As part of its “R6bn-over-five-years deal”‚ the Land and Agricultural Development Bank of SA (Land Bank) announced the acquisition of the corporate lending book of GroCapital Financial Services‚ a wholly owned subsidiary of agricultural services and products group Afgri.
The sale will result in the Land Bank owning and funding the existing corporate lending book‚ while GroCapital will continue to perform the administration functions and maintain client relations relating to the book‚ the companies said in Pretoria on Wednesday.
Land Bank CEO Phakamani Hadebe said food security would be an increasing challenge in Africa over the next few decades‚ and this required new business models and approaches.
The transaction was “the beginning of a new way of thinking”‚ Hadebe said.
From the deal‚ Afgri’s corporate clients would benefit from greater access to funding‚ while the current standards of service and availability of a broad spectrum of financial services and products would be maintained‚ the companies said.
Both companies would now be able to focus on their core businesses‚ with the Land Bank’s assets expected to grow by 10% as a result.
The transaction was also intended to improve Afgri’s financial position and gearing levels.
Chris Venter‚ CEO of Afgri‚ said: “The rationale of the transaction is that it will further improve Afgri’s financial position‚ with our debt-to-equity ratio improving from 1.85 to 1.73‚ as well as increase access to funding which Afgri can use to pursue profitable opportunities with the capital which is freed up.
“During the course of last year‚ Afgri successfully sold its farmers debtors book to the Land Bank and we are proud that this has allowed us to be more focused on relationships with our clients‚ while the Land Bank’s reach has been enhanced in terms of the financial products on offer‚” Venter said.
In terms of the transaction‚ GroCapital will continue to originate new corporate debt in its own name‚ but will offer the new corporate debt for sale to the Land Bank on an ongoing basis for at least the next five years‚ at which time the parties will review the terms of their service level agreement. The companies estimated the corporate lending debt to be sold to the Land Bank over the next five years would amount to R6bn.
Hadebe said: “This innovative transaction marks the continuance of a long-term relationship between the Land Bank and Afgri‚ and could serve as a future model for agricultural financing through sharing of infrastructure‚ resources and skills to the benefit of our sector.
“Our ability to raise finance in the market‚ and Afgri’s infrastructure‚ business acumen and customer relations‚ position us to service our sector more efficiently.” - I-Net Bridge