Credit information Liabilities and Forecasts IN RESPECT OF THE - - PowerPoint PPT Presentation

SLIDE 1

Preliminary unaudited credit information 1

Credit information – Liabilities and Forecasts

IN RESPECT OF THE LIABILITY SOLUTION OF THE LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA

22 September 2020

Disclaimer: The March YE 2020 and June Q1 2020 results in this presentation are preliminary and unaudited. Any forward looking statement included in this presentation has not been reviewed or reported on by Land Bank’s external auditors.

SLIDE 2

Preliminary unaudited credit information 2 Purpose

▪ The purpose of this Financial Information document is to provide the market with additional information on the key credit drivers of the Land Bank ▪ Please refer to the links below for: ‒ The latest Integrated Group Report for the year ending 31 March 2019; and ‒ Unaudited half year results as at 30 September 2019 https://landbank.co.za/Shared%20Documents/Annual-Report-2018-2019.pdf https://landbank.co.za/Investor%20Presentations/Land%20bank%20Fixed%20Income%20Investor%20Roadshow%20September%20 2019.pdf

Liability Solution

▪ The information reflects the Land Bank’s detailed liabilities as at 31 March 2020; ▪ The Land Bank announced an Event of Default on 24 April 2020 and the majority of liabilities as at 31 March 2020 are now in default (mostly through the cross-default provisions); ▪ To cure the Event of Default, the Land Bank seeks lenders’ assistance especially within the “involuntary process” as detailed in the summary of the Liability Solution included herein; ▪ The indicative start date for the implementation of the Liability Solution is mid November 2020 and will include a 5% capital reduction which will be paid to all lenders with the Liability Solution

Executive Summary

SLIDE 3

Preliminary unaudited credit information 3

Outline

• 1. Overview
• 2. Debt profile as at 31 March 2020
• 3. Distributions and Collections / Cash flow forecast
• 4. Summary of the Liability Solution

SLIDE 4

Preliminary unaudited credit information 4

Debt profile as at 31 Mar 2020

2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000 <12 months 1-3 years 3-5 years >5 years ZAR ‘m

Summarised debt maturity profile

• The Majority of the 12 month maturities

consist of: ‒ Promissory notes ‒ Bills ‒ Deposits ‒ Bank overdraft facilities

Break down of total funding by source (including capital and accrued interest)

Source

R ‘m South African capital market note issuances 16 248 Step rate notes 1 014 Promissory notes 11 261 Other commercial funding 5 919 Term loans – amortising 3 636 Adjustment (7) Term loans – bullet 1 002 Development and multilateral funding 1 925 Drought relief amortising loan 287 41 284 Note: The amortising debt in the profile above is included as a bullet on maturity. This skews the >5 years graph as most of the profile will roll off within the initial 5 year period. Further information included on: Slide 5 Slide 6

SLIDE 5

Preliminary unaudited credit information 5

Debt profile as at 31 Mar 2020

*100% government guaranteed unlisted bonds South African capital market note issuances R’m Floating rate notes Maturity date 12 823

• LBK15

12 October 2021 1 404

• LBK18

22 March 2022 734

• LBK22

04 September 2020 572

• LBK23

05 September 2022 615

• LBK26

23 March 2021 245

• LBK27

23 March 2023 2 024

• LBK30

20 September 2021 307

• LBK31

20 September 2023 922

• LBK32

08 November 2023 506

• LBK33

07 December 2025 754

• LBK35

26 March 2024 1 001

• LBK36

25 June 2020 200

• LBK37

25 June 2024 801

• LBK38

16 February 2023 518

• LBK39U*

23 March 2025 982

• LBK40U*

23 March 2023 421

• LBK41U

16 March 2021 818 Fixed rate notes 3 425

• LBK20

08 June 2022 820

• LBK24

10 October 2024 844

• LBK28

15 May 2028 962

• LBK29

07 June 2023 798 Step rate notes 24 May 2022 1 014 Promissory notes Various 11 261 Other commercial funding Various 5 919 Term loans – amortising: 10 year syndicated loan (MIGA supported) 20 March 2027 3 632 Term loans - bullet term: 3 year syndicated loans 12 March 2022 1 002

SLIDE 6

Preliminary unaudited credit information 6

Debt profile as at 31 Mar 2020

Development and multilateral funding

• R1bn loan facility from the African Development Bank - purpose is to on-lend to commercial and development clients who meet qualifying usage
• criteria. To date R743m has been utilised with a further R257m available for qualifying projects.
• US$93m (limited to R1.3bn) funding line with the World Bank - earmarked to give financial aid to participating financial intermediaries and direct
• beneficiaries. As at 31 March 2020 R390m had been drawn (capital only, R395m below included accrued interest).
• R899m funding line with KfW Development Bank. This facility is earmarked to finance small-sized and medium-sized agricultural enterprises. The

facility is fully drawn.

