The Land Bank has failed to stave off financial ruin after defaulting on debt that was due on Thursday. The default has now triggered cross default on certain other bonds – a clause that puts a borrower in default if they fail to honour their other debt obligations.
But funders of the agricultural bank are offering to help the state-owned lender recover from the loan default, Bloomberg reported later on Friday. However, they need an indication from government on how much support it is willing to give.
The state-owned Industrial Development Corp. of South Africa, which provides funding to agro-processing as well as other manufacturing industries, has said it is willing to work with the Land Bank. Futuregrowth Asset Management Ltd., which manages about 194 billion rand, including Land Bank debt, said it is also prepared to aid the cash-strapped lender.
"There’s understanding that something needs to be done," said Jones Gondo, a credit analyst at Nedbank Group Ltd. "But the proposal and direction for funders/creditors to consider needs to come from Land Bank and the shareholder."
The funding needs come as the government pledged a R500 billion package to shore up an economy devastated by the impact of measures to halt the spread of the coronavirus, Bloomberg reported.
While National Treasury said it is considering support for the Land Bank, this would have to be met with structural changes to the company’s balance sheet.
"On 23 April 2020, the Land Bank issued a SENS announcement advising noteholders… that the Land Bank anticipated possible further defaults under debts falling due today, and that if such defaults occurred, this would result in an Event of Default under the notes. Those defaults have subsequently occurred," said the Land Bank in a statement published on on the Stock Exchange News Service (SENS) earlier on Friday.
While the Bank had previously said it "may have" defaulted on its domestic bond notes issued in 2010 and 2017 totaling about R50 billion, this had not yet triggered cross default. But Thursday's events have conclusively confirmed the event of default on the 2010 bonds and cross default on the 2017 programme, it said.
The state-owned bank advised its bondholders on Thursday that it was negotiating with creditors on debt that fell due on the day as its current liquidity challenges made it impossible to repay those. The bank had approximately R738 million of debt scheduled to mature before the end of April 2020 that it needed to defer.
Earlier in April, it approached the National Treasury for assistance. On Monday, the public purse controller said it was considering assisting the Land Bank with some form of recapitalisation and further guarantees and has also asked its creditors to not call on debt that Land Bank is at risk of defaulting right now.
However, the subsequent announcement on Friday that the default has happened means that it could not convince its lenders to postpone the repayments and waive the event of default. The bank's most recent financial statements for the 2019 financial year show that it had R30.2 million of Land Bank issued bonds at the end of March last year.
Analysts have previously warned that if Land Bank's default is not prevented, it could have adverse implications on the bank's ability to extend loans to most vulnerable farmers, threatening food security in areas that commercial farmers cannot easily reach.