Agri SA notes with concern Moody’s downgrade to the Land Bank and Eskom

27 November 2020

The action by Moody’s Investors Service to lower the Land Bank and Eskom’s respective ratings pose a risk for food security and overall economic recovery. Moody’s is of the opinion that the further downgrade is a result of the on-going delays in implementing Land Bank's restructuring plan and related liability and equity solutions. The latter is a necessary pre-requisite to allow the bank to prevent further defaults. Such delays increase the risk that a liability solution between the Land Bank and government will not be agreed on. This will result in financial losses for lenders.

With Eskom however, action was warranted owing to the combination of the institution’s unsustainable capital structure and continuing financing needs, coupled with a high probability of debt reorganisation. Both actions further reinforce the need for government to speedily and effectively implement measures that will see the challenges at SOE’s being resolved. Taking a cue from Moody’s rationale, the delays in restructuring plans and related liability and equity solutions pose a risk of further creditor losses by as much as 95%.

Agri SA calls on National Treasury to swiftly capacitate the institution to preserve its viability and subsequently protect food security. This entails resolving the banks liquidity issues and ensuring that the bank is set on a sustainable strategic and operational trajectory. The Land Bank is too an important institution to fail and all necessary efforts need to be taken to ensure it remains a going concern.

Equally important is to secure power supply. To this effect, we further call for continued support of Eskom. A sustainable and operationally sound power utility holds tremendous benefits for the agricultural sector and the overall economy.

The effective and timeous implementation of policies and plans to turn around both the Land Bank and Eskom, remains a big concern to rating agencies. For as long as these critical aspects are not addressed properly by the governance and management structures of these institutions in collaboration with government, the credibility challenge will remain. A lack of credibility will inevitably result in further liquidity challenges that South Africa can ill-afford.

Issued by Christo van der Rheede, Agri SA Executive Director, 27 October 2020