Land Bank potential event of default

The Land and Agricultural Development Bank of South Africa (Land Bank) issued a Stock Exchange News Service (SENS) announcement on 20 April 2020 informing noteholders that a potential event of default occurred on its listed bonds.

The potential event of default was potentially triggered under a Cross Default clause as a result of the Land Bank failing to make a payment due to a lender under the terms of a revolving credit facility (the Affected RCF). The non-payment of this amount constitutes an event of default under the Affected RCF. In the event that the amount involved constitutes Material Indebtedness as defined under the terms and conditions of the notes, the cross default clause would have been triggered.

A further SENS announcement was issued on 23 April 2020 indicating that the amount which was not paid under the Affected RCF fell below the cross default threshold on the notes and as a result, no event of default has occurred on notes.

The SENS announcement did however state that the Land Bank anticipates further defaults to occur under debts which fall due today which will result in the cross default threshold being breached.

The Land Bank is currently in engagements with the relevant lenders of the Affected RCF, along with the lenders of the debts which are falling due today to either obtain waivers to the events of default or to secure a deferment of the payments which are falling due today.

The Land Bank provided additional information on the current liquidity shortfall, indicating that debt of R738 million falls due between today and 30 April 2020. The liquidity shortfall may result in a potential event of default in terms of the notes in the event that the Land Bank is unable to meet any obligation due to a noteholder, or to another funder which triggers a cross default under the notes, on due date unless such payment has been deferred by such note holder or funder, as the case may be.

In order to address the short-term liquidity constraints, the Land Bank is in the process of approaching its funders to possibly raise up to R5 billion to meet the Land Bank’s medium term liquidity requirements. The Land Bank currently has access to a R5.7 billion government guarantee of which approximately R4.3 billion remains available to support the Land Bank’s capital raising initiatives.

While the further funding is being pursued, the Land Bank will be approaching its funders to agree to a deferral of the payment of interest and capital repayments for a period to be agreed. The Land Bank has also requested its funders to arrange themselves into co-ordinating groups and committees to facilitate effective communication during this period.

As the Credit Team, we are participating in the discussions with the Land Bank to obtain more information on the situation.