Land Bank creditors provide loan default

Bloomberg

Funders of South Africa’s largest agricultural bank are offering to help the state-owned lender recover from a loan default, but first need an indication from the government on how much support it is willing to give.
The Land and Agricultural Development Bank, which provides about 30% of loans in the agricultural industry, failed to make repayments on a credit facility, triggering a cross-default event on a 50 billion-rand ($2.6-billion) bond program, the Pretoria-based lender said in a statement.
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 500 billion-rand package to shore up an economy devastated by the impact of measures to halt the spread of the coronavirus. Administrators of the national airline have also said they either need to cull the entire workforce or liquidate South African Airways. The state-owned power utility, broadcaster and arms company also rely on bailouts to keep running.
The nation’s largest farmers’ group has appealed to President Cyril Ramaphosa to step in and rescue the Land Bank to avoid a surge in borrowing costs and a threat to food security. While the 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.
South Africa’s Finance Minister Tito Mboweni told reporters on Friday that conversations with various parties around support for Land Bank were ongoing. It is the government’s responsibility to do “whatever we can to support the Land Bank,” he said.
“Funders will primarily rely on the commitment of support from the shareholder in order to get some comfort to extend their exposures,” said Nedbank’s Gondo. “Funders need certainty that they will not lose principal.”
The IDC will continue to work with the Land Bank and “other financial-services providers,” the institution said in an email on Thursday. Sorting out the lender’s problems requires “coordinated, speedy and constructive engagement among all stakeholders,” Cape Town-based Futuregrowth said Thursday.
However, Moody’s Investors Service was not convinced that the lender’s funding problems can be resolved and lowered the Land Bank’s credit rating by two steps late on Friday, the third cut in the assessment this year, and placed it on review for a further downgrade. That reflects the risk that Land Bank and its major shareholder, the government, fail to promptly address cash flow and funding issues, which can lead to solvency issues and potential losses for Land Bank’s creditors, Moody’s said.
The downgrade also reflects “Moody’s assessment that the South African government’s willingness and capacity to support Land Bank is weaker than previously anticipated.”
The government’s finances have been left in tatters by years of mismanagement and corruption that have crippled state companies.
“There is a race against time to remedy the non-payment defaults and avoid further missed-payments by either receiving bridge finance, equity or tapping the debt capital market,” said Gondo. “The bank has also indicated that it would like to reschedule near term debt.”