The Land and Agricultural Development Bank of South Africa, the state-owned lender to farmers, is weighing longer-dated bonds, a sign it sees investor confidence returning after it rebuilt earnings hurt by mismanagement at the lender.
“A lot of our clients are requesting longer-term facilities,” chief financial officer Lebogang Serithi said on Monday. “That’s why we’re looking at issuing longer-term debt.”
The lender has received cash injections from the government since 2008, when current chief executive Phakamani Hadebe took over, and raised its share of agriculture-related loans to 30 percent in the 12 months to March from 28 percent in the previous period. That allowed the bank to overtake Barclays’ Absa unit as the biggest provider.
It planned to lengthen the average maturity of its debt by two months to 10 months over the next five years, Serithi said.
The Land Bank sold R1 billion of floating-rate notes maturing in three years at a yield of 125 basis points above the three-month Johannesburg interbank agreed rate (Jibar) of 5.133 percent on October 1.
The Tunis-based African Development Bank’s five-year dollar floating-rate bonds due in August 2014 pay 33 basis points over the London interbank offered rate.
“They’ve done quite a bit of work in turning the business around,” Richard Klotnick, a fixed-income money manager at Momentum Asset Management, which bought some of the Land Bank bonds, said on Monday. “At the same time what has provided comfort to investors is that [the] government has provided support in the past.”
The National Treasury in 2008 seconded Hadebe, one of its top officials, to restructure the company by replacing executives and cutting costs.
The Land Bank initially offered R750 million of bonds on September 26 and increased the size after bids exceeded the amount for sale by 2.4 times, according to an e-mailed statement from the lender last week.
The proceeds would help repay R1.2bn of floating-rate notes due on October 25, match the bank’s assets and liabilities maturity profile and expand the loan book, Serithi said.
Clients were increasingly demanding longer-term loans and the bank was trying to ensure that it matched capital, he said.
The government had backed the bank with a R3.5bn guarantee, of which R500m was untapped, Serithi said. The lender planned to grow its loan book by 15 percent to R31bn in the 12 months through March from a year earlier, he said.
The agricultural financier has a local-scale assessment of AA from Fitch Ratings, the company’s third-highest investment grade. This compares with a similar grading for FirstRand, the second-largest local banking group by market value. The commercial lender issued floating-rate notes due in September 2020 last month at 100 basis points above Jibar.
The Land Bank “had to pay up slightly for a rating category of national scale AA”, Bronwyn Blood, who helps oversee R18bn at Cape Town-based Cadiz Asset Management, said on Monday. “This is because the AA rating is largely based on the implicit government support level.
“On a stand-alone basis, the Land Bank would not be worthy of a AA credit rating and investors are thus requiring additional compensation for this risk.”
South Africa is the biggest exporter of whole oranges and grapefruit, according to US Department of Agriculture data. It’s the continent’s largest exporter of table grapes and grows the most maize.
Agriculture makes up about 2.2 percent of gross domestic product, official data show.
Yields on the government’s rand-denominated debt due in December 2026 fell 2 basis points to 8.02 percent by 12.15pm in Johannesburg yesterday.
The rand is the worst performer this year among 16 major currencies tracked by Bloomberg with a 15 percent loss against the dollar.
“The progress [the Land Bank has] made in the last few years has been quite positive,” Rashaad Tayob, who helps manage R56bn at Abax Investments in Cape Town, said on Monday.
“If they continue to do that and they do need to issue the longer-term bonds I don’t think it will be an issue. I think there will be demand.” – Bloomberg