KUALA LUMPUR - Malaysia's national carmaker Proton is now partially owned by Chinese automaker Zhejiang Geely Holdings Group after the latter inked an agreement with DRB-Hicom on Friday (June 23).
Under the agreement, Geely is taking up a 49.9 per cent stake in Proton for RM460.3 million (S$148.9 million). Of this sum, RM170.3 million is a cash injection while the remaining RM290 million is from the valuation of Geely's popular SUV, Boyue, which it will produce in Malaysia using the Proton name.
Geely will also be producing right-hand drive Volvos at Proton's giant Tanjung Malim plant in southern Perak.
The remaining 50.1 stake in Proton will continue to be held by conglomerate DRB-Hicom, which also owns several car brands in Malaysia, owns post office services firm Pos Malaysia and has a real estate arm.
Under the deal, DRB-Hicom is also completely disposing its stake in British sports automaker Lotus, with Geely taking majority stake at 51 per cent for 51 million pounds (S$90 million). The remaining share in Lotus will be bought by Etika Automotive, a firm owned by local tycoon Syed Mokhtar Al-Bukhary, who also controls DRB-Hicom.
"The reality had dawned on almost everyone; namely, that the (Proton) business model was, and had always been unsustainable in the long run," said Prime Minister Najib Razak in his speech today. He said Proton needed a strategic partner to achieve economies of scale.
The production of Volvos, which is owned by Geely, and Boyue, would help Proton raise production in its under-utilised plant.
"This is the turning point where Proton's fortunes would turn in our favour," said DRB-Hicom's group managing director Syed Faisal Albar.
According to DRB-Hicom, the deal would see the government providing the firm a tranche of RM250 million loan which is part of the RM1.5 billion soft loan Proton took from the state.
Proton would later pay back its syndicated loans to Malaysian banks amounting to RM533 million. It will also repay shareholder advances of RM567 million.
To provide collateral for the government loan, DRB-Hicom would take over non-automotive related assets of Proton valued at a total of RM1.2 billion, such as its land bank.
Additionally, the conglomerate would build a test track at Proton's Tanjung Malim plant for RM180 million.
Hong Leong Investment Bank, in its daily brief on Friday, wrote that it is "relatively negative on DRB's increased cashflow commitment in Proton's turnaround plan" but sees DRB-Hicom benefitting from the partnership with Geely.
Geely's vice president Daniel Li said at the press conference that the company is "committed to further necessary investments to develop Proton" after its initial cash injection but declined to provide a timeline.
Meanwhile, Geely chairman Li Shufu told reporters Geely for the time being would not be established in Southeast Asia, avoiding a brand conflict with Proton.
Its priority is to first turn Proton into a profitable entity before coming up with new business plans.
Mr Li Shufu also denied reports that Geely's true interest in the double partnership deal was to have a majority stake in Lotus, saying that the firm had "no ulterior motives".
Datuk Seri Najib hailed Geely's entry as putting Proton on a "secure future" while offering another stab at his former mentor Tun Dr Mahathir Mohamad in his speech.
"For far too long the unrealistic dreams and lack of commercial understanding of its former chief tester had been indulged. He would still prefer Proton to be 100 per cent Malaysian owned and lose hundreds of millions of ringgit a year," Mr Najib said without explicitly naming anyone.
He also called views that foreign investment would lead to loss of sovereignty as "economically illiterate".