• EUR50m funding line from the European Investment Bank. The facility is project based and will be drawn as and when qualifying projects are financed.

As of 31 March 2020, there had been no draw down under this facility. The facility aims to promote "Climate Adaption" within the agricultural sector. Disaster relief The Land Bank has a R400m facility with the Industrial Development Corporation for the sole purpose of providing concessionary loans to drought affected customers and is applicable to declared disaster areas as per the Government Gazette. Loans under this arrangement would only be extended where there is a viable business case with repayment ability, as well as sufficient collateral to cover the potential losses to the Bank. At 31 March 2020, R317m had been utilised with a further R83m available for qualifying projects. R ‘m 2020 Term loans - amortising Maturity date 1 925 10 year term loan - KFW 30 March 2028 840 15 year term loan – AfDB* 01 August 2027 690 25 year term loan - World Bank* 01 April 2043 395 Total development and multilateral funding 1 925 Drought relief Maturity date 10 year amortising term loan - IDC 31 March 2027 287 *100% government guaranteed DFI funding

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Preliminary unaudited credit information 7

Incurrence covenants

Incurrence covenants (Banking level): I. Net Debt to Equity as a % to remain below 400% (the “Net Debt Incurrence Covenant”)

• This covenant is applicable for all funding transactions over R100m other than for refinancing transactions

II. Short-term Debt to total debt as a % to remain below 25% (the “Short-term debt Incurrence Covenant”)

• This covenant needs to be complied with regardless of whether the funding transaction is for refinancing purposes or not i.e. the Land

Bank cannot incur short term debt in a refinancing if it does not meet this covenant. The Land Bank may not incur borrowings if after taking into account such borrowings it will breach these incurrence covenants. The Land Bank is working on amending the covenants that exist in certain borrowing agreements. Existing financial covenants are being replaced with incurrence covenants and these incurrence covenants have been included in the new R38bn bond programme (“DMTN”). The incurrence covenants are aimed at correcting the gearing levels and short term debt levels by restricting additional gearing and restricting short term debt.

• Incurrence Covenants are tested prior to borrowing

being incurred and therefore are more effective than backward looking financial covenants.

• Covenants are tested at a banking level and equity

included is only actual capital and reserves.

• The table on the left indicates that the Land Bank will

be unable to incur further debt (other than refinancing existing debt) until either or both equity and reserves increases or net debt reduces significantly to below the 400% level.

Net Debt to Equity (Banking level) Jun-20 Pro-forma Jun-20 Current Post Equity Injection & 5% liability reduction Cash 1 973 1 973 Liabilities 41 501 38 678 Net Debt 39 528 36 705 Capital and reserves 3 074 6 074 Net Debt to Equity 1 286% 604%

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Preliminary unaudited credit information 8

Incurrence covenants

• When the Short-term debt Incurrence Covenant of 25% is reached this

would have the effect of significantly improving the Net Stable Funding Ratio (to c.130%).

• The Short-term debt incurrence covenant is expected to peak at 49% in

the medium term: ‒ Oct-21 is an indicative peak period reflecting 13 month short-term debt to Nov-22 which includes the maturities of the new LBG01, LBG02, LBG50 (Old LBK20) bonds and other capital amortisations ‒ When this ratio is in excess of 25%, the Land Bank would not be able to refinance any maturing debt with new short term debt. This ratio improves after the new LBG01 bond is repaid

Illustrative example of the short- term debt to total debt calculated in Oct 2021 Assumed that liability solution is implemented Short-term debt to November 2022 19 453 Total Debt 39 426 Short term debt to total debt 49% 0% 10% 20% 30% 40% 50% 60% Nov 20 Dec 20 Jan 21 Feb 21 Mar 21 Apr 21 May 21 Jun 21 Jul 21 Aug 21 Sep 21 Oct 21 Nov 21 Dec 21 Jan 22

25%

SLIDE 9

Preliminary unaudited credit information 9

Outline

• 1. Overview
• 2. Debt profile as at 31 March 2020
• 3. Distributions and Collections / Cash flow forecast
• 4. Summary of the Liability Solution

