Wednesday 17 Apr 2024
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This article first appeared in The Edge Malaysia Weekly on January 9, 2023 - January 15, 2023

IN early December last year, when newly minted prime minister Datuk Seri Anwar Ibrahim said he had reprimanded businessman Tan Sri Syed Mokhtar Albukhary on Padiberas Nasional Bhd’s (Bernas) monopoly of rice imports, there were mixed views as to how serious the threats were and whether its monopoly of more than four decades would come to an end.

Some claimed the talk of breaking Bernas’ monopoly was just a ploy to lure rice farmers to vote for Anwar’s Pakatan Harapan (PH) and its partner Barisan Nasional (BN) in the Padang Serai by-election on Dec 7. Others, however, said the beneficiaries of concessions awarded in the past — Syed Mokhtar included — would have to give up the lucrative concessions as Anwar was serious about dismantling such mechanisms, which enrich individuals at the expense of a larger group. In this case, farmers.

“I’m 110% sure, he [Syed Mokhtar] and others like him will be targeted to give up their concessions,” says a source. After giving it some thought, he adds, “I think the real question is: Who can or will Anwar give it to?”

The interest in Bernas is understandable as the rice importer has paid out more than RM744 million in dividends from FY2017 to FY2021, with a bumper payout of RM670.02 million in FY2020.

Anwar said in December last year, “I have spoken to Tan Sri Syed Mokhtar and he has been reprimanded because he monopolises rice imports … He must know this import permit is not a concession and not a form of reward for him, but instead given to Bernas.”

An associate of Syed Mokhtar’s, however, points out that there was some damage control after Anwar claimed to have reprimanded the tycoon.

If the vitriol against Syed Mokhtar was aimed at nudging irate farmers to abandon Perikatan Nasional (PN) for the PH-BN alliance, the plan failed. PN’s Datuk Azman Nasrudin won 51,637 votes, or by a 16,260 majority, to give the coalition 14 out of the 15 parliamentary seats in Kedah.

There is also the question of why Anwar found it necessary to publicise his “reprimanding” of Syed Mokhtar.

Another group says Anwar targeting Bernas has nothing to do with Syed Mokhtar but with Datuk Seri Shahidan Kassim — member of parliament for Arau, who won the seat on the PN ticket after being booted out of Umno by current deputy premier and Umno president Datuk Seri Ahmad Zahid Hamidi — who is said to be a close associate of Anwar’s. Shahidan is said to have been one of the key beneficiaries of Bernas’ privatisation in 1996.

Then again, this is not the first time Anwar or Pakatan Harapan has brought up Syed Mokhtar’s ownership of strategic assets in the country. The tycoon is known to be a close associate of former prime ministers Tun Dr Mahathir Mohamad and Tan Sri Muhyiddin Yassin, and is among the richest individuals in the country with diverse assets ranging from power plants to banks, ports, sugar refineries, plantations, the media and companies involved in haulage, dredging, engineering, construction, automotive assembly, postal services and vehicle inspection, among others.

In June 2018, during PH’s 22-month administration, Agriculture and Agro-based Industry Minister Datuk Seri Salahuddin Ayub said Bernas’ rice import monopoly would be terminated. “To protect the interests of local paddy farmers, we have identified the modules used in other countries [in importing rice], among them Indonesia, which has been successful in its approach to opening up the monopoly on rice.”

However, in November 2020, after the PH government fell and the PN government under Tan Sri Muhyiddin Yassin was in power, Bernas received a 10-year extension, although with five more social obligations added, doubling the rice importer’s social obligations to 10. It is not clear what the social obligations are.

Nevertheless, political motivation or otherwise, Bernas is still interesting to look at for myriad reasons.

So much happens on the quiet

Information on Bernas’ operations and concession agreement was hard to come by as Bernas managing director Datuk Haris Fadzilah Hassan did not respond to messages sent to him, while other Bernas executives did not reply to emailed questions. Salahuddin, now the minister of domestic trade and living costs, did not reply to messages sent, while Agriculture and Food Security Minister Mohamad Sabu was not contactable.

In a nutshell, Bernas’ concession agreement with the government seems to be shrouded in secrecy.

