South Africa is considering bailing out yet another state-owned company, at a time when it needs all the money it can get to revive an economy felled by the coronavirus pandemic.<\/p>\n
The National Treasury said Tuesday it\u2019s mulling more aid for the nation\u2019s largest agricultural lender, the Land and Agricultural Development Bank, in the form of a recapitalization and more guarantees on its debt.<\/p>\n
Last week, the state-owned national airline failed to convince the government it needs extra financial aid, although talks on alternatives for South African Airways continue.<\/p>\n
The Land Bank is seeking waivers from its creditors after missing a loan repayment, triggering a default event that could leave the government liable for R5.7 billion ($300 million) – a guarantee the state provided in February.<\/p>\n
It comes as president Cyril Ramaphosa\u2019s administration prepares a series of measures to support citizens and companies in distress because of a nationwide lockdown to curb the spread of Covid-19.<\/p>\n
\u201cThe demands on National Treasury are enormous and unrelenting,\u201d said Jones Gondo, a credit analyst at Nedbank Group Ltd.<\/p>\n
\u201cThe contingent risks are beginning to crystallize because these entities are unable to withstand this economic shock we are in. The choices have become binary: either bailout or closures.\u201d<\/p>\n
While Finance Minister Tito Mboweni has pledged to curtail financial support for cash-strapped state-owned companies, the Land Bank\u2019s latest woes are a reminder of how difficult that task is.<\/p>\n
Mboweni has long cited his desire to shut companies draining the nation\u2019s coffers, but has run into resistance from factions within the ruling party and its alliance partners in the South African Communist Party and labor unions.<\/p>\n
Mismanagement, Corruption<\/strong><\/p>\n Years of mismanagement and corruption have crippled state companies including power utility Eskom Holdings SOC Ltd, arms manufacturer Denel SOC Ltd and the national broadcaster.<\/p>\n The government has guaranteed about R480 billion of debt issued by state-owned entities and is on the hook for R980 billion of contingent liabilities, according to the Treasury. Those liabilities are equivalent to about 60% of its total revenue.<\/p>\n Assistance to the Land Bank would need to be \u201caccompanied by balance sheet optimization,\u201d while it would also have to \u201ccorrect the structural liquidity risk embedded\u201d in its balance sheet, the Treasury said in an emailed response to questions.<\/p>\n The Land Bank\u2019s failure could cause borrowing costs for farmers to surge and, if not dealt with fast enough, threaten food security, said Omri van Zyl, the executive director for AgriSA, the nation\u2019s largest farmers group. The Land Bank funds more than 30% of the industry.<\/p>\n \u201cFarmers can\u2019t absorb additional costs of raising capital,\u201d Van Zyl said.<\/p>\n The Land Bank in 2017 signed a $300 million 10-year facility that was arranged by Standard Chartered Plc.<\/p>\n The debt was backed by a guarantee from the Multilateral Investment Guarantee Agency, the political risk insurance and credit enhancement arm of the World Bank, the Land Bank said at the time. It has 13.8 billion rand of bonds, according to data compiled by Bloomberg.<\/p>\n \u201cEach case is unique, but what is common is that SOEs have been in financial trouble for far too long – given the government\u2019s slow pace of meaningful reform implementation,\u201d Nedbank\u2019s Gondo said.<\/p>\n
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