The Land Bank has skipped repayments on its revolving credit facility, triggering a default and potentially putting the government on the hook for as much as R5.7bn.

‘The issuer failed to make a payment when due to a lender,’ the Land Bank said.

‘The non-payment of this amount constitutes an event of default.’

A Business Day report notes the bank – which swung into a nearly R185m loss in the six months to end September 2019 due to muted loan book growth – is grappling with a liquidity shortfall and is in talks with stakeholders about potentially deferring financial obligations falling due.

In a statement to bondholders yesterday, the bank said it is in discussions with the lender and is seeking a waiver in the event of default, presumably to prevent other creditors asking for their money back.

The bank has undertaken a strategy to increase the term loan of its debt by moving away from short-term funding and was one of the first institutions to warn about the dangers of expropriation without compensation, saying back in 2018 it would require government assistance if enacted.

Full Business Day report

National Treasury said the bank approached it for additional financial assistance in April. This comes over and above the R5.7bn of government guarantees Treasury approved for the Land Bank in February.

‘Assistance in the form of recapitalisation and further guarantees is under consideration and would have to be accompanied by balance sheet optimisation of the Land Bank to correct the structural liquidity risk embedded in the balance sheet,’ said Treasury in response to Fin24's questions.

The controller of the public purse also added that it appealed to the bank's lenders to not call on debt that the Land Bank is at risk of defaulting on right now.

Dr Sifiso Ntombela, trade economist at the National Agricultural Marketing Council, said the Land Bank's liquidity problems have more to do with the fact that government has not been funding it and it has been forced to rely on the open capital market to raise money, competing with banks that have no developmental mandate.

‘What becomes difficult for the Land Bank is that it's still expected to play a developmental role as it is mandated to. Now you can see that you are already putting that state-owned entity on back foot because it has to use all its dividends from functioning loans to finance the developmental mandate,’ said Ntombela.

Full Fin24 report