South Africa’s Land Bank has missed yet another deadline for agreeing on a liability solution, with the stakeholders still unable to find common ground after almost three years of negotiations.
Olga Constantatos, head of credit at Futuregrowth Asset Management, expressed her frustration with the lack of progress and the risks it poses to their clients.
“The delays – which are not of our making – risk shoehorning us into a commercially indefensible solution. This is clearly an unacceptable position for us as fiduciaries and custodians of the nation’s savings,” she said.
The lenders have been waiting for feedback from National Treasury on the detailed term sheet provided in early November, which has the support of a majority of South African lenders. Four months later, they have not received any substantive feedback on terms and clauses from Land Bank’s shareholders, making it impossible to gauge progress.
Time running out
The additional R5 billion equity committed by the minister of finance in the February 2021 budget, and subsequently rolled in the February 2022 budget, must be “spent” by 31 March 2023, otherwise, it falls away. This poses significant risks to all lenders.
The lack of clarity from National Treasury on the conditions of their payment of this equity and the mechanism thereof given the unresolved solution is an urgent matter that needs resolution in the next two weeks.
Despite ongoing discussions, there is no update from the international development finance institutions (DFI) on the proposals put forward to date, warns Constantatos. The new Land Bank CEO has been appointed, but it remains to be seen how this will affect the negotiations.
Different funding approaches needed
Futuregrowth Asset Management said it is committed to negotiating a fair and commercially sensible deal for its clients that will result in a sustainable Land Bank. However, the delays in resolving this issue do not bode well for the more complex solutions that may be needed at other state-owned enterprises (SOEs).
According to their shareholder’s admission, these SOEs cannot be funded through equity alone, which means that a more nimble, commercially-minded, and flexible approach needs to be adopted by various stakeholders.
Land Bank is currently servicing interest on all instruments, and there is no further update on the proposed fifth capital repayment.
The guaranteed funders will be repaid prior to the resolution of the event of default, although the timing and mechanism of this are not yet confirmed. The budget documentation suggests that repayment may be made via exercising the guarantee, but clarification is being sought on this point.
Constantatos concludes that “Delays (including delays by the shareholder of Land Bank in providing timeous responses and decisions, and the absence of any workable alternative proposal by the international DFIs in response to positions they reject outright) pose significant risks to our clients, an iniquitous position. If this is not addressed, it does not bode well for the other, much more complex, solutions that may be needed at certain of our other SOEs.”
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