Thursday 28 Mar 2024
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This article first appeared in The Edge Financial Daily, on August 9, 2016.
 

KUALA LUMPUR: DRB-Hicom Bhd said it has no plans to sell off its entire stake in Proton Holdings Bhd, but “remains highly committed to holding a substantial and strategic stake” in the loss-making national carmaker.

The conglomerate also expects Proton, which is currently undertaking a request for proposal (RFP) to find a partner to help grow its automotive business, to complete the exercise in the first quarter of next year (1Q17).

“DRB-Hicom remains highly committed to hold a substantial and strategic stake in Proton, and is confident of and is currently assisting Proton in its turnaround programme,” the group said in a filing with Bursa Malaysia yesterday.

“It must be highlighted that as part of the requirement of the RM1.5 billion loan granted by the government, Proton is currently undertaking a RFP exercise seeking a partner for Proton who can provide a strategic, operational and cultural fit on a permanent basis with the intention to grow its auto business,” it said.

“This exercise is expected to be completed in 1Q17, and its implementation is being overseen by the task force committee formed by the government to monitor the turnaround of Proton,” DRB-Hicom said.

The group said it will make the appropriate announcement(s) to Bursa as and when necessary.

The task force committee was set up in April this year as part of the government’s approval of Proton’s application for a soft loan of RM1.5 billion. The task force, which is led by Performance Management and Delivery Unit chief executive officer Datuk Seri Idris Jala, oversees the carmaker’s turnaround plan to make the company more competitive.

Under the plan, Proton has to identify a foreign partner within a year to assist in research and development as part of its restructuring.

DRB-Hicom was responding to a report by The Edge weekly over the weekend that the group was expecting as many as seven bids for Proton by the middle of this month and may even sell as much as 100% of the company to foreign buyers.

The report quoted a source as saying that DRB-Hicom had made it clear that it was willing to sell up to 100% of Proton, but “how much it sells will depend on the proposals and prices it receives”.

It also reported that most of the bids had already been received with one or two more due before the mid-Aug deadline.

The Edge had previously reported that French car manufacturers Groupe PSA and Renault SA have been in talks with Proton since the beginning of the year.

Other automakers that are said to be in the running are Germany’s Volkswagen, America’s General Motors, Japan’s Suzuki Motor Corp, and at least one Chinese automaker which is believed to be Geely which owns Swedish marque Volvo.

In a note to clients yesterday, CIMB Research believes that, this time around, there is a higher chance that the sale of Proton to a foreign partner may succeed given the recent reorganisation in Proton’s top level management and its need for further equity injection.

“The disposal is expected to boost the future earnings of DRB-Hicom as it will no longer need to consolidate the losses of Proton, if it sells a 100% stake. The sale could also improve the group’s net gearing ratio of 0.51 times as at March 31, 2016 and boost future cash flows,” it said.

CIMB Research is maintaining its earnings forecasts on DRB-Hicom pending further developments.

“A successful disposal of Proton at a good price would act as a catalyst for Proton’s share price,” it added, retaining its “add” call on the stock and a RM1.60 target price.

Proton was established in 1983 by former prime minister Tun Dr Mahathir Mohamad. The carmaker has gone through several owners, including state investment fund Khazanah Nasional Bhd before being acquired by DRB-Hicom in 2012.

DRB-Hicom swung to a net loss of RM790.8 million in its fourth quarter ended March 31, 2016 (4QFY16) compared with a net profit of RM89.8 million a year ago, which it blamed largely on the poor performance of Proton with lower sales of motor vehicles.

DRB-Hicom saw its share price rise as much as 13 sen or 11.7% to hit an intraday high of RM1.24, before ending the day at RM1.16, up five sen or 4.5%, for a market capitalisation of RM2.26 billion. The stock has been been on a steady climb, appreciating as much as 28.2% from 90.5 sen on July 29.

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