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Logo of Phnom Penh Post newspaper Phnom Penh Post - Exporter under attack in rice row

The interior of a rice milling plant in 2010
The interior of a rice milling plant in 2010. The plant was closed after a failed deal left it without finance. PHOTO SUPPLIED

Exporter under attack in rice row

In December 2011, the managing director of Megagreen Imex Cambodia, Renne Outh, proudly announced that his firm had inked a $21 million deal to be the first to ship Cambodian rice to the Philippines.

Nearly two and a half years on, not a single Cambodian grain has reached Manila. Export figures for the first five months of 2014 show that Megagreen, once among the top 10 rice exporters in the country, has fallen to 48th out of 84.

The failed Philippines deal marks a pattern of broken promises, as the agricultural wholesaler now finds itself besieged by creditors and lawsuits seeking damages in excess of $1 million, with flawed agreements from one end of the supply chain to the other.

So what went wrong?

The answer, at least in part, is that for many doing business with Megagreen, the dealings have been far from agreeable.

Megagreen owes money to farmers, millers, a large foreign investor, one of the region’s biggest banks and the government’s own agricultural export business, Green Trade.

In two sale and purchase documents obtained by the Post, one for 16,200 square metres of land in Siem Reap’s Pouk district, and the other for a rice mill on which it sits, Megagreen agreed to buy the assets from Singapore-based agricultural investment fund Nagathom for a combined total of $670,000. Both contracts are dated March 14, 2012, and signed by Megagreen directors Outh and Prince Sisowath Pheanuroth.

According to emails and documentation leaked to the Post, the rice exporter paid just $400,000 of the sale price and has agreed to several new deals with Nagathom for the remaining balance in the intervening years.

“Globally you give us a delay until 31 December 2012. In this regard, we consider that the fine of 5% of interest is reasonable. We accept the facts,” reads an email dated October 10, 2012, from Megagreen director Pheanuroth to Nagathom’s director Erez Shalev.

“So we ready to sign the SPA [sale purchase agreement] at your convenient time knowing that the situation will be solved entirely before December,” it continues, referring to an amended agreement for the balance.

But the money never came, the Siem Reap mill remains unused, and Nagathom, after more than two years of go-nowhere negotiations, filed a court claim two months ago. Following two hearings, Megagreen has requested more time and the case is set to resume on June 20.

Headquartered in Phnom Penh, Megagreen says it has exported to, and is currently working with, entities in the European Union, Africa, Australia, the Middle East and the United States.

The firm launched its rice production and export business in 2010, the same year that the government announced its rice policy, which included the ambitious target to export 1 million tonnes in 2015.

Fuelled by a rising demand from overseas buyers, and with the support from the European Union’s “Everything But Arms” duty-free access to member states, Cambodian rice exports have almost doubled in two years, from 202,000 tonnes exported in 2011 to 379,000 in 2013.

A fattening market, however, means greater competition, and not everyone has the ability to keep up, according to David Van, executive director at rice exporter Boost Riche Cambodia.

“I would say that rice trading is highly competitive and that many exporters may not be savvy enough to suspend their commercial activities,” said Van, who declined to point the finger at any single exporter. “Therefore, all I would say is to urge more effort for professionalism as to how people manage their corporation.”

According to Nagathom’s Shalev, Megagreen hasn’t met expectations.

A revised purchase agreement dated January 9, 2013, was sent to the Nagathom director from Megagreen’s Outh, with an amended value of $1.2 million for both the Siem Reap land and the rice mill.

“Basically, they told me that in order for them to pay, they want to inflate the price of the rice mill and the land in order for them to get a higher mortgage from the bank and in return to be able to pay for the rice mill,” Shalev said.

In what might be the exporter’s biggest creditor, regional banking giant Maybank is pursuing Megagreen through the courts for default on a loan of more than $800,000, according to documents obtained by the Post.

Maybank declined to comment on the details of the case.

And the broken deals do not end there. Megagreen has suppliers, who collect their paddy from farmers and other millers, still awaiting payments on agreements dating back nearly two years. The exporter, they say, refuses to even acknowledge their claims.

“I previously sold to him [Rene Outh] around 200 to 300 tonnes and I always got paid. Though, on the last deal, 150 tonnes has not been paid since 2012,” said one miller who declined to be named due to the sensitivity of the subject. “I have not prepared anything against him yet. I am waiting to see the response back from him to me.”

One mill supplier who is still awaiting payment on a deal to supply 500 tonnes of paddy says Megareen director Outh has cut off contact.

“I have tried to meet him face-to-face to talk about a resolution, but so far we have not met,” said the supplier from Kampong Thom province who also asked not to be named. “Before, he told me that the administrative staff were in charge, but when I contacted them, they were not in charge,” he said, adding that he was in discussions with his partner as to how to pursue the nearly $20,000 that is allegedly still owed.

The state-owned agricultural producer and exporter Green Trade confirmed that they have also filed a legal suit against Megagreen, but said they are currently negotiating an out-of-court settlement and declined to provide the size of the claim.

With more than 20 years industry experience, Kim Savuth, president of the leading rice exporter Khmer Food, said broken promises from a few exporters were hurting the industry.

“Some exporters are just going to sign the big deal with buyers, however, in fact, they just sign it and drop it. It gives a bad image to the whole industry,” he said, declining to name any specific exporter. “They sign and then throw it into the bin – that’s a really bad image to our country as we are already well-known for our rice quality.”

For more than a month, Megagreen has declined to comment to the Post, but in the experience of foreign investor Nagathom, the inability of the rice exporter to hold a promise means the damage has spilled beyond the reputation of one of Cambodia’s primary industries into the economy at large.

“It is either, I will not make business in Cambodia at all – that is my conclusion right now – and what I am trying to do is to basically sell all the assets and move out to other countries,” Shalev said. “The other option is to join with a very strong local partner, that maybe, will be able to take you through the roots, that will protect you from such events, but who can count on this local partner [not becoming] another Megagreen?”

In a previous version of this article, the Post incorrectly reported that the value of the purchase agreement between Megagreen and Nagathom for a Siem Reap land and rice mill deal was $640,000. The correct value according to documents obtained by the Post was $670,000. The Post also incorrectly reported that the amount paid by Megagreen was $370,000. The correct amount paid according to documents obtained by the Post was $400,000.


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vandavid's picture

Though I fully understand the predicament faced by the foreign partner/investor in this particular instance, I would only stress the crucial importance of any foreign and local investors to conduct a thorough due diligence before entering into partnership agreement. That is the only way to screen carefully all potential partners to ensure one would be comfortable in dealing with in any given business joint venture...

vandavid's picture

“I would say that rice trading is highly competitive and that many exporters may not be savvy enough to suspend their commercial activities,” - the correct spelling and meaning should have been "Sustain" (from "sustainable")--.

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