Land Bank buys GroCapital lending book for R1,1billion

THE Land Bank yesterday announced the R1,1bn acquisition of the corporate lending book of GroCapital, a wholly owned subsidiary of agricultural services and products group Afgri .

The acquisition brings the bank a step closer to its objective to grow the book to R6bn over the next five years, in line with the Land Bank’s aim to obtain a 35% market share of the total agri-debt market.

Addressing a media briefing in Pretoria yesterday, Mr Lebohang Serithi, chief financial officer of the Land Bank, said Afgri would manage the farmer and corporate debtors’ books on behalf of the Bank, for a fee of 1,25% and 0,5% respectively.

Last year, the Competition Tribunal approved, without conditions, a deal in which Afgri’s GroCapital unit sold its debtors’ book, valued at about R2,4bn, to the Land Bank. It was agreed in that deal that GroCapital would continue to manage, administer and service the book on behalf of the bank.

The transaction would result in the bank owning and funding the existing loans, while GroCapital would continue to perform the administrative functions and maintain the book’ s client relations.

The agreement would also see GroCapital continuing to originate new corporate debt in its own name, but offering this for sale to the Land Bank over at least the next five years as part of the "R6bn over five years deal".

Phakamani Hadebe, the Land Bank CEO, said that with the Land Bank able to source money that was competitively priced, and with Afgri having "advanced agricultural technology and business management", it was not only both companies that would benefit from the deal, "but the country as a whole".

The organisations would be "in the position to influence the cost of doing agricultural business in SA".

Mr Hadebe said that the estimated world population of 9-billion people in 2050 would require an increase by 90% in food production, demanding that food-production organisations adopt innovative business models such as the one the bank had designed.

Chris Venter, the Afgri CEO, said the transaction would improve Afgri’s financial position, with the company’s debt-to-equity ratio improving from 1,85 to 1,73. The sale would also provide "increased access to funding, which Afgri can use to pursue profitable opportunities with the capital which is freed up", while farmers would have a "more sustainable" borrowing opportunity.

Mr Serithi said the agreement also included a "wholesale finance facility" fund of R125m, which would be used specifically for emerging farmers.

Through the facility, loans would be given to emerging farmers "at much lower rates", of about 4%, which would give these farmers a greater chance of success, he said.