DRB-Hicom Bhd is understood to have narrowed down its search for a partner for ailing Proton Holdings Bhd to three companies, from seven at the close of bidding two months ago, industry sources say.
It is understood that two of the three are French companies — Groupe PSA (formerly known as PSA Peugeot Citroën) and Renault SA (part of the Renault–Nissan Alliance) — while the third is China’s Geely Automobile Holdings Ltd.
Companies that could have fallen out of the race include Volkswagen AG, General Motors Co and Suzuki Motor Corp. It is not certain if US-based GM had thrown its hat into the ring, but it is not among the shortlisted entities.
“All three have their respective strengths and have their own ideas for Proton, but the crunch will be when the due diligence takes place,” says an auto industry source familiar with the developments at Proton.
Industry sources say the national car maker could decide on the winning bid by the middle of next year.
While the French companies could be familiar with Proton, Geely is new to it.
In September 2006, PSA and Perusahaan Otomobil Nasional Sdn Bhd — a wholly owned unit of Proton — had signed a letter of intent “to evaluate and study possible co-operation between the two automobile manufacturers”.
Nothing came of it, but it is noteworthy that between 1996 and 2000, Proton developed the Tiara, which was a Citroën AX manufactured under licence.
The Nissan-Renault Alliance recently acquired a 34% stake in rival Mitsubishi Motors Corp for US$2.2 billion (RM8.96 billion). Mitsubishi is Japan’s sixth-largest car maker while Nissan is the second largest.
Proton and Mitsubishi have had agreements and understanding in the past. The Japanese company supplied a big chunk of the vehicle platforms, engines, parts and technical expertise during Proton’s early days. At that time, Mitsubishi had 16% equity interest in Proton, which it finally sold to Khazanah Nasional Bhd in January 2005.
Talk of a Proton-Geely tie-up first surfaced in November last year after former Proton chairman Tun Mahathir Mohamad was rumoured to have met the top brass at Volvo — which is a unit of Geely — in Sweden, as well as with Geely in China.
Proton’s need for a foreign shareholder stems from the government giving it a RM1.5 billion soft loan that comes with many conditions, including taking on a strategic partner.
The soft loan entails the government injecting as much as RM1.25 billion into Proton by subscribing for redeemable convertible cumulative preference shares.
That could lead to the government becoming Proton’s controlling shareholder again with a 79.28% stake if it chooses to fully convert the preference shares. The preference shares have a par value of one sen and premium of 99 sen each at an issue price of RM1.
The soft loan enabled Proton’s parent, DRB, to regularise its cash flow and settle long outstanding payments to Proton’s suppliers, creditors and vendors.
Much of the assistance rendered to Proton is because its sales have shrunk significantly over the years, from 80% market share in 1998 to 32% in 2006, 21.2% in 2013, and now, just below 12% of total industry volume (TIV).
Proton’s woes have been blamed on the perceived poor quality of its cars, which adversely impacted market share. The national car maker also lacks economies of scale, largely because it has not successfully ventured abroad.
As at end-September, Proton had sold 50,091 cars out of the total of 418,433 vehicles sold in the country in the first nine months of 2016, which works out to a market share of just below 12% of TIV.
And September was a good month for it as it chalked up the third highest sales with 6,062 cars, trailing Perusahaan Otomobil Kedua Sdn Bhd (Perodua) and Honda. Perodua and Honda , along with Toyota, normally sell more cars than Proton.
Nevertheless something needs to be done fast. Proton has been bleeding red ink for some time now, and this has adversely impacted DRB-Hicom as well.
A check with the Companies Commission of Malaysia (CCM) indicates that Proton, for its financial year ended March 2015, suffered an after-tax loss of RM646.30 million from RM5.83 billion in revenue.
As at end-March last year, it had non-current assets of RM3.45 billion and current assets of RM3.18 billion, short-term debt of RM3.35 billion and long-term borrowings of RM929.87 million. As at end-March last year, it had reserves totalling RM1.8 billion.
It is not clear what sort of stake the three companies are looking at. While DRB-Hicom has said that it “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”, it seems unlikely that any of the three possible partners will let it retain control of the company and choose to take a non-controlling block.
Details are scarce but the answers are slowly trickling in.
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