Land Bank asks for R22bn injection from the state

The Land Bank has asked the state for a cash injection of R22bn — R5bn immediately and R17bn to follow shortly thereafter — after it triggered a default last month when it was not able to repay maturing loans.

The default resulted in jittery lenders refusing to lend more, and to roll over loans that were maturing, which had caused a major crisis for the bank.

In terms of a standstill arrangement, no interest or capital payments are being made at the moment.

The government has guaranteed R5.7bn of Land Bank debt.

This comes at a time when the fiscus is faced with extreme pressures arising from the Covid-19 pandemic and the devastating effect of the lockdown on the economy.

The state is also facing mounting demands from state-owned enterprises (SOEs) for financial support, such as SAA and Denel.

The government’s finances are already under severe strain, and ratings agencies have also flagged guarantees as a major risk to the economy.

Treasury acting deputy director-general for assets and liabilities Tshepiso Moahloli gave the details of the Land Bank’s funding request in a briefing by the bank and the Treasury to parliament’s standing committee on finance on Wednesday.

She said the request was made in February/March and pointed out the rising demands on the state when revenue was falling.

It also emerged during the meeting from comments made by Land Bank chair Arthur Moloto that finance minister Tito Mboweni had indicated there was a need to revisit the issue of the Land Bank being 100% state-owned.

Land Bank CEO Ayanda Kanana revealed to the committee that provisional, unaudited results for 2019/2020 until February showed that the bank had suffered an operating loss of R17m.

This compared to a R168.3m profit for the full 2018/2019 financial year and profit of R290.2m in 2017/2018.

Operating profit has declined steadily over the past five years. The net interest margin in 2019/2020 was 2.1%.

The government has already signalled its intention to save the bank, with Treasury director-general Dondo Mogajane saying earlier this week that it was determined to save it “at all costs”.

Mogajane told MPs that the state-owned specialist lender to commercial and emerging farmers played a major role in terms of food security, which would be negatively affected were the bank to collapse.

Moloto stressed at Wednesday’s meeting that no amount of re-engineering of the bank’s balance sheet would cure its problems without a capital injection by the state as the shareholder.

The bank has equity of R5bn and liabilities of about R45bn and is thus seriously undercapitalised to assume the risk on its balance sheet, he said. Of the R45bn in liabilities, about 45% are short-term funds.

“We are in a discussion with the National Treasury with a view of recapitalisating the Land Bank. No bank would be able to continue with the level of equity position that we hold on our balance sheet because the equity is meant to be a capital buffer in the event of losses.

“So if you are thinly capitalised and your equity position is being eroded, you pose serious risks to the bank, and that is what we are trying to avoid,” he said.

The bank is also in negotiations with lenders about restructuring its debt.

Moloto emphasised that the bank had every intention to honour its obligations and service its interest payments.

He said negotiations with a consortium of lenders, comprising commercial banks and institutional investors, were at a sensitive stage and were aimed at restructuring the debt facilities and finding ways to lengthen the term of the loans.

He could not divulge more at this stage but would go back to lenders within less than a month with a proposal on how to solve the liabilities of the bank and secure new money to finance its operations.

Kanana gave a presentation on the challenges facing the bank, noting that RMB had been appointed as its corporate financial adviser.

Standard Bank is representing commercial banks and the Association for Savings and Investment SA the institutional investors.

He said the bank had announced an emergency liquidity facility of R3bn to help it service critical disbursements.

The bank is also planning to implement a turnaround strategy. — BusinessLIVE