Govt to buy up to RM1.25bil preference shares in Proton

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KUALA LUMPUR: The Government will inject up to RM1.25bil into Proton Holdings Bhd (PHB) by subscribing to new redeemable convertible cumulative preference shares (RCCPS) in the carmaker, which may make it Proton’s controlling shareholder again if it chooses to fully convert the RCCPS.

In a filing with Bursa Malaysia on Monday, DRB-Hicom said PHB, which is its wholly-owned subsidiary, had entered into a conditional agreement with Minister of Finance Inc’s 99.9% owned Govco Holdings Bhd for Govco’s proposed subscription of 1.25 billion new PHB RCCPS comprising par value of 1 sen each and premium of 99 sen each at an issue price of RM1.

“The proposed RCCPS issuance will enable PHB to regularise its cashflow and settle the long outstanding balance payable to the PHB group’s various local and international creditors, vendors and suppliers. This will also help rebuild the vendors/suppliers’ confidence in the PHB group,” DRB-Hicom said.

Last month DRB-Hicom announced net losses of RM991.90mil in the financial year ended March 31, 2016 (FY16), mainly due to the poor performance of PHB. The conglomerate said if Proton’s results were excluded, the group’s performance in FY16 was commendable.

“PHB group has been experiencing flagging vehicle sales in the recent years and this has affected PHB group’s cashflow position,” DRB-Hicom said in its announcement on Monday.

“PHB group plays a crucial role in the national automotive industry where there are about 12,000 workers directly under the PHB group while about 50,000 are employed under the various vendor companies. In cognisance of this, the Government agreed to subscribe to the PHB RCCPS to provide financial support to PHB.”

The Government had said in April that it would grant Proton a RM1.5bil soft loan, which wpuld come with several conditions attached to ensure the national carmaker is competitive.

Among the conditions precedent for the share subscription is PHB having initiated and presented a restructuring/turnaround plan to the committee formed by the Government and led by Performance Management and Delivery Unit (Pemandu) whose members will monitor the implementation of PHB’s business recovery plan. The restructuring/turnaround plan will entail an outline plan on the relocation of the Shah Alam plant to the Tanjung Malim plant and a strategic plan for the expansion of business domestically and internationally;

DRB-Hicom noted that within one year from the date of the subscription agreement or such other date as the parties might mutually agree to extend, PHB would also “use its best endeavour” to seek and identify a strategic and renowned partner who will assist in research and development to become a competitive player in automotive industry at the international level.

“In the event that PHB is not able to fulfil the aforesaid requirement after exercising its best efforts and endeavours, the parties shall mutually discuss for alternative solutions or options towards achieving similar objective,” it added.

Assuming that Govco converts the entire 1.25 billion PHB RCCPS and the unpaid dividend declared for the PHB RCCPS of RM574mil into 2.1 million new PHB shares at the end of the tenure, DRB-Hicom’s shareholding in PHB will be diluted from 100% to about 20.72%, while Govco will hold about 79.28% in PHB.

The conversion price of 87 sen per PHB share, arising from the conversion ratio of 1 PHB RCCPS to 1.152 new PHB share, was determined on a negotiated basis and after taking into expected required rate of returns to Govco.

The current issued and paid-up share capital of Proton is RM550.21mil comprising 549.21 million shares and 1 million redeemable preference shares.

PHB will declare a cumulative dividend annually, with such dividend being 4.0% per annum on a cumulative basis. Another condition is that no dividend will be declared to PHB’s ordinary shareholders and other preference shareholders without Govco’s consent, and if any dividend is declared by PHB to its ordinary and other preference shareholders, then the dividends in respect of the PHB RCCPS will be paid in preference.

DRB-Hicom shares slid 4.5 sen to close at 86 sen on Monday, with 1.29 million shares traded.

Editor’s note: On the following day (Tuesday, June 7), DRB-Hicom announced to Bursa Malaysia: “The proposed RCCPS issuance has been completed today upon the issuance of the subscription shares to Govco.”