KUALA LUMPUR (June 23): DRB-Hicom Bhd and China's Zhejiang Geely Holding Group Co Ltd today inked a definitive shareholders agreement to bring in the latter as the new 49.9% substantial shareholder in Proton Holdings Bhd for a total consideration of RM460 million.
Of the total consideration, Geely will provide a cash injection of RM170 million to Proton — unchanged from its previous announcement. The balance RM290 million will come from transfer of Geely's platform for its best-selling vehicle, the Boyue SUV, to the ailing automotive company.
DRB-Hicom also completed its disposal of a 51% stake in Lotus Advance Technology Sdn Bhd to Geely and the remaining to Tan Sri Syed Mokhtar Albukhary's private unit Etika Automotive Sdn Bhd for £100 million, split 51% and 49% respectively between the two new shareholders.
Speaking to the press at the signing ceremony here today, DRB-Hicom group managing director Datuk Seri Syed Faisal Albar said the signing marks a redemption point for Proton. "This was the turning point, when the fortune of Proton reverses into our favour.
"We embarked on this bidding process with interest from 23 global players. We invited 15 of them, shortlisted to five, and we found a new partner in Geely. Why Geely? We wanted a partner with strategic, operational, and cultural fits and we see that in the company," said Syed Faisal.
Meanwhile, Geely chairman Li Shufu said the first priority now "for Proton is to stop losing money and to turn around".
"This moment brings hope and challenges from now on. Since 2010, five years of ongoing dialogue, and communication over the past two years, leading to the heads of agreement (HoA) and finally this historic moment here today," said Li.
Syed Faisal pointed out that the new, lower indicated value for the SUV platform is based on valuation by independent auditors, while its previous valuation was done internally.
"The external auditor KPMG did a valuation based on discounted cash flow over seven years. Our earlier internal valuation was based on the value for the platform for Proton Iriz, which cost RM600 million," said Syed Faisal, adding that of the two, there are differences in terms of sale prospects and mechanisms, hence the valuation gap.
The agreement was a follow-up to a HoA signed between the two companies on May 24 this year. Under the new definitive agreement, DRB-Hicom has agreed to give Geely the driver's seat in terms of management control in production and manufacturing operations within the ailing automaker.
"Suffice to say that Geely will provide leadership in the production and manufacturing side, and will offer the big bulk of the business capital expenditure spending. We rely a lot on platform technologies, so for them to be in a leadership position is a good thing for Proton," said Syed Faisal.
Proton will also transfer non-core assets totalling RM1.2 billion to DRB-Hicom.
"We want to make sure that Proton is only in the business of automotive, any non-auto business is not considered by Geely," he said. In turn, DRB-Hicom will use the assets as collateral for the balance RM1.2 billion soft loan still owed by Proton to the government.
The government had agreed to give Proton a soft loan to the tune of RM1.5 billion in exchange for redeemable convertible cumulative preference shares (RCCPS) in the company. Of the total, RM250 million has only been released today, following the official tie up of the foreign strategic partner in Proton.
On June 22, DRB-Hicom bought RM300 million in the RCCPS from Minister of Finance Inc's 99.9%-owned Govco Holdings Bhd to pay the first tranche of the loan, another term set by the government before any corporate exercise can be done in the automaker.
As DRB-Hicom has pledged its assets as collateral for the soft loan, the government has given the conversion right of the remaining RCCPS to DRB-Hicom as well.
Together with the deal, Proton has agreed to pay RM537 million to DRB-Hicom, to partially satisfy another RM1.12 billion owed by the automaker to DRB-Hicom in terms of shareholder's advances. The automaker will also pay back RM530 million syndicated loan still owed to Malaysian banks, said Syed Faisal, so that Proton is free from massive long-term loans when Geely comes in.
Meanwhile, DRB-Hicom has also agreed to build a research and development (R&D) test track worth RM180 million at its upcoming Tanjung Malim plant, as Proton's operation is set to move there from its current Shah Alam headquarters.
Among other details yet to be ironed out include Proton's role as the manufacturing hub for Geely right-hand models to be sold in Malaysia and the ASEAN region. Proton may also manufacture Volvo vehicles in its upcoming Tanjung Malim plant, if there is excess capacity.
There is also a window for local Proton vendors to produce parts for vehicles made by Volvo, which is a subsidiary of Geely. "Local vendors can be on Geely's global shared purchasing system, they will stand a chance to produce components for Volvo," said Syed Faisal.
Added with the recent R&D grant reimbursement worth RM1.1 billion given by the government which it said will be used to pay debt owed to its vendors, the corporate exercise will relatively bring Proton out of long-term debt. Proton's focus will now be set on managing its cash flow. With a mere 13.7% market share for the four months ended April this year, Proton may need to speed up its roll-out of Geely models — which was not given any timeline yet — to remain competitive.