FutureGrowth Asset Management is running out of patience over the slow progress made to the Land Bank’s liability solution as the bank’s default position approaches its third year now.
The leading creditor for the Land Bank on Friday said the continued default position posed significant risks to its clients and did not bode well for the other solutions that may be needed for other State-owned enterprises.
In April 2020, the Land Bank experienced serious liquidity challenges after failing to repay about R50 billion maturing loans.
The bank’s entire debt portfolio of about R45bn, of which R5.2bn is guaranteed, was considered to be in default due to cross-default clauses.
FutureGrowth head of credit Olga Constantatos on Friday said three years was a long time to negotiate and resolve what is a fairly standard event of default, even when one considers the interruptions introduced by the COVID-19 pandemic.
Constantatos said they had little progress to report since the date of our last update on 1 December 2022, despite aiming to have finalised an agreed liability solution by now.
“The lenders still await feedback from the National Treasury on the detailed term sheet provided to them and the Land Bank in early November,” Constantatos said.
“This term sheet has the support of a majority of the South African lenders and four months later, we have no substantive feedback on terms and clauses from Land Bank’s shareholder.
“This makes progress impossible to gauge and our concern is that delays - which are not of our making – risk shoehorning us into a commercially indefensible solution.
“This is clearly an unacceptable position for us as fiduciaries and custodians of the nation’s savings.”
The state-owned bank has operated at “suboptimal” levels since it defaulted on its debt obligations, and could not fully resume its borrowing and lending activities until a settlement was concluded.
In October last year, the bank resumed lending to new development clients with a blended finance mechanism to help commercial farmers access much-needed finance amid rising costs for fertiliser and other essentials.
Land Bank chairperson Thabi Nkosi told Parliament then that they were seeking to exit default on debt by the end of 2022 or the end of March this year at the latest.
The bank’s acting executive for commercial banking and business development Sydney Soundy yesterday (SUN) said there had been “certain developments” which will be communicated to all their lenders, not just FutureGrowth, before the end of March.
Meanwhile, Constantatos said the additional R5bn equity committed by the Minister of Finance in the February 2021 Budget, and subsequently rolled in the February 2022 Budget, must be “spent” by 31 March 2023 otherwise it falls away.
This amount has not been reappropriated in the February 2023 Budget.
“This poses significant risk to all lenders. We await clarity from the National Treasury on the conditions of their payment of this equity, and the mechanism thereof, given we have not yet reached agreement on the solution,” she said.
“This is an urgent matter that needs resolution in the next two weeks. We continue to engage with all stakeholders to ensure we are doing everything we can to ensure our clients do not face this unacceptable risk.”
Agri SA executive director Christo van der Rheede yesterday placed their trust in the newly-appointed CEO Themba Rikhotso to resolve all the outstanding issues regarding the liability solution.
“I trust that the newly appointed CEO will address these concerns as soon as possible. The bank has a strong board and the commitment is there to achieve the aforementioned objectives,” he said.
“Failing to do so will have devastating consequences for both developing and commercial farmers and ultimately for rural development, job opportunities and food security in the country.”
BUSINESS REPORT