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Land Bank reaches debt deal with lenders, but a much bigger challenge awaits

Land Bank reaches debt deal with lenders, but a much bigger challenge awaits
Ray Mahlaka
By Ray Mahlaka
9 Sep 2024
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The Land Bank has a loan book worth more than R8bn and more than 50% of this book is considered to comprise non-performing loans — referring to payments not made by farmers for some time (usually beyond three months). In banking circles, this is bad news.

Although the Land Bank has struck a long overdue deal with lenders to pay them the billions of rands they are owed, the state-owned lender is not yet out of the woods.

That’s at least considering the Land Bank’s financial health, which remains dicey and undermines its ability to fulfil the mandate of providing loans to established and emerging farmers. 

The Land Bank has entered into a settlement deal with lenders after defaulting on debt repayment worth R45-billion four years ago. The Land Bank became the first state-owned entity (SOE) to default on debt repayments to SA-based and international lenders, triggering financial support worth R10-billion to the company by the National Treasury, or the taxpayer.  

Before the default, the Land Bank was formidable, providing 28% of SA’s agricultural debt, and its operations were tied to the country’s food security system.

Lenders won’t recoup full amounts owed


Over four years, the Land Bank has been in negotiations with lenders to come up with a repayment plan, which has now seen the SOE repay capital and associated interest, reducing its debt obligations from R45-billion to R16-billion. About R4-billion will be paid in two tranches on 30 September 2024, reducing the Land Bank’s total debt obligations to R12-billion that has to be repaid by March 2028, the SOE’s CEO, Themba Rikhotso, announced on Monday, 9 September during a briefing to journalists.

When the Land Bank defaulted on debt repayments in April 2020, lenders had exposure to the SOE mainly through two notes listed on the JSE or debt instruments called domestic medium-term note (DMTN) programmes — one launched in 2010 and another in 2017.

To raise money on the open market, a company would issue debt or notes to lenders with a promise of paying back the money with a fixed and floating interest rate at a later stage. A DMTN programme is like a sophisticated company credit card that a company uses by withdrawing money contributed by lenders to fund its operations.

The terms and conditions tied to the deal reached with lenders have not been made public. Two Land Bank lenders told Daily Maverick that they have been asked to exchange their existing JSE-listed DMTNs for new notes that will not be listed and have a maturity (or repayment profile) of 31 March 2028. Acceptance of this offer will also pave the way for R5-billion of the R10-billion financial support from the Treasury, which has been withheld over the last two years pending a debt settlement with lenders, to be released to the Land Bank, helping settle money it still owed. 

The lenders also told Daily Maverick that there had to be a broad acceptance that they would not be able to recoup the full amounts owed by the Land Bank. So, they had to take haircuts to place the Land Bank on the path of recovery.  

Said the Land Bank’s Rikhotso: “With this debt restructure, we have secured the same deal to all lenders, a common or similar debt instrument to all lenders, common commercial terms to all lenders, and equal right[s]to all lenders”. 

The Land Bank’s financial problems have been caused by an exodus of executives in recent years, lack of oversight from the Treasury, “junk” downgrades of its credit rating by Moody’s, and drought conditions, which made it difficult for farmers to pay back their loans. 

Bank’s worrying financial situation 


With lenders now giving the Land Bank some breathing room, the SOE faces another problem; cleaning up its operations and dealing with legacy problems. The inability of farmers to repay their loans is still a big problem for the Land Bank.  

Without a diverse source of income, the Land Bank still largely relies on loan repayments from farmers to stay afloat. This is arguably a dangerous business model because if the fortunes of farmers turn for the worse due to uncontrollable events (such as adverse weather conditions), they won’t be able to service their loans from the Land Bank. This will, in turn, negatively affect the company’s financial situation.  

Rikhotso said the Land Bank had a loan book worth more than R8-billion and more than 50% of this book comprised non-performing loans — referring to payments not made by farmers for some time (usually beyond three months). 

In banking circles, rising non-performing loans are bad news because banks/lenders generate their profits from the timely repayment of loans by borrowers, with interest. In the Land Bank’s case, the high non-performing loans underscore that the SOE is still having a tough time recovering loan repayments from farmers.  

Although the Land Bank’s board and management have conceded that the high level of non-performing loans is a risk to the SOE’s financial situation, they have argued that reducing the company’s debt is a major step to de-risking its financial books. With the Land Bank now considered a debt defaulter, it no longer enjoys the goodwill and trust among lenders that would ordinarily allow the bank to borrow money to fulfil its mandate of providing loans to farmers.

Read more on Daily Maverick: Debt restructuring agreement ‘puts Land Bank back on its feet’

Thabi Nkosi, board chair of the Land Bank, said the bank will continue supporting farmers, but also accepted that the SOE’s model had to change. Nkosi and her colleagues have not proffered ideas on what the new Land Bank model will look like, but said only that it had to be relooked at or “else the food security for the country is at major risk”. DM

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