RAM Ratings has reaffirmed the AA3/Negative/P1 ratings of Padiberas Nasional Berhad’s (Bernas or the Group) RM750 million ICP/MTN Programme (2010/2017).

Published on 29 May 2014

RAM Ratings has reaffirmed the AA3/Negative/P1 ratings of Padiberas Nasional Berhad’s (Bernas or the Group) RM750 million ICP/MTN Programme (2010/2017). While Bernas’ financial profile has improved, the negative outlook on its long-term rating has been maintained given our concerns over potential increased financial support for its parent, Tradewinds (M) Berhad (TWM). Following the completion of a takeover exercise, TWM and its related vehicles collectively hold 97.4% of the Group as of 1 April 2014. This, along with Bernas’ subsequent delisting, have further heightened concerns.
The privatisation of TWM and Tradewinds Plantation Berhad (TWP) and Bernas’ buyout are reported to have cost about RM2.5 billion. As a core subsidiary of TWM, Bernas may be required to support some of the former’s funding needs. We note that Bernas has a history of aggressive dividend payouts, having paid out a substantial portion of its net profit as dividends from FY Dec 2010-FY Dec 2012. No dividend payment was, however, made in FY Dec 2013 due to the then ongoing takeover exercise. The Group is likely to resume dividend payments this year.
Bernas is engaged in the importation of rice, trading in local and imported rice, and rice milling. Its activities essentially comprise the commercial and social roles it had taken over from Lembaga Padi dan Beras Negara (the National Paddy and Rice Board). As at end-February 2014, Bernas’ gearing ratio and estimated funds from operations debt coverage (FFODC) had improved to a respective 0.78 times and 0.24 times (end-December 2013: 1.07 times and 0.16 times), mainly due to the collection of delayed subsidy receivables from the Government of Malaysia in 4Q FY Dec 2013 and the Group’s better operating performance.
The rating outlook may revert to stable if Bernas is able to demonstrate sustainable improvement in its financial metrics. Conversely, the Group’s ratings will be downgraded if it is unable to maintain a gearing ratio of less than 1 time and lift its FFODC to a sustainable 0.2 times. The ratings will also face downward pressure if there are any signs of increased financial support for TWM, beyond regular dividends and potential catch-up dividends.
Bernas’ credit profile remains supported by its monopoly over the importation of rice in Malaysia, its strategic role within the highly-regulated domestic rice industry, stable demand for rice and the Group’s improved credit metrics. However, Bernas’ ratings are moderated by its contingent burden vis-à-vis its parent’s acquisition-related debt, its exposure to fluctuations in international rice prices, imported rice supply risk, the Group’s loss-making milling operations, and the risk of non-renewal of its import licence.

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