Private equity investor Mediterrania Capital Partners (MCP) is considering investments in supermarkets, health and education as the impact of COVID-19 whittles down the list of financially strong candidates, CEO Albert Alsina tells The Africa Report.
Land Bank of South Africa hopes for permanent CEO appointment in February
A permanent CEO appointment at the Land and Agricultural Development Bank of South Africa, downgraded to junk by Moody’s on 21 January, may be confirmed in February, acting CEO Sydney Soundy told The Africa Report.
The bank has been without a permanent CEO since December 2018. Soundy became acting CEO when Kone Gugushe stood down on 15 January.
The process for the appointment of the CEO is that the board makes a proposal to the finance minister, who can then in turn make a recommendation to the cabinet. The board made such a recommendation in November, which is now under consideration by the minister, Soundy said. While he has received no indication on the timing of the decision, the cabinet is due to meet in February, he noted.
Soundy said he hopes that confirmation of an appointment will come from that cabinet meeting. “Stabilisation of leadership is closer. Once that is done, strategic certainty should return.”
The Moody’s downgrade might lead to an increase in the bank’s cost of funding but it “does not reflect lack of prudent risk management,” Soundy said. The bank’s focus on agriculture means “we don’t have the benefits of a diversified portfolio.”
- The concerns voiced by the bank’s auditors in the last annual report in July on the preparation of complete financial information concerned technical requirements related to collateral, Soundy said.
- They were addressed at the time they were raised and had no material impact on the bank’s performance, he added.
Land Bank is South Africa’s first major state-owned enterprise to be rated below investment grade by Moody’s. The action is “part of the degradation of the South Africa’s credit profile,” said Dirk Steyn, head of multi-asset class at strategy at Mergence Investment Managers in Cape Town. The downgrade will “support the view that the South African government will lose its last investment credit rating later this year.”
North-west Province rains
“A new strong CEO would certainly temper market worries over corporate governance at Land Bank, but the options are limited for who could possibly succeed,” said Indigo Ellis, head of Africa at Verisk Maplecroft in London.
“Some challenges at Land Bank were just too big to overcome,” she added. “Land Bank has little choice but to lend to farmers amid worsening drought conditions. The government is making small-scale efforts to remedy South Africa’s vulnerability to climate change, but they are unlikely to be sufficient.”
Land Bank’s non-performing loans (NPLs) are concentrated in North-west Province, which has seen rains since the middle of December, Soundy said.
- “That’s a positive sign,” which has helped summer crops.
- While it will take time for those who were hit by drought to get out of trouble, “we don’t think drought persistence will have a major impact on NPLs,” he said.
The respite may be short-lived.
- South Africa’s score on Verisk Maplecroft’s Climate Change Vulnerability Index has fallen three times in succession, a pattern that is liable to continue in 2020, Ellis explained.
- Verisk Maplecroft predicts that net revenue from South Africa’s largest agricultural exports by value – fruit and wine – will fall by as much as 90% by 2100 as higher temperatures and increased aridity reduce harvests.
Recent droughts have not been enough to stimulate an increase in the take-up of insurance products by farmers, Soundy said. The stumbling block, he said, is the price of protection, for which he sees no immediate solution. “It’s a difficult one. There’s no cutting corners” on price.
The bottom line: The government needs to act quickly in making a strong appointment at Land Bank to prevent the further loss of confidence in the ratings of state-owned enterprises.