So the notes vary in the type of interest to be paid (fixed or floating); the absolute interest rate; and the term for which they are issued. The basic structure entails an investor buying the notes upfront and receiving interest over the term of the note, before repaying the capital at the end.
The Land Bank has launched two note programmes, the domestic medium-term note (DMTN) programme, one in 2010 and another in 2017, which have seen the bank issue debt to sustain its ongoing commercial and development activities. This is, in effect, a sophisticated credit card facility for the bank that it can use when it wants.
For the last published audited financials of the group for the year ending March 2019, the bank had notes outstanding of R13.4bn.
The cross-default clauses in the DMTN programmes mean that if the bank fails to meet interest or capital repayments on any of the notes as those obligations come due, the holders of all the notes are entitled to demand repayment. This means that, if the note holders so choose, they can demand immediate repayment of R13.4bn. And that is money the Land Bank does not have.
Failing to honour the demand would means the creditors could begin to have the bank wound up.
Whether the note holders decide to call the debt — demand repayment — is unclear at the moment. It’s early days, and the best solution for everyone would be to fix the problems as soon as possible.
Where does government fit in?
For the year ending March 2019, the bank had government guarantees of just R2.3bn, which applied to loans from the World Bank and African Development Bank.
Government guarantees mean that the SA government (in other words, the SA taxpayer) will honour any shortfall resulting from the Land Bank failing to meet its obligations, but only on debt that is guaranteed.
None of the notes the Land Bank issued has government guarantees, which means the National Treasury is not on the hook for any of the debts relating to the notes the bank has issued and which creditors may now want repaid.
But the question facing the government is whether it wants one of the biggest sources of credit for the agricultural industry to risk being put into liquidation by note holders that have not been repaid.
It’s now up to the bank, creditors and the Treasury to find a solution, failing which, the government must find R13bn quickly.
One solution proposed to counter the immediate liquidity challenges is for the Land Bank to use the government guarantees it has available but which are unutilised.
The bank received permission for an additional R5.7bn in government guarantees from the Treasury in February this year, and has used just more than R1bn.
This means the bank could borrow more than R4bn to tide it over and give it the time to make the necessary changes to its financial structure. The bank is now engaged with lenders to defer interest and capital repayments until such time as it can raise these additional borrowings.
SowetanLIVE's sister publication Business Day sent questions to the Land Bank and was advised that its executives are in meetings and might be slow to respond.
What next for the embattled Land Bank?
The Land Bank, a state-owned enterprise, that extends a large proportion of credit to commercial and emerging farmers, announced on Friday morning that it will be advising note holders that it has formally defaulted on its obligations.
So what does that mean and what happens next?
The Land Bank has assets of approximately R52bn, the large proportion of which, R44.4bn, are loans to commercial and emerging farmers and companies active in the agricultural chain. In addition to providing loans, the Land Bank also has an insurance division that provides cover to farmers for agricultural-related risks, including cover against drought and disease.
Because the bank does not have much by way of deposits, it funds itself in a number of ways, with loans from lenders such as the African Development Bank and other multi-lateral financial institutions.
A large portion also comes from issuing notes, similar to bonds, which undertake to pay a fixed or floating interest rate over terms that can last for a period of years. This is formally done by creating a note programme, which allows banks and other financial institutions to issue debt (the notes) as and when they require funding.
Parliament urged to call urgent talks on Land Bank after it defaults on loan
Here's how small-scale farmers can get support
So the notes vary in the type of interest to be paid (fixed or floating); the absolute interest rate; and the term for which they are issued. The basic structure entails an investor buying the notes upfront and receiving interest over the term of the note, before repaying the capital at the end.
The Land Bank has launched two note programmes, the domestic medium-term note (DMTN) programme, one in 2010 and another in 2017, which have seen the bank issue debt to sustain its ongoing commercial and development activities. This is, in effect, a sophisticated credit card facility for the bank that it can use when it wants.
For the last published audited financials of the group for the year ending March 2019, the bank had notes outstanding of R13.4bn.
The cross-default clauses in the DMTN programmes mean that if the bank fails to meet interest or capital repayments on any of the notes as those obligations come due, the holders of all the notes are entitled to demand repayment. This means that, if the note holders so choose, they can demand immediate repayment of R13.4bn. And that is money the Land Bank does not have.
Failing to honour the demand would means the creditors could begin to have the bank wound up.
Whether the note holders decide to call the debt — demand repayment — is unclear at the moment. It’s early days, and the best solution for everyone would be to fix the problems as soon as possible.
Where does government fit in?
For the year ending March 2019, the bank had government guarantees of just R2.3bn, which applied to loans from the World Bank and African Development Bank.
Government guarantees mean that the SA government (in other words, the SA taxpayer) will honour any shortfall resulting from the Land Bank failing to meet its obligations, but only on debt that is guaranteed.
None of the notes the Land Bank issued has government guarantees, which means the National Treasury is not on the hook for any of the debts relating to the notes the bank has issued and which creditors may now want repaid.
But the question facing the government is whether it wants one of the biggest sources of credit for the agricultural industry to risk being put into liquidation by note holders that have not been repaid.
It’s now up to the bank, creditors and the Treasury to find a solution, failing which, the government must find R13bn quickly.
One solution proposed to counter the immediate liquidity challenges is for the Land Bank to use the government guarantees it has available but which are unutilised.
The bank received permission for an additional R5.7bn in government guarantees from the Treasury in February this year, and has used just more than R1bn.
This means the bank could borrow more than R4bn to tide it over and give it the time to make the necessary changes to its financial structure. The bank is now engaged with lenders to defer interest and capital repayments until such time as it can raise these additional borrowings.
SowetanLIVE's sister publication Business Day sent questions to the Land Bank and was advised that its executives are in meetings and might be slow to respond.
Would you like to comment on this article?
Register (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.
Trending
Related articles
Latest Videos