SLIDE 10

Preliminary unaudited credit information 10

Cash Flow Forecast

The Land Bank 13-month forecast model from 1st of September 2020 (assuming 100% take up of Liability Solution)

Month R’m Sep 20 Oct 20 Nov 20 Dec 20 Jan 21 Feb 21 Mar 21 Apr 21 May 21 Jun 21 Jul 21 Aug 21 Sep 21 Oct 21 Total Opening cash flow 2 322 2 793 2 758 3 174 3 274 3 322 3 607 4 832 5 128 5 630 5 877 6 998 8 655 9 905 2 322 Cash inflow - customers @80% 1 713 1 575 1 337 1 282 1 408 1 151 1 121 1 012 1 536 1 474 1 508 1 506 1 489 1 437 19 549 Sale of Non-core Investments 264

• 264

Opex (133) (140) (141) (144) (139) (136) (135) (84) (84) (83) (82) (81) (80) (79) (1 543) Interest Payments (989) (373) (120) (429) (85) (151) (629) (126) (183) (407) (51) (114) (514) (88) (4 259) Redemption of new DMTN note LBG01

• (8 000)

(8 000) Refinancing of Maturing LBG01 DMTN note

• 600

600

• 1 200

Asset Solution

• 1 500
• 500

500 500

• 3 000

Disbursements and other cash outflows (1 213) (1 096) (660) (608) (1 136) (579) (631) (506) (768) (737) (754) (753) (744) (719) (10 906) Cash injection – NT 2 926

• 2 926

Funds for capital reduction and DFI amort (2 097) (2 097) Closing Bank Balance 2 793 2 758 3 174 3 274 3 322 3 607 4 832 5 128 5 630 5 877 6 998 8 655 9 905 2 457 2 457 Key assumptions are included in the next slides

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Preliminary unaudited credit information 11

Cash Flow Forecast

The 13-month forecast model is aimed at illustrating the financial impact of integrating an immediate stabilization process, the Liability Solution, the Equity Solution and the Repurposing plan. This model has been key in informing the Land Bank’s ability to: 1) Service interest as and when it becomes due, hence the decision to reinstate the payment of interest from the 11th of August 2020; 2) Paying KFW and MIGA lenders their September capital amortisations and 3) Providing for a 5% Liability Reduction (R1,8bn) to for all other lenders. The following are the key assumptions: Collections and disbursements: 1. Disbursements are closely linked to the ability to collect. The general principle is to disburse from collections with excess collections being reserved for operating expenses and the reduction of debt. 2. Customer collections were forecast at 80% of budget due to the expected COVID-19 impact. 3. Disbursements have been restricted to 50% of collections received. The following processes are being followed: a. Increased pricing of loans to customers to match credit risk and increased funding costs; b. This will result in commercial clients seeking alternative funding methods and a gradually reduction in the commercial book i. A key enablement tool is the release of exclusivity for the SLA clients; ii. The proceeds from the reduction would go towards reducing future debt maturities; c. Maintain the developmental book with the aim of eventually growing the proportion of the developmental book in line with the Land Bank’s mandate; 4. Actual disbursements over the past 4-months have been at c43% of collections.

Summary of key assumptions used in cash flow forecasts

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Preliminary unaudited credit information 12

Cash Flow Forecast

Liability Solution: Assumes full take up of the private and public offer processes which are premised on: a. Curing of the events of default and cross defaults of the Land Bank; b. In so far as practically possible, no capital payments in the next 12-months; c. Expected that refinance of near term maturing debt will be restricted based on Land Bank stand alone credit rating although some capacity for future issuance of partial government guaranteed notes under the DMTN programme. The short term incurrence covenant will require refinancing to have a maturity greater than 13 months i.e. the money market and other short term funding mandates will not be available for the Land Bank to access. Asset Solution: Most of the asset solution is being carried out by a reduction in disbursements as well as some early repayments or prepayments are expected. Non-core equity investments are being realised where possible. Limited sales of loans will take place and only if required to meet upcoming note maturities. Equity Solution: 1. The R3bn equity injection expected in September 2020 from the shareholder has two main benefits: 1) it neutralises the increase in ECL provisions and impairments taken to equity at 31 March 2020 and 2) provides much needed cash flow to reduce debt under the Liability Reduction; 2. Further equity injections will be sought to increase the level of capital in the Land Bank which is needed to align to the increase in the proportion

• f developmental financing in the loan book;

3. The Corporate Plan was submitted to the Minister of Finance / National Treasury on Tuesday, 8 September. It remains a draft until accepted by the Minister and is tabled in Parliament.

