KUALA LUMPUR: Padiberas Nasional Bhd (Bernas), controlled by tycoon Tan Sri Syed Mokhtar Al-Bukhary, is expected to finalise details of the extended rice concession agreement with the government by August.

The extended concession is expected to see an emphasis on policymakers’ benchmarks for the custodian of the national padi and rice industry to ensure food security in the country, according to Bernas managing director Datuk Bakry Hamzah. “We expect to conclude talks with the government by end-August,” Bakry told reporters after Bernas’ annual general meeting yesterday.

These benchmarks include key performance indicators (KPIs) for Bernas, said Bakry, adding that under the KPIs, the company is expected to continue fulfilling its social obligation to padi farmers and ensure supply stability for the commodity while ensuring the company performs well financially. Bernas’ concession, under a privatisation agreement with the government since 1996, gives the company the right to manage the country’s rice imports, stockpile and distribution.

In April 2011, the government extended Bernas’ concession agreement for another 10 years — from Jan 11, 2011 to Jan 10, 2021 — but its new terms and conditions have yet to be implemented as the company is finalising the details with the government. For now, the terms and conditions spelled out in the privatisation agreement are still in effect.

Under the initial agreement, Bernas’ tasks include maintaining the country’s rice stockpile and being the buyer of last resort for padi farmers in the country. Bernas is also required by the government to spearhead the Bumiputera Rice Millers Scheme and distribute padi price subsidies to farmers on behalf of the government.

It is worth noting that Bernas pays farmers market prices of between RM1,000 and RM1,220 for every tonne of padi, higher than the government’s fixed guaranteed minimum price of RM750 a tonne. “The higher prices include fertiliser and production cost for farmers,” Bakry said. Costlier rice imports and padi have stifled Bernas’ profitability.

Net profit in the first quarter of FY12 ended March 31 fell 32% to RM37.58 million from RM55.32 million a year ago, although revenue was up 8% to RM893.79 million from RM823.84 million previously. According to Bakry, the bulk of Malaysia’s rice imports are from Vietnam, Thailand and Pakistan, and these purchases are deemed pivotal to ensure Malaysia’s stockpile is adequate to ensure food security. The stockpile currently stands at 292,000 tonnes, he added.

Bakry said Bernas is setting aside RM250 million in FY12 ending Dec 31 to acquire rice mills and improve its existing facilities. Of that amount, RM100 million will be allocated for the acquisition of mills in Malaysia and to finance Bernas’ joint ventures abroad. The remaining RM150 million has been earmarked to improve existing mills.

“We will finance the capital requirement with our internal funds and borrowings,” Bakry said.As at March 31, Bernas’ net debt stood at RM1.32 billion after taking into account total borrowings of RM1.63 billion and cash of RM309.37 million, its balance sheet showed.

Bernas had set aside RM180 million in FY11, of which RM110 million was used to finance mill acquisitions, while RM70 million was for funding improvements to existing facilities, said Bakry. According to Bernas’ website, Malaysia has more than 400 commercial rice mills, 32 of which are owned and run by Bernas. The company’s mills are located in Kedah, Perlis, Kelantan, Perak and Selangor.

Bernas’ facilities can process 400,00 tonnes of padi a year, translating into an annual rice output of 270,000 tonnes. Syed Mokhtar’s listed entity Tradewinds (M) Bhd is the largest shareholder of Bernas, with a 72.6% stake as at April 23. At its AGM yesterday, a final dividend of 5% less 25% tax, payable on July 13, was approved by shareholders.

This brought FY11’s total net dividends to 26.25 sen a share, which translates into a payout of RM123.48 million or 75% of its net profit of RM164.57 million during the year. Its dividend per share of 26.25 sen translates into a net yield of 8.2% based on yesterday’s close of RM3.20.

This article appeared in The Edge Financial Daily on June 26, 2012.