Friday 29 Mar 2024
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This article first appeared in The Edge Financial Daily on May 24, 2017

KUALA LUMPUR: The two-horse race between China’s Geely Automobile Holdings Ltd and France’s Groupe PSA to see who will emerge as the foreign strategic partner (FSP) for Proton Holdings Bhd is nearing its end, with Geely the ultimate winner, according to sources.

DRB-Hicom Bhd requested yesterday to suspend the trading of its shares today, pending the release of a material announcement, which is highly anticipated to be the new FSP. Its shares settled at RM1.68 yesterday, one sen or 0.6% higher, which valued the group at RM3.248 billion.

The counter jumped to a two-year high of RM1.82 last Wednesday, immediately after Prime Minister Datuk Seri Najib Razak’s visit to China. Citing sources, The Edge Malaysia reported in its May 15-May 21 publication that Malaysian business tycoon Tan Sri Syed Mokhtar al-Bukhary, who controls DRB-Hicom, also visited China during the period.

It is understood that under the deal, DRB-Hicom will give away a controlling stake in Proton, with Geely possibly ending up with a simple majority of 51% in the ailing national carmaker. This contradicts Proton’s previous statement that the majority stake will remain with a local partner.

But even if Groupe PSA is chosen, it is understood that the French carmaker would also want a controlling ownership. Regardless, some quarters have speculated that Geely may allow Proton to retain much of its operational independence, given the way it handled its takeover of Volvo from Ford Motor Co back in 2010.

Reports on who would “marry” Proton have been mixed so far. Geely was at one time said to be out of the race after Geely president An Conghui said in March that the group has withdrawn its bid to acquire an equity stake in Proton, though DRB-Hicom announced all bids were still being evaluated at the time.

Groupe PSA losing out, however, would not come as a surprise, as the absence of Groupe PSA’s anticipated strategic partnership deal with Proton during French President Francois Hollande’s official visit to Malaysia back in April was a rather strong hint that they would be out of the picture.

Proton is supposed to announce an FSP before June this year to support its turnaround plan — a condition set by the Malaysian government before it gave Proton a RM1.25 billion loan back in 2016. Moreover, sources told The Edge Malaysia that the government had agreed to pump in an additional RM1.7 billion into the company.

Pundits believe the right FSP is key for Proton to turn around, and to mitigate the immediate impact of losses on DRB-Hicom. In DRB-Hicom’s financial year ended March 31, 2016, Proton registered RM1.426 billion in net losses.

Performance-wise, Proton has for the first time fallen to the fourth place in terms of market share in Malaysia in the first four months of this year, at 13.4%, lagging behind Perodua, Honda and Toyota.

Proton sales fell month-on-month for four consecutive months. From 7,207 units in January, it dipped to 6,099 in February, 6,070 in March and 5,600 in April, despite the introduction of three new models in the market last month.

The FSP is one of the few ways — if not the only one — for Proton to survive without acquiring more debt. Most of the first of the RM1.25 billion loan it obtained from the government was immediately used to pay the huge sums it owed its vendors. And Proton still has an upcoming RM260 million repayment due on its RM840 million Islamic medium-term notes this year.

The Proton saga is one that will be closely watched — the government is unlikely to fork out any more money to patch the leaks without facing harsher criticisms.

Meanwhile, the general election looms near, and the long-term future of Proton’s 12,000 employees, together with another 50,000 employed by its vendors, will need to be carefully managed.

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