Proton deal will fast-track Geely’s presence

  • Corporate News
  • Friday, 03 Feb 2017

Prized asset: It is said that Geely and PSA are eyeing a 51 stake in Proton’s manufacturing plant in Tanjung Malim which has net book value of RM501mil as of March 2016.

PETALING JAYA: Geely Automobile Holdings Ltd’s interest in national car manufacturer Proton Holdings Bhd is seen as a move by the China-based automaker to fast-track and build its presence in South-East Asia.

However, the company will have its work cut out for it if it succeeds in the bid for Proton.

The biggest task at hand is to turn around Proton that has been suffering from declining sales, losing market share and is in dire need of a partner with the technical expertise to make it competitive.

CIMB Research, in a report yesterday, said that a company like Geely had the capability to revitalise Proton.

The report was issued after a StarBiz report yesterday, which said that Geely was leading a three-way race to be the technical partner for Proton, ahead of French carmakers PSA Group and Renault SA.

“Overall, we see this as a positive development towards Proton’s recovery as we expect the new potential partner to help Proton boost its manufacturing utilisation rate.

“Moreover, we expect the potential partner to provide support in terms of advanced technology, global reach and economies-of-scale.”

Geely, owner of Swedish carmaker Volvo Cars Corp and the London Taxi Company, had linked to a potential tie-up with British sports carmaker Lotus Cars Ltd - which is owned by Proton.

In November last year, the China auto company denied rumours that it was in talks to acquire a stake in Lotus.

However, it did confirm to have been in discussions with Lotus for a potential technological cooperation.

“It is possible that Geely may still be interested in pursuing this option, and a stake in Proton would give it more say when it comes to making decisions regarding Lotus,” said an analyst.

According to reports, citing chief executive Jean-Marc Gales, Lotus is on course to make a profit this year for the first time in its 68-year history.

It is said that Geely and PSA want 51% in Proton’s manufacturing plant in Tanjung Malim. Towards this end, the Government has given the green light for foreigners to own a majority stake in the assembly plant.

According to CIMB Research, the net book value of the plant was about RM501mil as of March 2016.

“We are not surprised by this, as the plant is considered a prized asset for Proton’s potential partner as it would provide immediate access to car production facilities, which is valuable to a partner that targets the growing South-East Asian market.

“The Government has also reportedly given the approval for a foreign company to own a majority stake in the assembly plant,” it said.

The need to acquire a strategic partner was imposed on Proton as part of the conditions issued by the Government for its approval of an RM1.5bil soft loan to the national car company, in which a bulk of the money would be used to pay its vendors.

Last month, Proton chief executive officer Datuk Ahmad Fuaad Kenali said the company would announce its tie-up with a foreign strategic partner as early as April.

Proton has been a drain on parent DRB-Hicom Bhd’s earnings.

The latter marked its fourth consecutive quarterly loss, reporting a net loss of RM267.55mil in its second quarter ended Sept 30, 2016, compared with a net profit of RM52.67mil in the previous corresponding period.

Proton sold 72,290 vehicles last year compared with 102,175 units in 2015.

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