Land Bank wants to split in two so that it can repay debt

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South Africa’s largest lender to farmers is asking creditors to approve a split of its operations in two to help repay debt over the next five years and claw its way out of a default position.

The state-owned Land & Agricultural Development Bank is proposing a reorganisation into a corporate and commercial business and a separate one focused on development projects, it said in a presentation to lawmakers Tuesday. Cash proceeds from the former will go toward commercial borrowings before the unit is eventually wound down, it said.

The plan represents a way “to restart the rebuilding process,” Land Bank said. The Pretoria-based company has been struggling to find a way forward since missing a loan repayment in April last year that triggered a cross-default in notes issued under a R50 billion bond programme. It reported a loss last year after a drought caused many of its customers to default on their loans.

An independent review is planned as a condition for lenders to participate, Land Bank said.

“In envisioning the split we would need to be assured that we are not in a worse position,” Olga Constantatos, head of credit at Futuregrowth Asset Management, said by phone. “We are hopeful that once the independent review is complete we will have all the information we need to be better assess our position.”

The Land Bank’s turnaround plan is positive but depends on the fast-tracking of a pledged 7 billion rand government bailout, said Peter Attard Montalto, director at research firm Intellidex. Until that’s confirmed it’s unlikely to win unqualified support from creditors, he said.

“Creditors have been deeply frustrated by the whole process in being offered unworkable solutions at every step,” Montalto said. “We should have been here a year ago already.”

Land Bank is just one of several state-owned South African companies to have run into financial trouble in recent years, triggering a need for costly bailout packages the country can ill afford. The government has this year turned to the private sector for help, selling a majority stake in South African Airways and looking for investment in two underperforming ports owned by Transnet.  

“Part of the reform of state-owned enterprises must be to look hard at how defaults and workouts occur because it sends a very bad signal,” Montalto said.

Land Bank intends to pay a further R3 billion to lenders by September, the company said.

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