R3bn for Land Bank as equity investment
Mboweni said in his Supplementary Budget Speech that no other spending adjustments were on the table for state-owned companies.
He said in the 2020 Supplementary Budget Review that the bank sought an emergency R3bn liquidity bridge facility, while its restructuring plans were being finalised.
Mboweni said that the restructuring plan would form possible further funding requirements. He said that the Land Bank held 29 percent of South Africa’s agricultural debt.
“The National Treasury is supporting the Land Bank to find a solution to its default and craft a long-term restructuring plan,” said Mboweni.
Moody’s downgraded the Land Bank’s credit rating in January, citing its deteriorating financial position, a constrained agricultural sector and fiscal constraints that may reduce financial support.
The downgrade led to a significant liquidity shortfall as numerous investors did not refinance debt.
Despite government guarantees of R5.7bn, the Land Bank could not raise adequate funding and defaulted on its debt obligations on April 1.
Mboweni said that the Treasury would support the bank and its corporate finance advisers, as it engages lenders to negotiate solutions to its default position and craft a long-term restructuring plan to ensure sustainability.
The bank’s main source of revenue - net interest income - had declined over several years, because lending rates had not increased alongside rising funding costs.
The cost of funding increased as the Land Bank tried to reduce liquidity risk caused by the mismatch in its long-dated assets and short-term liabilities, at the same time, impairment charges increased, primarily due to persistent drought, and further losses.
The Treasury’s director-general Dondo Mogajane, said that the government could not let the bank collapse.
“The Cabinet has decided to support the Land Bank, recognising the role that it plays in food security,” Mogajane said.
He said the Treasury’s financial performance of state-owned companies, which had placed considerable pressure on the public finances for several years was likely to deteriorate in 2020/21.
Mogajane said the pandemic and associated economic restrictions were expected to reduce revenues for entities including Airports Company South Africa (Acsa), Eskom and the South African National Roads Agency Limited.
He said that the Covid-19 pandemic underlined the urgent need for broad-based reforms at state-owned companies so that they can become efficient and financially sustainable.
“These reforms include rationalisation, reducing the number of SOEs, merging some state-owned companies, incorporating certain functions into the government, equity partnerships, and stronger policy certainty and implementation,” said Mogajane.