue lending to the company in particular, or agriculture in general, Moloto said. Funders who remain willing to lend, would require an increased premium due to perceived higher risk levels, he said.

Poor execution would include commercial land being taken out of production, no protection for creditors, no effective institutional processes, poor and undefined processes for the selection of beneficiaries, corruption and the lack of comprehensive support for beneficiaries, according to the Land Bank.

If that happens “downward pressure would be exerted on our thin interest margins and levels of profitability,” Moloto said. “Over time, this may further contribute to a deterioration of our financial sustainability.”

The Land Bank’s profit fell to R254 million in the year through March, from R367 million in the previous 12 months.

© 2018 Bloomberg 

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So I’ll be able to swap my R22M bond on the farm for a, let’s say, R10k/month ‘rental’ to the new ‘owner’. Plus I won’t be paying levies and taxes as it won’t be my farm anymore. win-win?

let us look at it from another point of view which in my humble opinion boils down to exactly the same: a hijacker takes your car without any compensation ( worst of all nothing will come of this crime ), the only way to get a new car, if you are not killed, is with insurance money….so farmers start getting some kind of insurance against ‘taking your farm without compensation’ because sure as hell the Banks will have no sympathy for you.

expropriation isn’t covered on your policy. SASRIA might cover terrorism but if it happens on a large enough scale they will be bust and unable to cover claims.

A tenant that doesn’t pay.

….I doubt the ANC truely care of the consequences to the country or the poor it claims to represent

Those with influence and access to treasury handouts will continue the looting

The coverage and reaction this is getting everywhere suggests to me that there are people who have just now realized this, which i find worrying.

OF COURSE banks will be hit very hard, and of course many institutions will go under. How did everyone think the loans would be repaid? I would have thought everyone realized this from the get go. This is exactly why the whole thing is scary.

Indeed, though about the same. Was evident in my mind since the start.

That’s why I say…have your debt (personal or commercial) locked up in SA, but with one’s investments/life savings outside SA (…even if it’s a local rand-hedge)

Exactly. I would even go further and say if you have paid up a fair portion of your mortgage attempt to refinance part of it and use the proceeds to get cash out of SA.

yes but this isn’t about logic. It is about votes.

all of this is done under the assumption that farmers or whoever are prepared to “willingly” comply. What will the ANC do if there are resistance? …..send in the army?? please answer this for me Rampo.

…and not only the banks in peril, just imagine the income loss to SARS (i.e. state coffers).

China better start loaning the SA govt much more, so that in the end China can demand tracks of land for its people. A new, disciplined culture is welcomed…

This is just 1 instance of potential knock on effects, the S.A. citizen will again be punished so that a handful of people are rewarded.

We all stand bone ideal until the 1st news headline reads: “First Farm Expropiated without Compesation”

This is the reason why people will use BTC because it’s a Vote Against poor governance, the less the politicians control the less they can steal.

Very predictable complications. Our useless politicians fire the shotgun and the rest of the nation must just scramble to clean up the mess.

No planning or thought or communication evident. No punishment for the 20 years of failed agriculture projects. Is this leadership?

When will the electorate hold these people accountable?

My concern around EWC is since when has the ANC handled anything in an orderly and organised fashion. Nothing, absolutely has been handled efficiently and things have generally gone south in a hurry after the usual ‘thugs’ get involved. The decline of this country – amazingly at the hands of those who helped liberate it – is one of the greatest tragedies in history. When will we learn? Not until we have hit rock bottom.

The land bank is not the only thing that will go into default…

The rhetoric is that the land was stolen. How can there be debt on stolen goods. Afro economics.

Far too complicated for the anc to comprehend let alone explain to their voting fodder……no worries, just another anc SOE that taxpayers will be called on to “fund” and recapitalise so their cadres can retain “power” and the economy be damned.

We are governed by psychopaths.

Going to be a lot of people declaring bankruptcy if this happens, reality is people can’t afford to pay a bond and then rent a place. Bulk of the middle class are already on the edge, take their property away for nothing and it’s game over. Banking system will collapse and we could look forward to a million % inflation like Venezuela or Zim.

End of comments.

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