Land Bank Outlines Its Capital and Funding Approach
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JIMMY MOYAHA: The Land and Agricultural Development Bank of South Africa, often called the Land Bank, is in discussions with the National Treasury to explore potential additional funding as part of its turnaround strategy and corporate framework. Recent media reports have surfaced suggesting the bank is seeking another bailout.
In a press statement released earlier today, the bank emphasized that this is not a bailout, but rather a component of a comprehensive corporate strategy that has been underway for some time.
We will explore this matter further with the Land Bank’s chief strategy officer, Sydney Soundy, who is with us now. Sydney, it’s a pleasure having you on the show. Thank you for joining us.
The term ‘bailout’ has been commonly used in discussions surrounding state-owned entities and their dealings with the National Treasury. When the Land Bank asserts this is ‘not a bailout,’ what does that signify?
SYDNEY SOUNDY: A bailout suggests being rescued from trouble. In our situation, this represents a proactive approach as part of our ongoing interactions with our shareholder, focusing on evaluating the bank’s financial sustainability.
As you mentioned earlier, this initiative is aimed at preventing us from experiencing distress after our debt default in 2020. We currently have a liability solution in place with our lenders, which we are faithfully adhering to and repaying according to our agreed-upon terms.
This demonstrates our commitment to our lenders.
Over the past two years since this agreement, we have turned a profit.
Our focus remains on long-term financial sustainability while being mindful of our developmental responsibilities in the sector.
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We aim to enhance our balance sheet to enable us to raise funds at a more favorable cost than what is currently outlined in our existing liability solution.
JIMMY MOYAHA: So Sydney, what are the specific figures—
SYDNEY SOUNDY: This is precisely why we emphasize this is not a bailout.
JIMMY MOYAHA: Sydney, how much funding is the Land Bank seeking from the National Treasury, and for what purposes will it be allocated?
SYDNEY SOUNDY: The figures in circulation are incorrect. We would rather not discuss the details of our talks with the National Treasury publicly.
However, if we receive capitalization, the primary focus of these funds will be on development lending.
We are suggesting that discussions should center around support through a guarantee that would allow us to raise funding independently but at significantly lower rates, thus enabling us to refinance a small portion of our original obligations to our current lenders.
JIMMY MOYAHA: Sydney, what would be the financial implications if National Treasury opts not to provide the sought-after funds?
Could that lead to distress discussions? Is there a possibility of defaulting on current lending agreements?
SYDNEY SOUNDY: At this moment, that is not the case. We currently maintain only one lending agreement with all lenders per the liability solution.
We are actively managing our situation to ensure we possess sufficient capital to meet our obligations.
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Additionally, what we principally seek is a guarantee rather than an influx of capital. While a long-term capital injection may be more advantageous from a balance-sheet enhancement and cost-of-funds perspective for the shareholder, it remains a consideration.
JIMMY MOYAHA: Sydney, regarding the possible guarantee from the National Treasury, what is the current state of the Land Bank’s balance sheet, and how extensive would this guarantee need to be?
Will a long-term guarantee be essential? Should it encompass all or only parts of the credit on the balance sheet?
I recognize that some elements of this dialogue may still be sensitive due to ongoing negotiations with the National Treasury, so I appreciate any limits on what you can share.
SYDNEY SOUNDY: The idea is that with a guarantee from our shareholder, we could secure additional funds for the bank, enabling us to expand our operations by acquiring adequate capital.
We would still be obligated to repay that capital, but with a guarantee in place, the associated costs for the bank would be considerably lower.
This would enable us to provide our clients with more affordable options, including blended financing that is particularly beneficial for developing farmers.
JIMMY MOYAHA: Therefore, the Land Bank’s corporate plan, which aims to secure a guarantee from the National Treasury to facilitate increased capital raising, is not considered a bailout but rather part of a comprehensive strategy for business recovery.
We’ll wrap up this segment here and observe how the situation develops. Thank you to Sydney Soundy, the chief strategy officer at the Land Bank, for sharing insights on the ongoing discussions with the National Treasury and addressing the financial requirements.