SLIDE 13

Preliminary unaudited credit information 13

SLA Collections v/s disbursements (3 year trend)

Loan Book Trend & Forecast

Notes:

• The gross loan book started declining at the end FY19 to mitigate pressure placed on the liability profile.
• Lower forecast disbursements would result in a decline in the gross loan book.

The Land Bank Gross Loan Book trend and forecast

45.5 45.3 41.2 39.5 39.0 41.0 43.0 45.0 47.0 Apr May June July Aug Sep Oct Nov Dec Jan Feb Mar

R ‘bn

FY 2018 FY 2019 FY 2020 FY 2021 Forecast FY 21

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Preliminary unaudited credit information 14

SLA Collections v/s disbursements (3 year trend)

Projections

Collections v/s disbursements (3 year trend)

Notes:

• 20% haircut applied to collection forecasts in line with observed trends.
• Disbursements lower than historic trends at current 50% of collections due to liquidity constraints.

The Land Bank 3-year collections and disbursements comparison

• 1,000

2,000 3,000 4,000 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 Jan-21 Feb-21 Mar-21

R ‘m

Disbursements Collections

SLIDE 15

Preliminary unaudited credit information 15

Outline

• 1. Overview
• 2. Debt profile as at 31 March 2020
• 3. Distributions and Collections / Cash flow forecast
• 4. Summary of the Liability Solution

SLIDE 16

Preliminary unaudited credit information 16

Summary of the Liability Solution

Involuntary:

• The Land Bank has been engaging bilaterally with all impacted lenders to ensure that the proposed Liability Solution can be and will be accepted.
• Applies to Lenders with instruments:
• Where capital has already matured since April 2020
• Where capital will mature before [15 November 2021] (either as capital bullets or amortisations)
• All bonds issued off the 2010 Domestic Medium Term Note Programme (“DMTN”)
• Any loan or instrument that is in default other than due to non-payment of capital and will not cure through a cure of the cross default

provision

• The Involuntary Process includes around 60% of the total debt outstanding of the Land Bank
• At a high level, the process entails:

‒ An exchange and extension of maturity ‒ The specific amendment to agreements that are not part of the exchange (e.g. DFI loan agreements) Voluntary Process:

• Applies to bonds issued off the 2017 DMTN programme with maturities beyond [15 November 2021] and instruments that would automatically

come out of event of default. This Voluntary Process can take place at the same time as the Involuntary Process as the new programme will have an automatic curing provision. In summary, the Liability Solution entails an exchange process with the majority of the Land Bank’s financial

• creditors. Existing instruments are exchanged for new partially guaranteed listed corporate bonds.

The process has been divided into a private offer (or compulsory/involuntary process) and a public offer (or voluntary) process – the distinction is based on the manner in which the existing default is cured. The private offer process must be taken up by 100% of the impacted creditors (or as much as is required to fall below the cross default thresholds).

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Preliminary unaudited credit information 17

Summary of the Liability Solution

• Issued off a newly established R38bn DMTN Programme;
• To receive a partial first demand Government guarantee in respect of capital and interest - subject to approval by National Treasury;
• Expected to have a note rating from a recognized credit rating agency; and
• Uniform pricing agreed across all instruments taking into account the credit rating of the new instruments.

Tender Offer Process:

Lender accepts Land Bank Tender Offer Lenders 1 Land Bank settles accrued interest and 5% of capital on old instrument 2 Lender tenders old instrument back which is cancelled 3 New notes or bonds issued to Lender 4 The Liability Solution is based on an exchange process in terms of which existing funders of the Land Bank will tender their existing instruments to the Land Bank in exchange for a new instrument. The pertinent terms of the new instruments are as follows: 1. Land Bank and Lender agree to a tender offer or buy back on a future trade date 2. At that future trade date Land Bank buys the current instrument for the value of accrued interest, 5% of the capital and a new bond (off the new DMTN programme). The new bond will have a face value of 95% of the existing note 3. The new bond is issued free of any cash settlement and referred to as “Free of Value”

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Preliminary unaudited credit information 18

Summary of the Liability Solution

Salient features of debt post liability solution (which includes the 5% liability reduction):

Fixed and floating rate notes (Code “LBG” – “Land Bank Guaranteed”):

• Fixed and floating rate notes will be issued off the New DMTN programme and will thus be JSE Listed and Tradeable;
• Current fixed rate note holders can elect to move into floating rate instruments or enter into new credit enhanced fixed rate notes;

