JOHANNESBURG - Creditors of the biggest lender to South African farmers picked Rand Merchant Bank as financial adviser after it missed a loan repayment that triggered a cross default on a 50 billion-rand ($2.7-billion) bond program, according to people familiar with the matter.
The Johannesburg-based investment bank has been tasked with coming up with cash-flow projections for the Land and Agricultural Development Bank, the people said, asking not to be identified as an announcement hasn’t been made. RMB -- a unit of FirstRand Ltd., Africa’s largest lender by market value -- must also deliver a strategic plan for the state-owned company and assess its viability, they said.
The 108-year-old bank, which supplies about 30% of loans in the agricultural industry, last month failed to make repayments on a revolving credit facility, triggering the default event on its bonds. It has since said it’s seeking a one-year deferral of interest and capital payments.
Negotiations are ongoing and an appointment may only be finalized by Friday, a representative for the Pretoria-based lender said by phone, without naming any companies. RMB declined to comment, citing its policy not to disclose advisory appointments until their clients announce them.
The default highlights the parlous state of South African state-owned companies after years of mismanagement, and, in some cases, corruption. South African Airways is bankrupt, arms maker Denel SOC Ltd. couldn’t make pension or tax payments for its employees this month and power utility Eskom Holdings SOC Ltd. isn’t generating enough profit to cover its costs, which include interest payments on 454 billion rand of debt.
Funders have organized themselves into groups, including one under the Association for Savings and Investment South Africa, an industry body for insurers and money managers.
The South African Reserve Bank this week temporarily suspended Land Bank bills as a high-quality liquid asset, which means banks and investment firms cannot use their Land Bank debt as collateral at central bank auctions.
Some investors have expressed a willingness to help Land Bank because of its important role in supporting farmers and ensuring food security. Liberty Holdings Ltd.’s Stanlib Asset Management has joined Futuregrowth Asset Management Ltd. and the state-owned Industrial Development Corp. in offering to be part of talks aimed at finding a solution.