Bernas gets 10-year extension to contract

Padiberas Nasional Bhd (Bernas) announced yesterday that the federal government has extended its mandate to manage the country’s rice supplies for 10 years.

In an announcement to Bursa Malaysia, the company — which is indirectly controlled by Tan Sri Syed Mokhtar Al-Bukhary — said that Bernas’ agreement with the government will run from Jan 11, 2011 until Jan 10, 2021.

This is the second major development for companies under Syed Mokhtar in four days. Last Friday, another of his companies, DRB-Hicom Bhd, won a robust tender process to acquire Khazanah Nasional Bhd’s 32.21% stake in Pos Malaysia Bhd.

Now Bernas, which Syed Mokhtar controls through Tradewinds (M) Bhd, has received the extension to the rice agreement, which effectively removes all doubts as to whether the government would open up the rice market.

Bernas said that on April 22 the company received a letter from the public-private partnership unit of the Prime Minister’s Department regarding the extension of the agreement dated Jan 12, 1996.

“The government has agreed to extend the Bernas agreement for a period of 10 years commencing from Jan 11, 2011 to Jan 10, 2021 subject to the terms and conditions to be mutually agreed between both parties,” it said in the announcement to Bursa.
In 1996, when the government privatised Bernas, it handed over the obligation to maintain the national rice stockpile to the company. Bernas’ other obligations include the distribution of the padi price subsidy to farmers on behalf of the government, managing the bumiputera rice millers scheme and acting as buyer of last resort at guaranteed prices.

Syed Mokhtar controls Bernas through Tradewinds (M) Bhd.

Generally, Bernas used the profit from the importation of rice to subsidise the loss-making domestic operations under the privatisation agreement that was signed for 15 years. A year after its privatisation, Bernas was listed on Bursa.

In 2007, the agreement was extended until Jan 11, 2016. However in 2008, sky-rocketing rice prices on the international market drove Bernas into the red. It is believed the terms of the new agreement take into account fluctuations in international rice prices.

Bernas, which controls 24% of the local padi market and 45% of local rice demand, said the government had given until July 10 to finalise the terms and conditions of the new agreement.

“Pending the execution of the new Bernas agreement, the terms and conditions of the agreement dated Jan 12, 1996 shall apply throughout the interim period,” it said.

In December 2009, Syed Mokhtar consolidated his interest in Bernas and put it under Tradewinds. Then, Tradewinds acquired 53.7% of Bernas’ equity for a cash consideration of RM526 million. This sparked a mandatory general offer for the rest of the shares which resulted in Tradewinds holding 72.57% equity interest in Bernas.

The acquisition enabled Tradewinds and Bernas to share distribution channels, such as warehousing and transport, and achieve greater economies of scale and operational efficiency. - by Kamarul Azhar of theedgemalaysia.com