Land Bank: Possible default on R50 billion notes

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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