Not too long ago, there was a huge uproar over news that Proton Holdings is up for sale. The market reacted and DRB-Hicom’s shares soared amidst prospects of Proton being owned by a foreign carmaker. However, DRB-Hicom quickly denied this after acquiring Proton for the better part of RM3 billion back in 2012.
However, things took a surprising turn as The Star reported that DRB-Hicom is prepared to sell up to 51 percent of its stake in Proton. What this means is that DRB-Hicom will be losing its majority stake in Proton and, depending on the terms of agreement, may also lose their authority over Proton Holdings Sdn Bhd.
If we rewind back to June, Proton secured a RM1.25 billion soft loan from the Government. Among its conditions is that the local carmaker must forge a strategic partnership with a well-established and esteemed foreign partner. According to The Star, Proton has approached 20 carmakers this year and so far the ones that are keen on the idea are Groupe PSA, Volkswagen Group’s Skoda Unit and Suzuki Motor Corp.
By selling 51 percent of its stake to larger car manufacturer, Proton would then fulfil the terms for the soft loan from the Federal Government. With the acquisition of Proton, the foreign partner would have access to Proton’s manufacturing facility in Tanjong Malim and Shah Alam that is capable of producing 400,000 cars annually. This is especially beneficial for carmakers that are looking into regional expansion, as Proton also has the capability and expertise in exporting cars overseas.
On the other hand, investors would have to keep in mind that the soft loan by the Government are in the form of issuing new redeemable convertible cumulative preference shares (RCCPS) to the Minister of Finance Inc. In other words, should the Government decide to convert the shares, DRB-Hicom’s stake would be instantly reduced from 100 percent to 17.65 percent, thus becoming the largest stakeholder of Proton with 82.35 percent of stake.
With the acquisition of Proton, we may even see the sharing of research and development technologies between different brands as practiced by Volkswagen Group whom has multiple brands under its umbrella. Let’s not forget that by owning British sports-car maker Lotus, Proton has churned out cars with exceptional handling thanks to Lotus’s expertise. Therefore, selling a majority of its stake to a foreign partner may just be what Proton needs to save itself from the red figures.
