Moody’s downgrades SA agricultural lender into sub-investment grade

SOUTH AFRICA – American ratings agency and financial services company, Moody’s has downgraded South Africa’s Land Bank deeper into sub-investment grade after the state company missed another debt interest payment due to liquidity challenges.

The Land and Agricultural Development Bank of South Africa (Land Bank), the country’s largest agricultural-focused lender, defaulted on the loans totalling R50 billion (US$3.01 billion) in April.

In a notice on the Johannesburg Stock Exchange on June 1 Land Bank said it was not in a position to meet interest payments of nearly R120 million (US$7m), reports MoneyWeb.

The state-owned lender is now rated at B3 from B1, six rungs into sub-invesment, and changed the outlook to negative, citing the missed debt payments.

In January, Land Bank became the first big state-owned company in SA to be relegated to junk status by Moody’s.

“The rating actions reflect the combination of longer than anticipated delays in rectifying the events of default triggered by the bank’s failure to make payments when due to its lenders,” Moody’s said.

“The negative outlook reflects the high implementation risks of the restructuring plan,” it added.

However, it added that “actual economic losses to creditors will be low, as both Land Bank and the government of South Africa (Ba1 negative) as the sole shareholder, appear to remain committed to concluding a viable restructuring and recapitalisation plan.”

Around R5.7 billion (US$335m) of Land Bank’s debt is government-guaranteed, and the bank has attempted to seek further assistance from Treasury. Treasury, however, faces its own challenges in grappling with the fallout from the coronavirus pandemic.

A Land Bank spokeswoman told Reuters its chief executive was on “electronic road show” negotiating waivers and stand-still agreements with creditors, who have divided themselves in two groups led by Standard Bank and the Association for Savings and Investment South Africa.

As the cash-strapped development finance institution battles a liquidity crisis, South African farmers are increasingly turning to commercial lenders to top up their working capital.

“Some Land Bank clients are adopting a proactive approach in exploring new financial partners as they do not want to wait until the last moment,” said John Hudson, the head of agriculture at Nedbank’s business-banking unit.

“Some are starting to test the water, whereas others are certainly being far more direct and saying ‘we want to move,” he added.

Iol reports have indicated that the country’s largest commercial lender to the sector, Absa, has started extending working-capital facilities to clients its shares with the Land Bank, as farmers are unable to access pre-approved funds from the state-owned company.

“For us, at the moment, the critical piece is to make sure there is working capital available to make sure these farms get production finance to plant for the next season, so that the factory keeps on operating,” said Abrie Rautenbach, the head of Absa’s agribusiness unit.

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