• The state-owned Land Bank believes that land reform – even expropriation without compensation – can be good for it and South Africa, if done right.
  • But should the bank not be protected as a creditor, it would either have to come up with R9 billion overnight or default on R41 billion of its own loans  – which the government would then have to settle.
  • To succeed, expropriation must not take productive land out of production, and must be free of corruption, it says.


Land expropriation without compensation could set off a domino effect of defaults that would make it liable to repay its funder R41 billion, the Land Bank said on Monday – "which we would not be able to settle".

If done well, land reform could benefit South Africa and the bank, its chairperson Arthur Moloto said in an annual report released on Monday afternoon.

But the Land Bank has agreements with built-in protection against expropriation, he cautioned, which meant it would have to come up with at least R9 billion to not go bust – immediately.

See also: Only 0.2% of South Africa's farms are bigger than 12,000 hectares – and may qualify for land expropriation

That R9 billion in debt is the portion that carries a "standard market clause" on expropriation, said Moloto in his statement in the annual report.

The clause directly equates any government seizure or expropriation that "wholly or substantially" curtains the Land Bank's ability to do business with an "event of default".

The result: "If Expropriation without Compensation were therefore to materialise without protection of the Bank’s rights as a creditor, we would be required to repay R9 billion immediately."

Under other standard clauses on cross defaults, an inability to pay that R9 billion would immediately make the bank's entire R41 billion funding portfolio "due and payable immediately", said Moloto.

That money the bank "would not be able to settle. Consequently, government intervention would be required to settle our lenders."

At the end of March the bank had R2.4 billion in cash available, and just under R3 billion in investments and receivables.

See also: These 6 types of property will likely be the first expropriated - here's why

The Land Bank now considers land expropriation to be "very likely".

But despite the risks, the Land Bank believes expropriation could be a positive thing, Moloto said.

"The risks and opportunities posed by this option for land reform depends on the manner in which it is implemented. We anticipate an approach that is intended to shield the economy from undesirable negative impacts, and to specifically strengthen agricultural production, employment creation and food security."

A "grim" result would come only through poor execution, involving one or more of six things, Moloto said:

• productive land being taken out of production;
• a failure to protect creditors;
• a lack of effective institutional processes;
• corruption;
• "poor or undefined" methods of selecting beneficiaries; and
• a lack of decent support for beneficiaries.

The bank is particularly concerned about the support, including non-financial support, for recipients of expropriated land, whether or not land seizures come with compensation.

And without adjustments to the “institutional mechanisms to deliver land reform”, “it would be futile to expropriate land without compensation” said Moloto.

Profitable year

The Land Bank reported gross loans worth R45.5 billion at the end of March, with a healthy – and improved – 6.7% non-performing ratio.

Even after taking a hit on crop insurance during the last year, that left it with a R254 million profit for the year.

The South African government is the sole shareholder in the bank.

Much of the Land Bank’s funding comes from the South African bond market, with pension funds heavily invested in its debt. However, it has been trying to broaden its sources of funding especially for development projects.

In the last financial year it signed a €55 million (around R920 million) unguaranteed loan with German state-owned development bank KfW, and secured a long-term $93 million (around R1.4 billion) facility from the World Bank

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