Farmers who owe Afgri money will now be Land Bank customers, after Afgri sold its debtor book to Land Bank for R1,4 billion. Afgri is a diversified agribusiness and its debtor book was owned through its subsidiary, GroCapital.
“Since the financial crisis in 2008, we have managed the debtor book down from R5 billion,” said Chris Venter, chief executive of Afgri. GroCapital’s debt book thus stood at R1,4 billion at the time of the sale.
According to Venter, Land Bank is no stranger to doing business with Afgri. “Our relationship with Land Bank is older than 10 years,” he said. “A huge part of the debtor book is indirectly financed by Land Bank.”
Warren Jervis, head of small capitalised shares at Old Mutual’s Equity Research boutique, said that Afgri will continue to manage the debtor book. “Afgri will earn a management fee from Land Bank,” he said. Venter explained that the income from the debtor book was minimal.
“We borrowed money on the market and lent it to farmers. The difference in the interest rates was minimal.” He added that selling the debtor book to Land Bank will reduce Afgri’s debt burden. “For Afgri to grow, we need a balance sheet to support the growth. The debtor book had an impact on our balance sheet and our ability to get further loans.”
Jervis explained that selling the debtor book will reduce Afgri’s risk from non-performing loans, or where debtors fail to repay their loans. Farmers who owe Land Bank can rest assured that there will not be much change after the sale. “The credit policy for loans will not change,” he assured debtors.
The question is what Afgri will do with its balance sheet now that the debt has been reduced. “I think Afgri will try to become more of a food business in the long run,” said Jervis. “It has new poultry operations it will surely bed down first.” – Jaco Visser
