Farmers who will require financing from the Land and Development Bank of South Africa (Land Bank) in the near future will continue to encounter difficulties in accessing such funding due to the bank’s current long-standing liquidity challenges.
This has been now been compounded by a further ratings downgrade by ratings agency Moody’s Investors Service (Moody’s).
Moody’s recently downgraded Land Bank’s corporate family rating (CFR) and long-term issuer ratings to a sub-investment grade.
The bank’s long-term national scale issuer rating was also downgraded to B2.za from Ba2.za and its Baseline Credit Assessment (BCA) rating was lowered to caa3 from caa2, pointing to a further negative outlook.
In the statement, Moody’s said the ratings actions resulted from the on-going delays in concluding Land Bank’s restructuring plans and implementing a related liability solution, with the latter being a necessary pre-requisite to allow the bank to “cure the current event of default”. Such delays increased the risk, said Moody’s, that a liability solution will not be agreed on, potentially resulting in sizeable economic losses for lenders.
Sydney Soundy, executive manager of strategy and communication at the Land Bank told Farmer’s Weekly the bank did not have sufficient liquidity to provide in the financing needs of the farming sector.
It was only able to recycle loan repayments for the financing requirements of its existing clients, resulting in less than 50% of the existing clients’ requirements being met. According to Soundy no new client applications were being considered at this time.
Rebecca Phalatse, general manager of marketing and communications at the Land Bank said the Moody’s downgrade would not impact on the bank’s restructuring plan.
“The challenge has been with the negotiations with lenders and investors due to the complexity of the transaction and the large number of financial creditors with whom the Land Bank must engage.” Phalatse did add, however, that the Land Bank’s target of implementing a liability solution by the end of November 2020 would not be met.
Farmer’s Weekly previously reported that the Land Bank was facing challenges with regard to liquidity. In April, the state-owned agricultural lender defaulted on repayments of debt to the value R50 billion, leaving the South African government liable for about R5,7 billion in guaranteed debt.
In June this year National Treasury allocated R3 billion as an equity investment to recapitalise the Land Bank.
Minister of Finance, Tito Mboweni, announced during the tabling of the Medium-Term Budget Policy Statement in October that the R3 billion would be supplemented with an additional allocation of R7 billion over the medium term to support the bank’s restructuring.