RAM lowers Bernas’ ratings

PETALING JAYA: RAM Ratings has downgraded the ratings of Padiberas Nasional Bhd's (Bernas) RM750 million Islamic Commercial Papers/Medium-Term Notes Programme (ICP/MTN) (2010/2017) to A3/negative/P2 from AA3/negative/P1.
"The downgrade reflects the material and unexpected deterioration in Bernas' financial profile arising from the extension of financial support to its parent, Tradewinds (M) Bhd, as well as several adverse industry developments," RAM said in a statement yesterday.
RAM pointed out that after the delisting of Bernas in April 2014, the group had channeled large amount of advances to its holding companies and related parties totalling over RM700 million.
"Support of this nature and magnitude is not within RAM's expectation and such a move implies increased influence and explicit control of Tradewinds. In our last rating review, we had cautioned that any increased financial support for TWM would put pressure on Bernas' credit ratings, and had maintained the outlook on the long-term rating of the ICP/MTN at negative," RAM's Head of Consumer and Industrial Ratings Kevin Lim said.
At the same time, RAM said Bernas' operational performance also suffered in FY Dec 2014, with unforeseen setbacks in both its local and imported rice businesses.
"This, combined with the extension of advances, had markedly weakened the group's financial metrics and exerted significant pressure on its liquidity," Lim added.
As at end-Dec 2014, the group's gearing and net gearing ratios stood at a respective 1.41 and 1.19 times which was considerably higher than RAM's projections of around 0.7 times and 0.5 times.
It added that Bernas' funds from operations debt cover (FFODC) had thinned to 0.09 times which was again significantly below RAM's expectation of 0.26 times.
"The negative outlook reflects our concerns over additional shareholder-friendly manoeuvres and operational challenges that would further compromise Bernas' financial profile.
Although new advances to shareholders/related parties are unlikely, RAM said Bernas has committed to future dividend payouts from fiscal 2015 onwards that are much higher than the group's net earnings.