Land Bank's 2-year lending drought to farmers to end by September, Parliament hears

18th May 2022

By: News24Wire

  

Font size: - +

The Land Bank on Tuesday told Parliament that it would resolve the default on its debt by the end of September, ending a period of two years in which it has not been able to lend to farmers.

The "liability solution" – which is the offer it will make to institutions that still hold its listed bonds – has been dragging on without resolution, with numerous offers turned down by bond holders that have regarded them as unfair.

Once the default has been settled, it will adjust its debt profile to make it more sustainable for its eventual return to full operation, says the bank.

The Land Bank briefed Parliament's Select Committee on Finance on Tuesday regarding its ongoing journey to return to financial stability after it defaulted on payments to creditors in April 2020.

The bank has been functioning in "maintenance mode" since the default, it said. 

The bank said it had since reduced its debt by 42%, or R14-billion.

The government stepped in to assist the Land Bank after its default, with a R10-billion bailout paid in portions over the financial years up to 2024. The Auditor-General gave the Land Bank a disclaimer audit opinion in 2020 and a qualified audit in 2021.

The Land Bank is also addressing leadership instability after former CEO Ayanda Kanana quit in April.

Acting Land Bank CEO Khensani Mukhari said a newly formed board had to "hit the ground running" to provide stability. Mukhari said the institution had had a high staff turnover owing to the bank's instability.

She said by the end of September this year, the bank's debts will either have been paid back or restructured for sustainable repayment to creditors.

"Our service level agreements are one of the main areas where the bank has been experiencing massive challenges. They were entered into around ten years ago. These are some of the major challenges we are dealing with," said Mukhari.

GRATEFUL FOR BAILOUT
Mukhari said only one lender had called in its debt so far, and the Land Bank has settled with them. She added that the Land Bank hoped to come out of default soon and was grateful for the R10-billion appropriation from National Treasury. She said R3-billion of the appropriation flowed in December and R6-billion is expected in the current 2022/23 financial year. The remaining R1-billion will flow in the 2023/24 financial year.

The special appropriation of R3-billion was used to repay some international lenders, she said.

A huge chunk of the R3-billion went towards local lenders and servicing of interest, while the remainder funded operations.

"We are unable to find funding in the market and that impacted us because we cannot service the sector the way we used to. We are exploring partnerships with the private sector to address the funding gap," Mukhari said.

She said the bank hoped to position itself to resume operations soon thanks to R500-million in funding it managed to raise with lenders. This amount is expected to grow to R1-billion.

"The ultimate goal is to conclude the liability solution as it addresses all of the risks introduced by the state of default. We are addressing concerns with institutions and are starting to generate business and fund the sector. We ring-fenced R500 million with lenders to go towards the recommencement of lending.

"We have been in maintenance mode. With private sector assistance, the blended solution will grow that R500-million to R1-billion to recommence funding," she said.

Land Bank executive for commercial and development banking, Sydney Soundy, said the bank still planned to fulfil its developmental and transformative mandate once it had returned to a state of financial stability. It also aimed to achieve an unqualified audit.

"We plan to retain the development clients in our portfolio. That is where our biggest focus is going to be in the future. We want a book consisting largely of developmental and transformation clients," said Soundy.

Land Bank chairperson Thabi Nkosi said the Land Bank's "fundamental issue" was the institution's funding model. She said the Land Bank Act of 2002 stipulated a state-led funding model, whereas the bank got much of its funding from the capital markets.

"Once we reach an agreement with institutions and the liability solution is concluded, we can restructure the debt profile. So, much of the debt defaulted on will be restructured, and a more sustainable debt structure will be in its place. It's not a panacea, but allows us to resume with some normality," said Nkosi.

Committee chairperson Yunus Carrim said it was "very concerning" that the entity was in a state of default, unable to operate fully, while young, black, aspiring farmers were left without funding amid calls for land expropriation.

He said the next time the Land Bank meets with the committee on these matters, the meeting should include a delegation from National Treasury, remarking that the issue was too big for the National Council of Provinces to address by itself.

Futuregrowth, which coordinates a group of lenders to the Land Bank, told Fin24 that it had no comment on the matter beyond a statement it issued in March, which said it was still working with the Land Bank to craft a "fairer and better" solution to the banks liability challenges.

Edited by News24Wire

Comments

The content you are trying to access is only available to subscribers.

If you are already a subscriber, you can Login Here.

If you are not a subscriber, you can subscribe now, by selecting one of the below options.

For more information or assistance, please contact us at subscriptions@creamermedia.co.za.

Option 1 (equivalent of R125 a month):

Receive a weekly copy of Creamer Media's Engineering News & Mining Weekly magazine
(print copy for those in South Africa and e-magazine for those outside of South Africa)
Receive daily email newsletters
Access to full search results
Access archive of magazine back copies
Access to Projects in Progress
Access to ONE Research Report of your choice in PDF format

Option 2 (equivalent of R375 a month):

All benefits from Option 1
PLUS
Access to Creamer Media's Research Channel Africa for ALL Research Reports, in PDF format, on various industrial and mining sectors including Electricity; Water; Energy Transition; Hydrogen; Roads, Rail and Ports; Coal; Gold; Platinum; Battery Metals; etc.

Already a subscriber?

Forgotten your password?

MAGAZINE & ONLINE

SUBSCRIBE

RESEARCH CHANNEL AFRICA

SUBSCRIBE

CORPORATE PACKAGES

CLICK FOR A QUOTATION