Bernas going private at whose expense?

Going by Corporate Finance 101, voluntarily delisting a public-listed company from the stock exchange and taking it private brings both pros and cons.

For a struggling business entity, it could provide the freedom and flexibility it requires to find its feet again away from the weight of public scrutiny.

The company would also like to go private should it feels that it is undervalued by the market. It may believe that the requirements of conforming to various regulations of the authority, namely the Security Commission in the case of Malaysia, are too burdensome.

Going private would surely allow for it to pursue new strategic approaches in line with longer timeline objectives, and hopefully be more competitive.

But conversely, it also carries the risk of the company incurring more debt later on if the private company could not get enough private capital or new strategies fail to turn around the company.

The delisting of Dell, and more recently of Blackberry, provided for both interesting academic and strategic discussion on the subject of listed company going private. But such exciting discourse on the local shore however, especially of late, is faced with a very grim picture of greed as the overarching reason for “privatisation”. This is extremely unfortunate to say of the least and “scandalous” at worst.

Padiberas Nasional Berhad or Bernas is a very illustrative case in point. Bernas which has played the role of regulator and distributor for the country’s rice industry was first privatised in the heyday of privatisation of Tun Dr Mahathir Mohamad.

The original intention was to ensure the nation’s growing rice demand be fulfilled through the management of a National Stockpile and the Padi Price Subsidy Scheme.

Also, that exercise should have empowered Bumiputera farmers, rice distributors and the workers of Bernas with equity ownership. This was again highlighted by the opposition leader Datuk Seri Anwar Ibrahim in his recent press release by the then finance minister in December 1995 in an answer to Lim Guan Eng.

The Budaya Generasi Sdn Bhd consortium formed in January 1996 comprised association of farmers, including KADA, MADA, NAFAS, NEKMAT (fishermen) and Bernas workers indeed owned more than half of Bernas’s equity back then.

Fast forward to the end 2009, all these shares appeared to have been bought over by an individual, namely Tan Sri Syed Mokhtar Al-Bukhary through his companies Gandingan Bersepadu Sdn Bhd and Tradewinds. He now effectively holds 53.7%of Bernas shares, an acquisition he effected via Maybank Investment Bank Berhad amounting to RM526 million.

Nett profits at Bernas averaged at RM164 millions while revenues grew from RM 3.3 billion to RM 3.6 billion over 2009 to 2012. Surely this is not a struggling company. Currently Bernas controls 24% of the paddy market and 45% of the local rice demand.

Tradewinds directly owns nearly 341.4 million shares (72.6%) in Bernas, while Persepective Lane (M) Sdn Bhd has 50.71 million shares, Restu Jernih Sdn Bhd has indirect shares of 392.1 million shares (83.3%) and Syed Mokhtar holds 392.1 million shares.

In March this year, Bernas announced takeover offer worth RM477 million or RM3.70 per share from Perspective Lane, Kelana Venture Sdn Bhd, Seaport Terminal Sdn Bhd and Acara Kreatif Sdn Bhd. All these companies are believed to be controlled by Syed Mokhtar.

This deal suffered a setback after it failed to get sufficient acceptance from Bernas’s minority shareholders. But last Tuesday, a lawyer for Bernas minority shareholder confirmed that its April case against three of the four parties namely Bernas, Syed Mokhtar and his company Tradewids(M) Bhd was struck out on November 27.

With that news, Syed Mokhtar would be closer to privatising Malaysia’s sole rice distributor, Bernas. Nay, it is now almost inevitable. A responsible federal government would actually dismantle the monopoly and renegotiate some of the long-terms positions within the existing contract and perhaps pay for the penalties in the bigger interest of the public.

Contrary to the above strategic consideration of why a company, especially a struggling one is taken private, Bernas doesn’t come close to any of those attributes. It is evident that driving this privatisation of Bernas is arguably yet ostensibly plainly greed.

That one individual is now allowed to gain monopolistic control over the nation’s strategic rice business is a continuing marvel. But more importantly and now begging the answers from the prime minister who also is the finance minister are the following intriguing questions.

With privatisation, the national strategic asset is now taken away from public scrutiny. Yes like all companies going private, the intention is to allow the company not to be scrutinised by the public. The freedom was supposedly to allow for the company to strategise and be competitive.

But here we have the case of our strategic resource and asset that is now in the hands of individuals ostensibly driven only by business consideration and “bottom-line”. Taking it private means that Bernas is no longer responsible nor do want to share information with the public as opposed to being a listed entity.

When privatised, all negotiations as the sole monopoly of rice distributor with the government would be on a close-door basis. This “sheltered monopoly” opens up to all kinds of abuses.

Perhaps it is timely to remind the finance minister that while Islam enjoins and advocate trade and open trade, Islam despises monopoly, especially of staple food of the people, or rakyat.

So much for the recent hype on Ahli Sunnah Wal Jamaah brand of Islam that Umno claimed to champion why going against all the principles of Good Corporate Governance in Islam namely crony capitalism, monopoly, endemic corruptions and wastages, to cite but a few examples.

Sheltered monopoly of this sort might also arguably encourage deregulation (rice is regulated commodity) i.e. against the benefits for the consumers which subsequently could lead to higher prices and less quality products.

Similarly there could also be incentive to do creative restructuring where it can blatantly increase share ownership, transfer all jewel assets, strip excess and refloat with leaner assets. Exercises of this nature have been known to be done in the Bursa Malaysia. Astro is arguably a case in point.

In conclusion, the recent spate of monopolistic acquisition by one individual is surely very much against the notion of distributive justice and “shared wealth” deepening the wealth divide. It is noteworthy that Bernas (agro +rice) has maximum cost and revenue synergy with Tradewinds (agro + sugar).

The enlarged group's revenue can arguably swell 500% to RM6 billion within five years. It is hardly surprising for Tradewinds, which has a RM3 billion debt, not to ride on and “strip” Bernas of its non-core assets estimated RM500 million.

It is surely in the interest of Syed Mokhtar to control cash cow companies and stocks. This could very well be leveraged and later endorsed by the government, as to reduce Tradewinds systemic risk (gearing by the likes of MMC/DRBHicom/Malakoff) to the entire financial industry in Malaysia.

For how long more should the rakyat in this resource-rich nation allow the power-that-be working hand-in-glove with the “rentier”-class to plunder her wealth and resources?

We do it at our peril! – December 15, 2013.

* This is the personal opinion of the writer or publication and does not necessarily represent the views of The Malaysian Insider.