The agricultural sector can breathe a bit easier as the Land Bank is set to emerge from a four-year debt default position after its debtors had agreed to a “landmark” debt restructuring solution.
Following the signing of legal agreements and the fulfilment of all conditions, the debt restructuring solution would take effect on September 16, 2024, ending the Land Bank’s debt default position, the state-owned entity said yesterday.
South Africa’s biggest lender to farmers first encountered liquidity challenges in April 2020 and missed a restructuring deadline in March 2021. It currently has R4 billion equity in hand.
Scheduled repayments to lenders would occur every six months until March 2028.
“This debt restructuring spans multiple financial instruments of all the bank’s lenders, ensuring equitable treatment of all the lenders, regardless of the type of debt held and their governing laws,” the bank explained.
Since the debt default, the bank had repaid over 60% of its debt. This was achieved through cash proceeds from a reduction of the bank’s loan book, which reduced from R45.2bn in March 2020 to R17bn by June 2024.
Thabi Nkosi, the chairperson of the board, said: ”As we emerge from this period of default, our focus now shifts to the execution of our turnaround strategy, supported by a new operating model and a streamlined organisational structure.“
Nkosi said: “This has been one of the most intricate and extended debt restructuring efforts in South Africa’s financial history. Co-ordinating a large number of lenders consisting of local lenders, a multilateral development finance institution and international banks, as well as the different types of debt instruments and tenures added to the challenge.
“Thankfully, all parties showed remarkable patience and good faith, with lenders respecting a standstill arrangement since the bank defaulted on its debts. We believe the solution we’ve reached is in the best interest of all stakeholders and the agricultural sector,” she said.
Finance Minister Enoch Godongwana said through its own cash flow from collections and client settlements, the bank was able to repay 60% of its funding liabilities since the debt default.
However, while this was a commendable achievement, this had resulted in the bank’s reduced support of the agricultural sector.
“The government provided R10bn to stabilise the situation and alleviate the state’s contingent liabilities through the settlement of the state-guaranteed lenders, and to allocate R3.7bn from these funds towards the Blended Finance Scheme to support the bank’s agricultural development and transformation mandate,” Godongwana said.
Going forward, he said Treasury wanted the bank to adhere to the covenants set out in its debt restructure agreement, and to begin a process to address its funding structure so that “we never find ourselves in a similar position again”.
The board’s focus would be to ensure that the bank’s turnaround strategy was effectively and successfully executed.
He said a closer relationship and collaboration between the bank and the Department of Agriculture, as well all relevant state departments and entities, was required to ensure that co-ordinated efforts and economies of scale of the state’s entities and the private sector are leveraged to deliver effective impact in the agricultural sector.
Themba Rikhotso, the CEO of the Land Bank, said the current size of its non-performing loan book was slightly over 50% at R8bn.
“One of the reasons we're able to conclude the liability solution with the lenders is because we shared with them our extensive plan on remediating our non-performing loans,” he said.
Looking ahead, Nkosi said in the past the Land Bank had placed a lot of emphasis on its commercial client base and to a large extent neglected the emerging farmer market.
“We intend to correct capital allocation strategies. Going forward, we have prioritised emerging farmers so that we can get to more balanced portfolio, but we certainly intend to fully continue supporting commercial farmers,” she said.