Dr Mahathir moves the needle on Proton share price
Former Malaysian prime minister reveals plans for 42.7% stake sale to DRB-Hicom
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Former Malaysian prime minister reveals plans for 42.7% stake sale to DRB-Hicom
By PAULINE NG
13 December 2011
Malaysia’s national car company has taken a fork on the road that could change its fortunes.
Proton Holdings rose 6 per cent to RM4.23 yesterday after its adviser and former Prime Minister Mahathir Mohamad said that Khazanah Nasional plans to sell its 42.7 per cent stake to Malaysian conglomerate DRB-Hicom above current prices.
Proton’s shares had been steadily inching up in the past two weeks on speculation that the state investment agency had requested interested parties to bid for its controlling stake in the company. Khazanah had declined comment.
Dr Mahathir has now revealed that Khazanah was motivated to sell because it did not want to inject additional money into Proton, which needs to step up research and development for a new hybrid engine.
Although he believes DRB - which assembles vehicles and is controlled by tycoon Syed Mokhtar Albukhary - can fit Proton’s business, he did not think its pockets were sufficiently deep.
‘I worry about the buyer having enough money to inject into Proton. The shares that it will be buying are above market price, which will make profitability difficult,’ Dr Mahathir was quoted by The Star as saying in Langkawi where he was invited to speak at an investment forum.
More pertinently perhaps, he observed Proton would remain a national car post-disposal and that DRB was unlikely to on-sell the stake to Volkswagen AG as a recent news report had suggested. DRB assembles VW vehicles locally.
The architect of the national car project which he started in the early 1980s soon after taking over as premier, Dr Mahathir has worked steadfastly to keep Proton’s identity from being subsumed by ensuring locals control the company.
He was strongly opposed to Khazanah disposing of its stake to the Germans in 2007 even though the deal would have helped Proton expand its network and better utilise its under- used plants since Volkswagen intended to export its vehicles to Asean.
According to media reports, DRB has been the only party to bid for the stake. One report cited unidentified sources as pegging the price at between RM7 and RM8 a share.
Proton’s net tangible asset per share is about RM9.80. Even so, its shares have long underperformed because of its hazy earnings outlook as well as high expenses incurred in reversing the fortunes of its UK subsidiary Lotus International.
In the domestic market Proton has lost the lead to the other national car player, Perodua; at the same time, foreign vehicle brands are taking greater market share in a more liberalised environment.
Proton’s main assets are its three production plants, but whether DRB has the wherewithal to pay the hefty premium Khazanah is said to want remains to be seen. At about RM8 a share, it would have to cough up over RM1.8 billion (S$740 million), and as Dr Mahathir indicated, would find it tough to recoup its investment.
Only last week in response to an exchange query, DRB had said it was ‘not aware of the source and basis’ of an article stating it and VW would likely share control of Proton.
Separately, the sale to DRB if it materialises, could add to misgivings within corporate circles that Mr Albukhary’s business empire already extends too far.
Besides automotives, the well-connected tycoon owns interests in ports, the postal service, power, defence, and financial services. But ultimately, few see DRB as having the ability to secure Proton’s longer- term future.