Looking at its annual report for FY2021 filed with the Companies Commission of Malaysia (SSM), Bernas acquired Central Sugars Refinery Sdn Bhd from its parent and Syed Mokhtar’s privately held Perspective Lane (M) Sdn Bhd for a whopping RM1.5 billion cash. The acquisition was concluded in September 2021. There was a goodwill of RM976.62 million on the acquisition of Central Sugars from the RM1.5 billion price tag.

For its financial year ended December 2021, Central Sugars chalked up an after tax profit of RM120.88 million on the back of RM1.55 billion in revenue. FY2021 saw the company reporting the highest after tax profit in five years. Its lowest was in FY2017, when it registered an after tax profit of RM61.56 million from RM1.44 billion in revenue.

In Bernas’ FY2021 annual report, the acquisition is said to be part of a “group reorganisation exercise”. To put things in perspective, not many companies could muster such a large acquisition as this.

Some may question why Bernas is straying from its original objective of rice security, but others say both rice and sugar are essential items. Bernas also has a 50% stake in Gardenia Bakeries (KL) Sdn Bhd, the bakery behind Gardenia bread.

On the subject of Bernas’ objective, its annual report says the company’s principal activities are procuring, collecting, processing, importing, exporting, purchasing, storing, packaging, distribution of rice, paddy and other grains including seed production, paddy farming and research and development, among others.

Bernas is also mandated to ensure a sufficient supply of rice at reasonably fair and stable prices. Its other obligations under the privatisation agreement include the maintenance of a rice stockpile, the distribution of paddy price subsidies to farmers for the government and acting as a buyer of last resort at the guaranteed minimum price of paddy. The stockpile Bernas needs to maintain is currently 200,000 tonnes, up from 150,000 tonnes in FY2020.

Bernas received RM570 million in subsidy funds in FY2021 and RM620 million in FY2020, but paid out RM571.94 million in FY2021 and RM638.86 million in FY2020.

While there is no mention of Bernas’ corporate social responsibility, there is a concession commitment of RM82 million.

Another shocking revelation, when going through Bernas’ FY2021 annual report, is that it paid its shareholders a dividend per share of RM1.37 in FY2020, which works out to a dividend payment of RM670.02 million for the year.

Syed Mokhtar’s Perspective Lane wholly owns Bernas, except for a golden share held by the government of Malaysia via the Ministry of Finance. This means all the dividends were paid to Perspective Lane.

For FY2021, the dividend per share of 12 sen worked out to a payout of RM69.32 million. However, not recognised as at Dec 31, 2021, is a recommended dividend per share of 25.5 sen, which translates into a payout of RM111.87 million.

Bernas has paid dividends in five of the last 10 financial years (see earnings table).

Anwar also stated that Syed Mokhtar had agreed to Bernas dishing out RM10 million in December last year to assist paddy farmers and RM50 million in 2023 for the same purpose, which should not pose any problems for Bernas.

The RM10 million will be paid out this month to 20,598 farmers in Kelantan, Terengganu and Pahang, which works out to RM250 per farmer. The other RM50 million will be paid out to farmers in other states later this year.

Bernas’ financials, issues faced by farmers

For FY2021, Bernas chalked up an after tax profit of RM182.26 million from RM4.67 billion in revenue.

Based on the FY2021 annual report, RM3.42 billion, or about 73% of Bernas’ revenue, is from the sale of rice while RM829 million, or close to 18%, is from sugar. Another RM422.33 million, or 9%, comes from other sources, presumably bread.

As at end-December 2021, Bernas had cash and bank balances of RM706.3 million. On the other side of the balance sheet, it had short-term borrowings of RM2.87 billion and long-term debt commitments of RM1.65 billion.

Its net gearing as at end-December 2021 stood at two times. The company had shareholders’ funds of RM1.45 billion and retained profits of RM897.02 million. Its net cash from operating activities came to RM212.85 million, while interest expense on borrowings amounted to RM175.64 million.

