RAM Ratings reaffirms Bernas's ratings with stable outlook

KUALA LUMPUR: RAM Rating Services has reaffirmed Padiberas Nasional Bhd's
respective long- and short-term ratings of its RM750mil 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, 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 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," said the
ratings agency on Tuesday.
RAM Ratings said 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 government in enabling the group to carry out these
functions. Meanwhile, demand for rice is expected to increase through
time, supported by an expanding population," it said.
Commenting
on the financial performance, it said the group's revenue and profit
performance in FY ended Dec 31, 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 H1FY2011.
"Backed
by its underlying operational performance, Bernas's cashflow-generating
ability is deemed adequate, with over RM200mil 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," it said.
RAM
Ratings said Bernas's operating cashflow had 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," it said.
Bernas'
adjusted gearing ratio stood at 1.11 times as at end-FY Dec 2011, on
the back of a RM1.33bil 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.
Bernas had also used debt to bridge the working-capital mismatches arising from lengthy receivables from the government.
RAM
Ratings' head of consumer and industrial ratings Kevin Lim said Bernas
had also paid out almost 69% of its profit after tax as dividends to
its shareholders, thereby only marginally increasing its equity.
He
said 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.
The
government subsidy rice (GSR) programme has provided a buffer against
the regulated selling prices for certain grades of rice.
RAM
Ratings said 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.