Finance Minister Enoch Godongwana said the Land Bank was a critical state-owned entity to the country’s economy.
More than R3 billion in funding will go towards a “Blended Finance Scheme” to help the Land Bank fulfil its development and transformation mandate, now that it has reached an agreement to pay back its lenders after defaulting on billions in debt.
This was announced by Finance Minister Enoch Godongwana on Monday when the bank briefed the media on its restructuring after years of negotiation with lenders, across multiple jurisdictions.
This as the bank said coordinating a large number of lenders, including local lenders, a multilateral development finance institution and international banks, as well as the different types of debt instruments, and tenures, made the process all the more challenging.
The bank had to halt lending to farmers, after it defaulted on debt of R40bn, in April 2020 when it encountered liquidity challenges.
Land Bank Board chairperson, Thabi Nkosi said that the liability solution would place the bank on a sustainable new path, balancing debt repayment with the need to provide capital to the agricultural sector in line with its transformation mandate.
The first payments are set to begin on September 16.
“Scheduled repayments to lenders will occur every six months through to March 2028. The government's equity contribution will play a critical role in this plan, positioning the Land Bank on a sustainable path forward,” Nkosi said.
Godongwana said the Land Bank was a critical state-owned entity to the country’s economy.
“A successful Land Bank contributes significantly to transformation of the agricultural sector – by primarily financing historically disadvantaged persons and improving their inclusivity in the sector that has hitherto been characterised by the ‘two agricultures’, one that is world class and is made up of large commercial enterprises that are predominantly white-owned, one that is made up of predominantly black-owned small-scale enterprises faced with a plethora of barriers to entry, including access to affordable finance,” Godongwana said.
He said the bank also had an important role to play in closing a market gap that exists during cyclical periods when commercial banks and other financial institutions would reduce appetite for agricultural loans to the sector during times of sector perils and economic downturns.
At its prime, the Land Bank contributed R45bn to the bank’s agricultural debt finance which represented a share of approximately 28% of the South African farming debt.
The bank’s loan book has since been reduced to R17bn owing to the four years of the bank’s debt default status, said Godongwana.
“While we were mindful of the bank’s need for state support to assist it to get out of its debt default, we were also cognisant of the fact that a large part of the bank’s debt restructure solution would be driven through the bank’s own initiated remedial measures.
“Through its own cash flow from collections and client settlements, the bank was able to repay 60% of its funding liabilities since the debt default.”
He said this resulted in the Land Bank’s “reduced support of the agricultural sector”.
“It is for this reason that in providing a total of R10bn of fiscal support to the bank we have ensured that a significant portion of the fiscal allocation is dedicated to support the bank’s agricultural development and transformation mandate through the deployment of at least R3.7bn of the capital allocation towards the Blended Finance Scheme,” said Godongwana.
Cape Times