While Bernas has been posting strong financials and paying out stellar dividends, Khazanah Research Institute — in its report titled The Status of the Paddy and Rice Industry in Malaysia, published in April 2019 — pointed out that, based on the Muda Agricultural Development Authority’s 2016 annual report, the monthly household income for paddy farmers in the region was RM2,527. This income, which was from both agricultural and non-agricultural activities, was below the national median household income of RM5,228 and mean household income RM6,958 in 2016, meaning paddy farmers fall under the B40, or bottom 40% income group.

Bernas, which has a monopoly to import rice, can make more profit by selling imported rice than selling locally sourced rice. Malaysia’s consumption of rice is about 2.7 million tonnes a year, of which about 30% is imported.

According to a source, rice from Vietnam can go for as low as RM1.70 per kg, in contrast to the price ceiling of RM2.70 per kg here.

A politician familiar with the struggles of paddy farmers says that certain controls in the market are necessary to ensure sufficient supply, but the benefits seem to be accruing to just one party. “The social obligation of Bernas does not jive with a business model that requires the company to fork out dividends to its shareholders,” he adds.

Farmers also complain about the many layers between the producers of seeds, importers of fertilisers and pesticides and the farmers, with middlemen supposedly making good margins — even more than the actual producers. The concentration of ownership of rice millers under Bernas also means farmers have very little bargaining power.

Malaysia has a rice self-sufficiency level target of 75% by the end of the 11th Malaysia Plan (2021-2025) and 80% by the end of the National Agrofood Policy 2021-2030. But with paddy farmers struggling, will the country fall short of these targets?

A professor with a local university tells The Edge: “Perhaps looking at how poor the farmers are, Bernas has not met its objective of giving them a better life.”

 

See also “After half a century, rice sector monopoly ripe for change”  

 

A colourful history

In the 1990s, it was in vogue for state-controlled enterprises to be privatised as per the vision of then premier Tun Dr Mahathir Mohamad.

However, truth be told, it was not just Mahathir who was a fan of privatisation. Other leaders — including US president from 1981 to 1989, Ronald Reagan, and UK prime minister from 1979 to 1990, Margaret Thatcher — were keen on the privatisation of state-controlled entities, be it postal services, power generation and distribution, telecommunications, water treatment and distribution or airlines.

In Padiberas Nasional Bhd’s (Bernas) case, it came about from the privatisation of Lembaga Padi dan Beras Negara (LPN) on Jan 12, 1996, when Bernas and the government signed a concession agreement for 15 years, until 2010, with Bernas obligated to perform social obligations in return for the concession.

The raison d’etre for Bernas was threefold — to improve the efficiency of how paddy and rice are managed; to better control, among others, the pricing, purchasing, storing, marketing, milling and stockpiling of paddy; and to reduce the government’s burden of running and managing Bernas.

To recap, LPN, Bernas’ predecessor, was set up in 1974 after a global food crisis. It was tasked to be the sole importer of rice, playing the role of gatekeeper, but suffered losses in all but two years of its operation — the two years prior to it being privatised.

Under the privatisation agreement, Bernas’ obligations include the distribution of paddy rice subsidies to farmers on behalf of the government, management of the Bumiputera Rice Millers Scheme, and acting as a buyer of last resort at the guaranteed minimum price of paddy.

So, the Bernas story started in 1996, when private company Budaya Generasi Sdn Bhd acquired a 75% stake in Bernas from the government. Other entities controlled 15% of Bernas, and the government maintained a 10% stake, much like a golden share.

Budaya Generasi itself had seven shareholders — Persatuan Nelayan Kebangsaan (NEKMAT), Pertubuhan Peladang Kebangsaan (NAFAS), Syarikat Perniagaan Peladang (MADA) Sdn Bhd, Syarikat Perniagaan Peladang (KADA) Sdn Bhd, Permatang Jaya Sdn Bhd, ZAW Ventures Sdn Bhd and Simpletech Sdn Bhd.

Permatang Jaya was supposedly linked to the family of former Perlis menteri besar and current Arau member of parliament Datuk Seri Shahidan Kassim. Shahidan’s brother-in-law, Dohat Shafie, was a director of Bernas from 1996 to August 2006. These allegations of Shahidan’s involvement in Bernas, however, have never been substantiated.

