South African Land Bank Distress Adds to Pressure on Government

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(Bloomberg) --

The Land and Agricultural Development Bank of South Africa is in talks with lenders after missing a loan payment and triggering an event of default, leaving its government owner liable for about 5.7 billion rand ($302 million) of guaranteed debt.

The state-owned provider of finance to the farming sector is seeking a waiver after failing to pay what it owed under the terms of a revolving credit facility, according to a statement on Monday. Land Bank is suffering from a liquidity shortfall and may need to postpone further financial obligations, the company said.

The news adds to a long list of financial headaches for President Cyril Ramaphosa’s government, which provided the loan guarantee to Land Bank less than two months ago. The National Treasury is under pressure to come up with ways to stimulate an economy set to contract this year, while assisting small businesses and poor communities pushed to breaking point by measures to contain the Covid-19 pandemic.

Meanwhile, other state-owned companies are queuing up for support. South African Airways was denied a further bailout last week and has now started the process of firing its 4,700-strong workforce. In the event the carrier defaults on loans or is liquidated, the government may need to repay at least 16.4 billion rand of debt, according to the most recent budget statement in February.

Moody’s Investors Service cut Land Bank’s debt rating to junk earlier this year, partly over concerns the South African government may not be able to support the business in case of need. The company, which accounts for 28% of the country’s agricultural debt, slumped to a loss of 185 million rand in the six months through September.

©2020 Bloomberg L.P.

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