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At risk of again running out of cash in the next two years, the Land Bank has gone cap in hand to the National Treasury as it looks to raise R50bn.
Commercial lenders are wary of lending the bank money without a sovereign guarantee.
The bank, which underwent debt restructuring after a default in April 2020, will run out of cash by the 2028 financial year because of its dire liquidity position, according to its own projections.
The absence of capital allocation through the medium-term expenditure framework (MTEF) budget process has significantly weakened the bank’s liquidity position and “requires urgent attention from both Land Bank and National Treasury”.
The state-owned lender’s preliminary discussions with potential funders suggest that state guarantees may be necessary, prompting it to seek further engagement with the Treasury to explore viable solutions and secure long-term financial sustainability.
To this end, the bank has submitted a guarantee framework application (GFA) to the Treasury for consideration, stressing that securing a sovereign guarantee remains a key dependency for fundraising, given the status of the bank.
The Land Bank, key to the government’s ambition to drive agricultural transformation, ensure food security and facilitate rural economic growth, will hope to be second-time lucky in its application after the Treasury, which falls under finance minister Enoch Godongwana, rebuffed its previous application.
The bank reveals in its annual performance plan: “The bank’s capital structure and financial analysis by lenders show that the bank still requires further capital injection, and it still poses a limitation to the achievement of the bank’s mandated development and transformation objectives.
“As a result, a resubmission of the MTEF budget, following a submission of the bank’s funding model and business case to the minister of finance and National Treasury ahead of the submission of the bank’s fiscal support request in the FY25 MTEF budget process, has taken place.
“This resubmission provided the rationale for further capital injection while noting the awareness of fiscal constraints and competing priorities, following an unsuccessful application.”
The bank is facing pressure on interest margins, driven primarily by its high cost of funding and a loan portfolio dominated by long-term facilities with fixed interest rates that limit repricing flexibility.
The bank’s new application comes after Godongwana’s adoption of a “tough love” approach to state-owned enterprises (SOEs), demanding they become self-sufficient and stop relying on taxpayer-funded bailouts.
This, however, has not stopped the Treasury from availing government guarantees to key SOEs when they run short of money, particularly Transnet and Eskom.
The Treasury last year approved an additional R48.6bn in guarantees, along with another R46.2bn to mitigate risks from credit downgrades on Transnet’s debt, totalling R94.8bn in new support.
The Land Bank will hope for a similar outcome. The Treasury told Business Day that it was considering the bank’s application but would not say how much in guarantees it was seeking.
“The Treasury cannot disclose the amount as Land Bank’s guarantee application will go through thorough due diligence, which will then be presented to the Fiscal Liability Committee (FLC) for consideration, who will provide a recommendation for the minister to consider,” the department said.
“The Treasury is aware of Land Bank’s financial situation given the numerous interactions with the board and management on this matter.”
The bank is exploring several funding sources for the 2027-2031 financial years, both in foreign and domestic currency. These include a $1bn (about R16.4bn) long-term loan, which is at the concept note stage; an R18bn technical assistance loan; and a $1bn sovereign-backed loan.
“The bank has received expressions of interest from multiple lenders, including opportunities to refinance the high-cost debt with more affordable alternatives,” reads the bank’s annual performance plan. “The application process for credit enhancement instruments has commenced, with due diligence in progress to position the bank for future guarantee-backed funding.
“In parallel, accreditation with climate finance agencies is advancing to unlock broader sources of concessional and sustainable finance, supported by a dedicated team driving this agenda,” it says. “Regular cash flow projections shared with lenders indicate that, without intervention, the bank is projected to face a liquidity shortfall by the end of the 2027 financial year.”
Should the Treasury come through for the bank, it will be the second time in less than five years the department has bailed out the entity, which reports to it.
The Land Bank in September 2024 successfully concluded a landmark debt restructuring with all lenders, ending a four-year, R40bn debt default position. The deal involved exchanging outstanding debt for new, partially amortising notes maturing on March 31 2028, backed by R10bn in government support.
Business Times
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