The Land Bank has failed to stave off financial ruin after defaulting on debt that was due on Thursday. The default has now triggered cross default on certain other bonds – a clause that puts a borrower in default if they fail to honour their other debt obligations.
“On 23 April 2020, the Land Bank issued a SENS announcement advising noteholders… that the Land Bank anticipated possible further defaults under debts falling due today, and that if such defaults occurred, this would result in an Event of Default under the notes. Those defaults have subsequently occurred,” said the Land Bank in a statement published on on the Stock Exchange News Service (SENS).
While the Bank had previously said it “may have” defaulted on its domestic bond notes issued in 2010 and 2017 totaling about R50 billion, this had not yet triggered cross default. But Thursday’s events have conclusively confirmed the event of default on the 2010 bonds and cross default on the 2017 programme, it said.
The state-owned bank advised its bondholders on Thursday that it was negotiating with creditors on debt that fell due on the day as its current liquidity challenges made it impossible to repay those. The bank had approximately R738 million of debt scheduled to mature before the end of April 2020 that it needed to defer.
Earlier in April, it approached the National Treasury for assistance. On Monday, the public purse controller said it was considering assisting the Land Bank with some form of recapitalisation and further guarantees and has also asked its creditors to not call on debt that Land Bank is at risk of defaulting right now.
However, the subsequent announcement on Friday that the default has happened means that it could not convince its lenders to postpone the repayments and waive the event of default. The bank’s most recent financial statements for the 2019 financial year show that it had R30.2 million of Land Bank issued bonds at the end of March last year.
Analysts have previously warned that if Land Bank’s default is not prevented, it could have adverse implications on the bank’s ability to extend loans to most vulnerable farmers, threatening food security in areas that commercial farmers cannot easily reach.