October 13, 2022

By Lynda Kiernan-Stone, Global AgInvesting Media

First, a little background information. 

It was back in 2020 when Land Bank, a South African state-owned agricultural lending bank, defaulted on payments on two bond programs with a combined value of US$2.62 billion (50 billion rand) at the time.

In 2019, Land Bank carried a gross loan book of approximately 45.2 billion rand, or US$2.48 billion today, reflecting a market share of 29 percent of the country’s agricultural debt, according to Agri SA. 

In February 2021, the South African government decided in favor of economic support for the bank, offering recapitalization of 5 billion rand (US$270 million today) in the 2021/22 financial year, and another 2 billion rand (US$110 million today) in the 2022/23 and 2023/24 financial years. 

However, Land Bank was only one of several state–owned enterprises facing financial challenges, reflecting an overall atmosphere of instability, including a gap in funding access to the country’s farmers.

Jump to today, and RMB, a leading African corporate and investment bank, announced it is launching the Agri Harvest Platform – a first-of-its-kind vehicle to facilitate funding for the agricultural sector to ensure food security for the country. 

“The new platform bridges the funding gap between the farmer and the investor,” said Chris Alderson, co-head, debt & trade solutions, RMB. “We believe that it will be a key enabler for the agricultural sector and with this sector being the bedrock of food security, it is vital for the social-economic fabric of South Africa.”

Wimpie Snyman, senior coverage banker with RMB, added, “We recognized that the agricultural sector in South Africa urgently needed a marketplace which allowed participants to access funding from institutional and other commercial funders.”

Designed to be an independent platform, RMB emphasizes that the Agri Harvest Funding Platform can be used by multiple stakeholders in the country’s ag sector to bring together asset holders and investors.

By doing so, it enables ag businesses to diversify their funding sources at a potentially lower cost compared to having a traditional, single commercial bank funding model, and therefore resulting in a lower farm gate price, ultimately benefiting the end-consumer. 

“The lending is on a ring-fenced basis meaning there is no cross-contamination risk amongst issuers and funders,” explained Snyman. “The platform will lower the high barrier cost to entry for agricultural businesses and banks to secure funding from the capital markets while satisfying the ESG needs.”

The new platform’s first transaction was successfully executed on July 15, 2022, for the funding of the farmer debtor book originated by GWK, an agricultural business and debt originator in the Northern Cape region, in the form of a first draw under the 1.4 billion rand (US$76.8 million) facility, with additional payouts to come.

RMB noted that the capital market auction had support from anchor investors including Stanlib, Ashburton Investments, and RMB.

Alderson concluded, “This paves the way for further mandates to be agreed with asset originators in the agricultural sector who are in need of liquidity and funding while simultaneously accessing the capital markets.”

~ Lynda Kiernan-Stone is editor in chief with GAI Media, and is managing editor and daily contributor for Global AgInvesting’s AgInvesting Weekly News and  Agtech Intel News, as well as HighQuest Group’s Unconventional Ag. She can be reached at lkiernan-stone@globalaginvesting.com.

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