Bernas' worrying financials

My attention was drawn to an article in The Edge Malaysia with the above title.

I have written about Bernas in the past (here and here), about the serious (alleged) possibility that Bernas' minority shareholders were not treated fair and equal, which would imply a clear breach of the rules. No news yet from the authorities (Bursa, SC or SSM) regarding this matter, but then again, enforcement against VVIPs has never been their strongest point, to put it mildly.

After it's delisting Bernas was not hindered anymore by those "pesky" minority shareholders, and apparently it used this freedom to forward huge amounts of money to its parent company (something that would have required the approval from minority investors, besides a healthy dose of transparency).

It also hugely increased its dividend policy, money that now does not need to be shared anymore with their previous minority shareholders who were bought out.

From RAM's website: "RAM Ratings downgrades ratings of Bernas’ sukuk, some snippets:


After the delisting of Bernas in April 2014, the Group had channelled 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 TWM.

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, the Group has committed to future dividend payouts (from fiscal 2015 onwards) that are much higher than the Group’s net earnings.

We had previously expected Bernas to gradually pare down its debts following the collection of delayed subsidy receivables from the Government of Malaysia in 2014. On the contrary, the Group’s debt level had increased 20.0% to nearly RM2 billion (end-December 2013: RM1.64 billion). Besides advances, Bernas had also taken on additional trade lines to fund its heftier working-capital needs. Given the expected erosion of its equity base (from outsized dividend payments) and the absence of any improvement in its profitability, the Group’s gearing ratio could reach 1.8 times by FY Dec 2016 while its FFODC will likely stay below 0.10 times.


Bernas' actions seem puzzling to say the least, is this all really prudent?

What is going to be the end play, a heavily indebted Bernas targeting an IPO on Bursa in the near future, playing the "infamous" listing-delisting-relisting "play" with new shareholders having to pump in fresh money to pay of the debts Bernas is now incurring?

Time will tell .....