Land Bank clarifies its capital and funding strategy

You can also listen to this podcast on iono.fm here.

JIMMY MOYAHA: The Land and Agricultural Development Bank of South Africa, more commonly known as the Land Bank, is in talks with National Treasury to seek out additional funding as part of its turnaround strategy and corporate plan. Reports have been circulating throughout the media that the bank is seeking yet another bailout.

The bank issued a press release in a statement earlier today saying this is not a bailout, but rather part of a broader corporate plan that they have had in place for quite some time.

We’re going to look at this in more detail with the chief strategy officer at the Land Bank, Sydney Soundy. He joins me on the line now to see what we make of this. Sydney, lovely having you on the show. Thanks so much for taking the time.

The term ‘bailout’ has been used quite widely in the context of state-owned entities and their relationship with National Treasury. When the Land Bank says this is ‘not a bailout’, what do you mean by that?

SYDNEY SOUNDY: Bailout means that you are being rescued from distress and, in our particular instance, this is a proactive approach as part of the engagements that we normally have with the shareholder, looking at the financial sustainability of the bank.

So it’s a plan – as you’ve indicated in your introduction – to ensure that we don’t get into ‘distress’ following what we resolved from the debt default that we had in 2020, with the lenders now having agreed with us on a liability solution that we’re currently going through, and which we are adhering to and paying back as we ought in line with the instalments.

So we’re keeping to our commitment with the lenders.

In the last two years since we entered into this agreement, we have posted profits.

But we are looking at financial sustainability long term, also taking into account our responsibility for development impact in the sector.

ADVERTISEMENT

CONTINUE READING BELOW

So we’re looking at ensuring that we strengthen the balance sheet, that we have the ability to go and raise funding that is relatively cheaper than what we are currently paying in terms of the current liability solution.

JIMMY MOYAHA: So Sydney, how much  –

SYDNEY SOUNDY: That’s why we think this is not a bailout.

JIMMY MOYAHA: Sydney, how much is the Land Bank then looking to have National Treasury finance or advance? And for what would those funds be used?

SYDNEY SOUNDY: The figures that are being indicated are not correct. What we don’t want to do is to deal in public with the considerations that National Treasury and we are going through.

But the essence of this is that the funds will be utilised, if we do get a recap or capital recapitalisation, for lending for development purposes.

What we are in fact putting forward in terms of the discussions that we’re having with the shareholder is for assistance with a guarantee that will enable us to raise funding ourselves, but do that at a relatively cheaper rate, and be able to refinance a small amount that will be left from what we originally owed our current lenders in terms of a liability solution.

JIMMY MOYAHA: Sydney, in the event that the National Treasury does not advance you the funds that you are seeking, where does that put the Land Bank from a financial position?

Do we now have conversations around potentially going into distress? Is there a risk of default on current lending agreements?

SYDNEY SOUNDY: Currently there isn’t. We only have one lending agreement with all our lenders, in line with the liability solution.

And so proactively we are managing what we believe is a way of ensuring that we have sufficient capital to fulfil our mandate.

ADVERTISEMENT:

CONTINUE READING BELOW

And, as I indicated, significantly what we’re looking for is a guarantee rather than an injection of capital – although that is part of the consideration because, looking on a long-term basis, it might actually be cheaper for the shareholder to do it that way, in the sense that from a balance-sheet strengthening perspective and the cost of funds that the bank will have in its balance sheet it will be much more positive, and enable the bank to fulfil its mandate in the long term.

JIMMY MOYAHA: Sydney, if we are to explore the idea of a guarantee from the National Treasury perspective, what is the current state of the Land Bank’s balance sheet, and to what extent would this guarantee need to be in place?

Would it need to be a long-term guarantee? Would we need to guarantee all of the credit on the balance sheet, or parts of it?

I understand some of this conversation might still be very sensitive, given that it is ongoing with National Treasury – and we can appreciate that you might not be able to comment on some parts of that.

SYDNEY SOUNDY: The idea is that with a guarantee provided by the shareholder we will have the ability to go and raise further funding for the bank, allowing us an opportunity to increase the business that we could otherwise undertake, because we’ll get sufficient capital.

We would still need to repay that capital, but because there is a guarantee against those funds the pricing for the bank will be much more reasonable.

[With this] allowing us also to afford our clients the facilities at affordable rates, together with blended finance that makes it much more palatable – particularly for developing farmers.

JIMMY MOYAHA: A corporate plan that has been previously agreed to, with the Land Bank looking to access a guarantee from National Treasury that will allow it to raise more capital.

This is not what would be considered a ‘bailout’ in their eyes, but rather part of a broader strategy to turn the business around.

We’ll leave the conversation on that note and see how things unfold. Thanks so much to Sydney Soundy, the chief strategy officer at the Land Bank, for joining us to take us through their conversations with National Treasury and the financial requirements.

#Land #Bank #clarifies #capital #funding #strategy