Amortising DFI debt:

• In as far as reasonably possible, DFI amortising debt will be treated in line with the majority of lenders. The capital amortisation profile included

above is under discussion with these lenders; *Other, inter alia:

• Includes existing 100% government guaranteed debt

Note: Diagram above assumes 100% take up of the voluntary and involuntary processes

• 2,000

4,000 6,000 8,000 10,000 12,000 14,000 FY2022 FY2023 FY2024 FY2025 FY2026 FY2027 FY2028 FY2029 FY2044 FY2046

R 'm

Post Liability Solution maturity profile

Amortising DFI debt Fixed rate notes Floating rate notes Other*

SLIDE 19

Preliminary unaudited credit information 19

Summary of the Liability Solution

New bond codes for floating rate notes and indicative bond sizes for private (involuntary) and public (voluntary) processes:

New Domestic Medium Term Note Programme for R38bn (JSE Listed and Tradeable) Bond Code LBG01 LBG02 LBG03 LBG04 LBG05 LBG06 LBG07 LBG08 LBG09 LBG10 Issue date c.15 November 2020 Maturity date 15 Dec 21 31 May 22 30 Nov 22 31 May 23 30 Nov 23 31 May 24 30 Nov 24 31 May 25 31 May 26 31 May 28 Term <13 months <19 months <24 months <30 months <36 months <42 months <48 months <54 months <66 months <89 months Bonds in the Private / Public Offer process (Current Maturity Date)

• LBK36 -

Jun 20

• LBK22 -

Sep 20

• LBK41U -

Mar 21

• LBK15 –

Oct 21 (2010 DMTN)

• LBK26 -

Mar 21

• LBK30 –

Sep 21

• LBK38 –

Feb 23

• LBK18 –

Mar 22

• LBK20 –

Jun 22

• LBK23 –

Sep 22

• LBK29 –

Jun 23

• LBK31 –

Sep 23

• LBK32 –

Nov 23

• LBK27 –

Mar 23

• LBK35 –

Mar 24

• LBK37 –

Jun 24

• LBK24 –

Oct 24

• LBK33 –

Dec 25

• LBK28 –

May 28 Other instruments converting to floating rate Bonds in the Private Offer process

• Money

Market

• Call Bonds
• Short term

(ST) PN’s

• Local DFI
• RCF
• ST PN’s

termed

• ut
• Medium

Term PN’s

• Local DFI
• 50% of

Overdrafts

• ST PN’s

termed

• ut
• Medium

Term PN’s

• Local DFI
• 50% of

Overdrafts

• ST PN’s

termed

• ut
• Medium

Term PN’s

• Local DFI
• Local DFI
• Term loan
• Indicative total

bond size ∆ (Post 5% reduction) R8.0bn R4.0bn R4.1bn R2.8bn R2.7bn R1.4bn R1.9bn R950m R1.5bn

• Pricing guidance

(payable quarterly) 3 month Jibar + [1.85%]* 3 month Jibar + [2.00%]* 3 month Jibar + [2.25%]* 3 month Jibar + [2.5%]* 3 month Jibar + [2.6%]* 3 month Jibar + [2.7%]* 3 month Jibar + [2.75%]* 3 month Jibar + [2.85%]* 3 month Jibar + [3.25%]* 3 month Jibar + [3.5%]* Guarantee [60%] government guarantee ∆ The bond size amount excludes existing fixed rate bonds; step rate notes and international DFI’s

SLIDE 20

Preliminary unaudited credit information 20 Land Bank Presentation 20

Disclaimer

No independent verification of the statements and information set out in this presentation has been made. The March YE 2020 and June Q1 2020 results in this presentation are preliminary and unaudited. Nothing in this presentation should be construed as legal, financial, accounting, tax or other advice and relevant persons should determine for themselves the relevance of the information contained in this presentation. By participating in this presentation or by accepting any copy of the slides presented, you agree to be bound by the foregoing limitations. Certain information set forth in this presentation contains “forward-looking statements”. Forward-looking statements are provided to allow potential investors the opportunity to understand management’s beliefs and opinions in respect of the future so that they may use such beliefs and opinions as one factor in evaluating a transaction. Any forward looking statement included in this presentation has not been reviewed or reported on by Land Bank’s external Auditors.

420 Witch-Hazel Avenue Eco Glades, Block D, Eco Park Centurion Pretoria

www.landbank.co.za