Focus Potential hiccup in Bernas privatisation bid

by **Cals** Fri 29 Nov 2013, 18:21

Focus Potential hiccup in Bernas privatisation bid

Business & Markets 2013

Written by Afiq Isa of theedgemalaysia.com

Friday, 29 November 2013 16:20

DESPITE the proposed voluntary delisting of Padiberas Nasional Bhd (Bernas) by majority shareholders linked to Tan Sri Syed Mokhtar Albukhary, an ongoing suit by an aggrieved minority shareholder may yet delay the tycoon’s privatisation plans.

Ilustrasi Hikmat Holdings Sdn Bhd (IHSB), which owned 3.53 million Bernas shares as at May 2013, is claiming that Syed Mokhtar and his nominees are not entitled to assume complete ownership of Bernas. Citing previous agreements between stakeholders and the federal government when the National Padi and Rice Board was corporatised (and eventually became Bernas) in the mid-1990s, IHSB claims that the control and ownership of Bernas cannot be vested in a single individual.

A source familiar with the matter says the suit was filed in April and is now at the case management stage, with a ruling expected next month.

To recap, entities linked to Syed Mokhtar — Perspective Lane (M) Sdn Bhd, Kelana Ventures Sdn Bhd, Seaport Terminal (Johore) Sdn Bhd and Acara Kreatif Sdn Bhd — are making an unconditional takeover offer for Bernas following the successful privatisation of Tradewinds Corp Bhd.

Tradewinds owns a 72.57% stake in Bernas, which led to the extended takeover offer in March this year. Perspective Lane, another Syed Mokhtar nominee, is the second biggest shareholder with an 11.12% stake.

As the public shareholding spread has fallen short of the required 25% limit set by Bursa Malaysia, the joint offerors are proposing a voluntary delisting from the stock exchange, which will be subject to approval at an upcoming extraordinary general meeting.

The success of the unconditional takeover offer hinges on the acceptance of three minority shareholders which collectively owned 11.93% of Bernas as at May. The shareholders are Batu Bara Resources Corp Sdn Bhd with 4.8%, the National Farmers Organization (Nafas) (3.71%) and the National Fishermen’s Association (Nekmat) (3.42%).

It is notable that Nafas and Nekmat are two agricultural entities that represent the interests of several hundred thousand rice farmers and fishermen, a vast majority of whom are bumiputeras. Should the two decide to dispose of their shares, the joint offerors will end up with a more than 90% stake in Bernas, thus paving the way for a compulsory acquisition of all remaining shares that they do not already own.

According to a minority shareholder, many bumiputera stakeholders have voiced dissatisfaction with the privatisation bid. He says the exercise will result in the forfeiture of tens of millions of ringgit in annual dividends as Bernas has an exclusive mandate to manage the country’s rice supplies until 2021.

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“There has always been uncertainty in the valuation of Bernas’ business as well as its future direction after this privatisation exercise. What will happen to its original social obligation to the local rice farmers?” he says.

A look at Bernas’ latest balance sheet reveals a 53% increase in its cash position since Dec 31, 2012. The group’s cash and bank balances stood at RM612.67 million as at Sept 30, compared with RM398.6 million at the beginning of this year.

It is notable that the company has not paid dividends since the takeover offer was announced, leading some observers to accuse the company of hoarding its cash for the benefit of the joint offerors.

The minority shareholder adds that another point of contention is the value of concession rights of RM40 million, which was raised during the company’s annual general meeting in June.

“Assuming a profit growth of 2% per annum over the concession period, a shareholder had asked whether the rights could be worth a lot more than the RM40 million. The CFO responded that the basis of deriving the concession value was based on the length of the concession period of 10 years,” he says.

He notes that intangible assets such as concession rights held by Bernas can be difficult to value and are subject to interpretation.

“In any case, the general offer of RM3.70 per share severely underestimates the real asset value of Bernas as it was mainly derived from its open market share price,” he adds.

When contacted by The Edge, the Malay Economic Action Council (MTEM) CEO Mohd Nizam Mahshar acknowledged the grouses raised by bumiputera stakeholders regarding the privatisation exercise.

“Yes, there were some reservations from bumiputera SMEs (small and medium-sized enterprises) as well as complaints by several non-governmental organisations representing the farmers. However, we cannot officially comment on the matter as we are still in the midst of researching the relevant data,” he says.

The issue of the empowerment of bumiputera entrepreneurs has been hotly debated since Prime Minister Datuk Seri Najib Razak announced the creation of the Bumiputera Economic Empowerment Council in September. A slew of new initiatives was also introduced to enhance bumiputera equity ownership in the form of professional and financial assistance.

In a statement on Nov 12, opposition leader Datuk Seri Anwar Ibrahim questioned whether the privatisation of Bernas contradicts the federal government’s bumiputera empowerment policy.

“How was it that one individual is now allowed to gain monopolistic control over our strategic rice business when this could be potentially harmful to the stability of future prices which was the original intent of Bernas’ privatisation?” he asks.

Others have jumped on the bandwagon. On Nov 21, a motion to protest the delisting of Bernas by Gooi Hsiao Leung (PKR-Alor Setar) was rejected at the Dewan Rakyat. According to Speaker Tan Sri Pandikar Amin Mulia, there was no necessity for the matter to be brought to Parliament as the government was already looking into it.

With dissatisfied shareholders and politicians staking their claim on the issue, it is apparent that the fate of Bernas will have a major impact on the future of the nation’s rice production industry as well as its participants.

However, should the privatisation bid prove successful for Syed Mokhtar, it remains to be seen how other bumiputera entrepreneurs will benefit from the industry in the coming years.

This article first appeared in The Edge Malaysia Weekly, on November 25, 2013.