This article first appeared in The Edge Financial Daily on May 25, 2017 - May 31, 2017

PUTRAJAYA: National carmaker Proton Holdings Bhd will no longer be receiving subsidies from the Malaysian government after DRB-Hicom Bhd sold a 49.9% stake to China-based Zhejiang Geely Holding Group Co Ltd, said Second Finance Minister Datuk Seri Johari Abdul Ghani.

The government will also reimburse only RM1.1 billion of the RM3.5 billion that Proton has spent on research and development (R&D) over the years, according to Johari.

“We want the company [to be run] as a private entity,” Johari said at the signing of the heads of agreement between DRB-Hicom and Geely. “The government will be here to watch [over] and support the future of Proton in any way we can,” he said, “but of course, there is no more subsidy.”

He added that although the deal is a private transaction between DRB-Hicom and Geely, the government had an interest in it because of the RM1.25 billion soft loan that was provided to Proton in June last year.

“Geely has already agreed to pay the redeemable convertible cumulative preference shares according to the time schedule,” Johari said.

He added that the government would facilitate the agreement to ensure that Proton, established 32 years ago as a government enterprise by then prime minister Tun Dr Mahathir Mohamad, remains a national carmaker.

“Proton will always remain a national car and a source of national pride. Geely, being one of the best automotive players in the world with a brand like Volvo, certainly will give a lot of assistance to Proton.

“The government has a stake in this because Proton currently employs 10,000 people and it is important that we hold intact the entire ecosystem of [Proton’s] vendors intact,” he said. On the R&D reimbursement grant, Johari said: “At the time [that the grant was agreed on], the government agreed to give [RM3.5 billion], but we want to make sure that whatever they spend on R&D they are able to recover through the volumes they produce. To do that, they need a strategic partner. The government doesn’t think Proton alone is capable of achieving the numbers to justify all the R&D,” he said.

“We were supposed to reimburse Proton much earlier, but we decided not to because they needed to get a strategic partner,” said Johari, adding that “if the deal is not completed, the reimbursement will not be given”.

“There’s no point spending the money on R&D and building this new platform if you are not able to get the volumes or the markets to cover the cost. That’s why we are reluctant to give the money because we are not sure whether this money will benefit the company and the entire industry,” Johari said.

As for Proton staff, vendors and suppliers, Johari gave assurance that they would not have to worry as Proton’s tie-up with Geely is expected to help realise the latter’s goal of achieving 500,000 car sales in Asean by 2020.

“We want Proton to be the No 1 brand in Malaysia and to bring it to the Asean region. Certainly, China is one of the markets we will look at. And we want all vendors and suppliers to be given the priority to participate in this development,” he said.

With Geely’s experience in developing vendors and suppliers, Johari expects Proton’s existing supply chain members to benefit in terms of numbers and volume. “Geely fully understands that to make cars competitive, it is necessary to have that supply chain. We already have the entire ecosystem; it’s just a question of putting the volume into it,” he said.