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Monday May 2, 2011
Corporate Portrait by Tee Lin Say
Padiberas Nasional Bhd (Bernas) recently made headlines when it received a letter from the public-private partnership unit under the Prime Minister's Department on the extension of the Bernas Agreement.
This gives Bernas a monopoly over the country's rice imports for a period of ten years. The extension commenced from Jan 11, 2011 to Jan 10, 2021, subject to terms and conditions.
The Government has also agreed to grant Bernas an interim period of six months from Jan 11 to July 10, 2011 to enable both parties to finalise the terms and conditions of the new agreement. On the global front, climate change, global warming, higher world oil prices and a growing global population are factors that are impacting food sources and prices.
The average price of rice in 2010 was US$489 per metric tonne (MT), which was less than the US$555 of 2009.
Along with higher oil prices, rice prices have also been climbing since the third quarter of 2010, and analysts are expecting average rice prices to increase in 2011. Rice imports are likely to pick up in view of weaker harvests following flooding in key rice-producing regions. The Indonesian government has taken note of the global food situation, and recently purchased 800 tonnes of rice as stockpile.
The Malaysian government too has mentioned that it is closely monitoring the nation's food stockpile to ensure adequate sources in light of a looming global food crisis.
Matters related to food security and ways to overcome any shortage had been brought up for discussion at several Cabinet meetings. The Malaysian policy on rice supply is that 70% is grown locally, while the remaining 30% is imported. In 2010, the majority of Malaysia's imported rice was sourced from Vietnam and Thailand. There is in place a floating stockpile that is managed by Bernas and several large rice suppliers in the country.
Many are perhaps familiar with local rice custodian Bernas, which is involved in the importation of rice, the trading of local and imported rice, rice milling, and the retailing of rice and other household necessities. Bernas was incorporated on 14 April 1994 by the Malaysian Government as part of its efforts to corporatise the National Paddy and Rice Board. Its activities are basically the commercial and social roles it took over from the rice board and the Malaysian Government. It was subsequently privatised on 12 January 1996 and listed on the Main Board of the Kuala Lumpur Stock Exchange on 25 August 1997.
The 10 most popular brands of rice distributed by the company are a mix of local and imported rice: Jati, Jasmine, Faiza Mas, Cap Rambutan, Sunwhite, Bird of Paradise, Sakura, Royal Umbrella, Taj-mahal, and Moghul. The group also has investments in non-rice businesses such as flour and bread via stakes in associate companies.
According to RAM Ratings, demand for rice is expected to increase, supported by growth in the domestic population. The consumption of rice in Malaysia is estimated to be 2.6 million metric tonnes (MT) in 2010. The company's major shareholder is Tradewinds (M) Bhd. On 3 November 2009, Tradewinds (M) completed the acquisition of a 31.52% stake in Bernas from Wang Tak Company Limited. It completed the purchase of another 22.24% stake from Gandingan Bersepadu Sdn Bhd on 20 January 2010.
For its year ended Dec 31, 2010, Bernas recorded a 1.97% decrease in revenue to Rm1.97bil, but net profit increased 4.61% to RM177mil. Meanwhile, Bernas' debt load stood at RM924.86mil as at its year ended December 31, 2010, compared with RM773.36mil as of end December 2009. The increased in borrowings was mainly for the group to fund its working capital, especially for its rice imports.
Despite the higher debt, the group's gearing ratio was manageable at 0.81 times as at end Dec 2010. Going forward, RAM Ratings anticipates Bernas' gearing ratio to remain around 0.80 times with funds from operations debt cover ratios of around 0.2 times in the next few years.
“While this is somewhat on the lower end of the scale vis-vis its similarly rated peers, this is supported by Bernas' strategic profile and the nature of business,” said RAM. It added that there were moderating factors for Bernas, for instance, its loss-making milling and retail operations.
“The group's paddy milling and retail operations are currently operating at a loss. As the buyer of last resort at a guaranteed minimum price, Bernas has to purchase all paddy offered to it regardless of quality; sub-quality paddy would result in lower rice recovery rates.
“Furthermore, the group faces competitive pressure from private millers; some of these private millers may operate more cost-efficient mills and hence are able to offer higher prices to purchase better quality paddy from paddy farmers,” said RAM.
Bernas is also exposed to fluctuations in international prices of rice. This could have a direct impact on Bernas' profitability.
“A steep increase in prices could dampen the group's profit margins if Bernas is constrained from quickly adjusting selling prices upwards due to its social obligation to maintain price stability. Such a situation occurred in FY08,” said RAM.
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