Another link to Shahidan emerged in Bernas’ 2007 annual report, which showed privately held Batu Bara Resources Sdn Bhd having just below 5% in the company. A check on the Companies Commission of Malaysia (SSM) website reveals that Batu Bara Resources is wholly-owned by Nur Daliza Dohat, supposedly Shahidan’s niece, and Dohat Shafie’s daughter.

Bernas the PLC

Bernas’ shares were floated on the Kuala Lumpur Stock Exchange (now Bursa Malaysia) in August 1997. In Bernas’ FY1999 annual report, Budaya Generasi held 30.36% in the company. Other interesting shareholders included Yayasan Pok Rafeah Berdaftar, which had 1.5 million shares or 0.51%, and is linked to former finance minister Tun Daim Zainuddin.

Yayasan Pok Rafeah, a foundation named after Daim’s late mother, has surfaced in some of the companies linked to the former finance minister.

In September 2000, Hong Kong-based Wang Tak Co Ltd, which is linked to Tan Boon Seng, the son of the late Datuk Tan Chin Nam — of IGB Bhd and Tan & Tan Bhd fame — surfaced with a 3.42% stake in Bernas.

Over the years, Wang Tak had built up its shareholding in Bernas to 31.52% in 2009, and was the largest shareholder of the company.

It is not clear exactly when reclusive tycoon Tan Sri Syed Mokhtar Albukhary bought into Bernas. He was rumoured to have had a substantial stake from as far back as 2005. These rumours could have emerged because one of his key executives, Datuk Bakry Hamzah, was appointed as non-independent non-executive director of Bernas in mid-September 2005.

Today, Bakry is still in Bernas but is the deputy chairman.

Back in the day, about 15 years ago, Syed Mokhtar had a penchant for using proxies to hold stakes in companies that he controlled. Among them were his flagship MMC Corp Bhd, Johor-based water treatment company Aliran Ihsan Resources Bhd and Bernas.

By August 2009, news reports had Syed Mokhtar’s Gandingan Bersepadu Sdn Bhd having 72.2% in Budaya Generasi, which had a 30.8% stake in Bernas.

Thus, Syed Mokhtar’s effective stake in Bernas was about 22.24%, considerably less than Wang Tak’s 31.52%.

Having a Hong Kong company as the largest shareholder in Bernas did not go down well with many, including a number of politicians who voiced their dissatisfaction.

At end-October 2009, Syed Mokhtar’s Tradewinds (M) Bhd acquired Budaya Generasi’s 22.24% stake and Wang Tak’s 31.52% for RM2.08 a share. The Wang Tak block was acquired by Tradewinds for RM308.42 million.

As the acquisition by Tradewinds was for 53.76% of Bernas — above the 33.3% threshold — Tradewinds undertook a general offer for Bernas and upped its stake to 72.57%.

In December 2012, Syed Mokhtar privatised Tradewinds, which triggered a privatisation of Bernas as well. An initial offer of RM3.25 for a Bernas share was increased to RM3.70 a share, and Bernas was delisted in March 2014.

A check with SSM’s website indicates that as at last October, Syed Mokhtar’s Gandingan Bersepadu had 72.22% equity interest in Budaya Generasi, while NEKMAT and NAFAS each had 11.1%, with private company Ilustrasi Hikmat Sdn Bhd holding 5.56%.

But it no longer has any shares in Bernas, which is now almost 100% owned by Syed Mokhtar’s Perspective Lane (M) Sdn Bhd, with one golden share held by the government.

When news broke of Syed Mokhtar buying into Bernas first surfaced, the move was frowned upon. Syed Mokhtar’s linked companies were all highly geared, and he had a penchant for related-party transactions, which often did not augur well for minorities.

Despite the incessant grumbling, Bernas obtained two 10-year extensions for its concession, one in 2010 and another in 2021, which ends on Jan 11, 2031.

However, will all this end now, and will the importing of rice be opened? Will Syed Mohtar and Bernas be forced to compete, or will the new government let Bernas’ concession end naturally?

It is not clear if a termination of the concession is possible and what sort of compensation would be required. However, this issue will only come into play if Bernas’ monopoly is broken.

 

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