China’s Geely takes 49.9% stake in Proton
> National carmaker finally lets go of Lotus after 21 years of red ink
PUTRAJAYA: China’s Zhejiang Geely Holding Group Co Ltd (Geely) has emerged as the foreign strategic partner for DRB-Hicom Bhd’s automotive arm Proton Holdings Bhd via the acquisition of a 49.9% stake for an undisclosed sum.
DRB-Hicom will remain the majority shareholder with a 50.1% stake.
At yesterday’s signing ceremony, DRB-Hicom also announced the disposal of its entire stake in Lotus to Geely (51%) and little-known Etika Automotive Sdn Bhd (49%) for £100 million (RM557 million).
Tan Sri Syed Mokhtar Al-Bukhary is the common shareholder of Etika Automotive and DRB-Hicom.
The disposal of Lotus marks Proton’s full exit from the sports car segment.
DRB-Hicom group managing director Datuk Seri Syed Faisal Albar noted that the pricing for the Proton stake sale is still being discussed and finalised. A definitive agreement is expected to be signed in July 2017.
Trading in DRB-Hicom shares was suspended yesterday pending this material announcement.
Syed Faisal said the Proton brand will remain present and will grow significantly with the new foreign strategic partner on board.
“Our intention was always to ensure the revitalisation of the Proton nameplate. It was Malaysia’s first national car brand and has more than 30 years of history. This deal will be the catalyst to elevate a brand that Malaysians resonate with,” he said.
DRB-Hicom said the deal will enable Proton to tap into Geely’s vast range of platforms and powertrains, and will enable Proton to have access to existing markets of the Chinese carmaker, and right-hand drive markets in Southeast Asia.
Geely, which owns Volvo Car Corporation and The London Taxi Company, is one of the leading passenger vehicle carmakers in China. It has 16 manufacturing plants, seven design studios and five research and development (R&D) centres. The deal will offer Geely access into the key Asean markets.
Second Finance Minister Datuk Seri Johari Abdul Ghani said upon completion of the deal, Proton will receive a reimbursement of RM1.1 billion for R&D expenditure, after a total of RM3.5 billion was spent over the years on research and development.
Recall that Proton received a RM1.5 billion soft loan last year, of which RM1.25 billion was in the form of the issuance of redeemable convertible cumulative preference shares, for it to regularise its cash flow and settle long outstanding dues payable to its creditors, vendors and suppliers.
On this, Johari said Proton has to pay back the RM1.5 billion to the government within a certain time. He denied earlier news reports on Proton receiving an additional RM1.7 billion from the government.
As one of the conditions for the soft loan given by the government, Proton has to fully relocate its manufacturing plant in Shah Alam, Selangor, to Tanjung Malim, Perak, five years after securing a strategic partner. The 250acre land in Shah Alam will then be transferred to DRB-Hicom at a fair price.
Following the signing of the heads of agreement, Johari assured workers that there will be no retrenchment at Proton, which employs 10,000 staff.
“They (Geely) are looking at increasing the volume and they want to keep the entire Proton management team as well as jointly manage the Proton cars, so I don’t see the need to do any retrenchment,” he said.
On Proton’s management structure, Syed Faisal said Geely will take the leadership role in manufacturing and production, while DRB-Hicom focuses on the distribution business.
He is hoping that Proton will be earnings before interest, taxes, depreciation and amortisation (ebitda) positive and profitable as soon as practicable and become the third leading automaker in Asean by market share.
Meanwhile, Geely executive vicepresident and CFO Daniel Li said the group aims to achieve a production of three million cars by 2020, of which 500,000 are expected to come from Malaysia and Asean.
Last year, Geely sold over 1.3 million cars, having recorded US$2.63 billion in revenue. It aims to become one of the world’s top 10 automotive groups by 2020, with sales of two million cars annually.
Going forward, Li said Geely is committed to injecting more capital into Proton, whose local market share stood at 12.5% last year, behind Perodua and Honda, which had 35.7% and 15.8% respectively.