The Daily Item, Sunbury, PA


October 12, 2013

S. African farmers get market all-clear on longer debt

JOHANNESBURG — Land & Agricultural Bank, the state- owned South African lenders to farmers, is weighing longer-dated bonds, a sign it sees investor confidence returning after it rebuilt earnings hurt by mismanagement.

"A lot of our clients are requesting longer-term facilities," Chief Financial Officer Lebogang Serithi said in a telephone interview Monday. "That's why we're looking at issuing longer-term debt."

The lender has received cash injections from the government since 2008, when current Chief Executive Officer Phakamani Hadebe took over, and raised its share of agriculture-related loans to 30 percent in the 12 months ended in March 31 from 28 percent previous period. That allowed the bank to overtake Barclays Plc's Absa unit as the biggest provider. It plans to lengthen the average maturity of its debt by two months to 10 months over the next five years, Serithi said.

Land Bank, as the institution is known, sold 1 billion rand ($100 million) of floating-rate notes maturing in three years at a yield of 125 basis points above the three-month Johannesburg interbank agreed rate of 5.133 percent on Oct. 1. The Tunis- based African Development Bank's five-year dollar floating-rate bonds due in August 2014 pay 33 basis points over the London interbank offered rate.

"They've done quite a bit of work in turning the business around," Richard Klotnick, a fixed-income money manager at Momentum Asset Management, which bought some of the Land Bank bonds, said by phone Monday. "At the same time what has provided comfort to investors is that government has provided support in the past."

The National Treasury in 2008 seconded Hadebe, one of its top officials, to restructure the company by replacing executives and cutting costs.

The Land Bank initially offered 750 million rand of bonds on Sept. 26 and increased the size after bids exceeded the amount for sale by 2.4 times, according to an e-mailed statement from the lender on Oct. 1.

The proceeds will help repay 1.2 billion rand of floating- rate notes due Oct. 25, match the bank's assets and liabilities' maturity profile and expand the loan book, Serithi said. Clients are increasingly demanding longer-term loans and the bank is trying to ensure that it matches capital, he said.

The South African government backed the bank with a 3.5 billion-rand guarantee, of which 500 million rand is untapped, Serithi said. The lender plans to grow its loan book by 15 percent to 31 billion rand in the 12 months through March from a year earlier, he said.

The agricultural financier has a local-scale assessment of AA from Fitch Ratings, or the company's third-highest investment grade. This compares with a similar grading for FirstRand Ltd., South Africa's second-largest bank by market value. The commercial lender issued floating-rate notes due September 2020 last month at 100 basis points above Jibar.

"They had to pay up slightly for a rating category of national scale AA," Bronwyn Blood, who helps oversee the equivalent of $1.8 billion at Cape Town-based Cadiz Asset Management, said by phone Monday. "This is because the AA rating is largely based on the implicit government support level. On a stand-alone basis, the Land Bank would not be worthy of a AA credit rating and investors are thus requiring additional compensation for this risk."

South Africa is the world's biggest exporter of whole oranges and grapefruit, according to U.S. Department of Agriculture data compiled by Bloomberg. It's the continent's largest exporter of table grapes and grows the most corn. Agriculture makes up about 2.2 percent of the nation's gross domestic product, government data show.

The rand is the worst performer this year among 16 major currencies tracked by Bloomberg with a 15 percent loss against the dollar.

"The progress they've made in the last few years has been quite positive," Rashaad Tayob, who helps manage the equivalent of $5.6 billion at Abax Investments Ltd. in Cape Town, said by phone yesterday. "If they continue to do that and they do need to issue the longer-term bonds I don't think it will be an issue. I think there will be demand."

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