Agri SA has warned that the action by Moody’s Investors Service to lower the Lank Bank and Eskom’s respective ratings pose a risk to food security and overall economic recovery in South Africa.
It says Moody’s downgrade of the state-owned Land Bank is a result of ongoing delays in the implementation of the financial institution’s restructuring plan and related liability and equity solutions.
The agricultural federation explains that such delays increase the risk that a liability solution between the cash-strapped bank and government will not be agreed on, which will result in financial losses for lenders and also threatens the country’s food supply.
“Taking a cue from the rating agency’s rationale, the delays in restructuring plans and related liability and equity solutions pose a risk of further credit losses by as much as 95%.”
Agri SA has called on the National Treasury to swiftly “capacitate” the Lank Bank 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 important an institution to fail and all necessary efforts need to be taken to ensure it remains a going concern.”
With regard to embattled state-owned power utility Eskom, Agri SA believes the action by Moody’s was warranted, owing to the combination of Eskom’s unsustainable capital structure and continuing financial needs, coupled with a high probability of debt reorganisation.
“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 organisation, whose members include provincial affiliates, commodity organisations and corporate members, highlighted that the effective and timeous implementation of policies and plans to turn around both the Land Bank and Eskom, in particular, remains a big concern for 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.”
“Both actions further reinforce the need for government to speedily and effectively implement measures that will see the challenges at state-owned entities being resolved.