SOUTH AFRICA – The government of South Africa has injected R3 billion (US$17.4m) as an equity investment to recapitalise the Land and Agricultural Development Bank of South Africa.
Finance Minister Tito Mboweni said that the bank sought an emergency R3bn liquidity bridge facility, while its restructuring plans were being finalised which would form possible further funding requirements, reports IoL.
“The National Treasury is supporting the Land Bank to find a solution to its default and craft a long-term restructuring plan,” said Mboweni.
The liquidity-constrained finance institution defaulted on some of its debt that was due towards the end of April, triggering a cross default on a R50 billion (US$2.7 billion) bond programme worsening an already dire cash flow situation.
A week ago, the state-owned lender had indicated that it is not in a position to proceed with the R119.8 million (US$6.8m) interest and R200 million (US$11.5m) principal payments due between 22 and 26 June 2020.
The Land Bank’s liquidity problems have become so severe that it has appointed Rand Merchant Bank (RMB) as financial advisor to come up with cash-flow projections for the Bank, deliver a strategic plan and assess its viability.
A process on its liability solution is underway, which is due to be concluded on 31 August, although timelines are subject to change.
The liability solution is aimed at addressing the cross defaults, extend the term of all funding that has matured or will mature in the next 12 months to develop a “more sustainable” maturity profile.
Mboweni said that the Treasury would support the bank and its corporate finance advisers, as it engages lenders to negotiate solutions to its default position and craft a long-term restructuring plan to ensure sustainability.
The bank’s main source of revenue, net interest income, had declined over several years, because lending rates had not increased alongside rising funding costs.
The cost of funding increased as the Land Bank tried to reduce liquidity risk caused by the mismatch in its long-dated assets and short-term liabilities, at the same time, impairment charges increased, primarily due to persistent drought, and further losses.
The Treasury’s director-general Dondo Mogajane, said that the government could not let the bank collapse.
“The Cabinet has decided to support the Land Bank, recognising the role that it plays in food security,” Mogajane said.