RAM Ratings reaffirms Bernas’ AA3/P1 ratings

Published on 19 June 2012

RAM Ratings has reaffirmed the respective long- and short-term ratings of Padiberas Nasional Berhad’s (“Bernas” or “the Group”) RM750 million Islamic Commercial Papers/Medium-Term Notes Programme (2010/2017) (“ICP/MTN”) at AA3 and P1, respectively; the long-term rating has a stable outlook.

Bernas is involved in the importation of rice, the trading of local and imported rice, and rice milling. Bernas’ activities are essentially the commercial and social roles it has taken over from Lembaga Padi dan Beras Negara. The Government of Malaysia (“GoM”) retains all regulatory functions within the domestic rice industry.

The ratings reflect Bernas’ position as the sole licenced importer of rice into Malaysia and its strategic role within the regulated domestic rice sector. The Group’s obligations and duties include maintaining the national rice stockpile and disbursing government subsidies to paddy farmers. Bernas also acts as a buyer of last resort for local paddy, and ensures fair and stable prices for rice. We acknowledge the close interaction between Bernas and the GoM in enabling the Group to carry out these functions. Meanwhile, demand for rice is expected to increase through time, supported by an expanding population.

The Group’s revenue and profit performance in FYE 31 December 2011 (“FY Dec 2011”) was largely within expectations, supported by higher volumes of rice sold. Furthermore, Bernas had benefited from foreign-exchange gains on trading lines (in US dollars) used to import rice, particularly in 1H FY Dec 2011. Backed by its underlying operational performance, Bernas’s cashflow-generating ability is deemed adequate, with over RM200 million of funds from operations (“FFO”) per annum over the past 3 years. Its adjusted FFO debt cover ratio stood at 0.19 times as at end-FY Dec 2011. Meanwhile, its operating cashflow has also stayed positive over the past few years, albeit thinner in its latest financials. Looking ahead, we expect the Group to maintain its FFO debt coverage ratio within 0.15–0.20 times.

On the other hand, the Group’s balance sheet is relatively aggressive for its ratings. Bernas’ adjusted gearing ratio stood at 1.11 times as at end-FY Dec 2011, on the back of a RM1.33 billion debt load. The higher debt level was due to additional usage of trade lines to fund its working capital, mainly for rice and paddy purchases. The Group had also used debt to bridge the working-capital mismatches arising from lengthy receivables from the GoM. “Apart from this, Bernas had paid out almost 69% of its profit after tax as dividends to its shareholders, thereby only marginally increasing its equity,” notes Kevin Lim, RAM Ratings’ Head of Consumer and Industrial Ratings.

Bernas’ ratings are also moderated by its loss-making rice-milling operations, rice-supply risk, and the risk of non-renewal of its import licence beyond January 2021. Moreover, fluctuations in international rice prices could have a direct impact on Bernas’ profitability. We note that the Government Subsidy Rice (“GSR”) programme has provided a buffer against the regulated selling prices for certain grades of rice. Amid lofty prices, Bernas’ profitability would be negatively affected if GSR payments were to be reduced or removed without allowing for a corresponding increase in selling prices.

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Low Li May
(603) 7628 1175
limay@ram.com.my