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A South African state bank lending to the agriculture sector said on Friday it had defaulted on two bond programs worth R50 billion combined, highlighting the weakness of state-owned companies in the country.
Credit rating agency Fitch had already said Thursday that the lender, Land Bank, had defaulted on the debt and that the risks posed by state-owned companies had been a factor in its decision to lower South Africa’s credit rating this month. BB, from BB +.
Read: Land Bank Creditors Offer Loan Default
Land Bank: possible default of R50 billion notes
Land Bank is one of several state-owned companies that face financial difficulties and pressure President Cyril Ramaphosa’s cash-strapped government as he struggles to revive a recessionary economy.
The bank, which finances commercial and emerging farmers, said Monday that it was experiencing a liquidity deficit and was in talks with various stakeholders to address its financial obligations.
The lender warned investors that it was in breach of its $ 20 billion Medium-Term RT Program (DMTN) dated October 18, 2010 and its R30 billion DMTN Program dated March 13. from 2017.
“Those defaults have subsequently occurred,” the lender said in a statement dated April 23, but issued on Friday.
Fitch said Land Bank’s failure could influence the rating agency’s assessment of other state-owned companies, including transportation and logistics group Transnet and energy services company Eskom.
Moody’s downgraded the lender’s corporate family rating and long-term issuer ratings to B1 from Ba2, and its national scale issuer ratings to Baa2.za/P-2.za from Aa3.za/P-1.za he said Friday.
The rating agency also placed all of Land Bank’s ratings on review for an additional downgrade.
“The decision to place the ratings on review for a downgrade reflects the risk that Land Bank and its main shareholder will not quickly address cash flow and financing problems, which can lead to solvency problems and potential losses for creditors of Land Bank, “said Moody’s.
He added that Friday’s downgrades were the result of his assessment that the government’s willingness and ability to support Land Bank is weaker than previously anticipated.
Land Bank, which had a gross loan portfolio of around R45.2 billion in 2019, is a key lender in the agricultural sector, with a market share of 29% of South Africa’s agricultural debt, according to the agency of the Industria Agri SA.
The National Treasury said that assistance in the form of recapitalization and more guarantees was being considered.
“It would have to be accompanied by optimization of the Land Bank balance sheet to correct the balance sheet structural liquidity risk,” the Treasury said in a statement.
Fitch added: “We hope that the government will continue to support development banks, as they are an important part of the government’s strategy to maintain and expand investment in the context of increasing restrictions on direct fiscal spending.
