No plans for M'sian govt to take over Proton

If the government converts the 1.25 billion redeemable convertible cumulative preference shares (RCCPS), which it has proposed to subscribe from Proton, it would become the largest shareholder in the carmaker with a 79 per cent stake.

 

But this won’t be the case, said a source familiar with the matter.

 

“The government will not take over Proton,” he said, adding that Proton had transitioned from a government-owned company into a fully private entity.

 

 On Monday, Proton issued up to 1.25 billion ringgit (US$305.67 million) worth of convertible preference shares to the government in a move to shore up its finances. “The preference shares is in reference to the 1.5 billion ringgit given to Proton earlier this year. The government has granted a soft loan for Proton and one of the conditions for the loan is it must have a foreign strategic partner and a sound transformation plan,” said the source.

 

“I believe that the conditional assistance package rendered to Proton, as well as insight from the new Proton Task Force will provide a fresh management perspective that will lead to Proton’s sustainability and success in the future.

 

The issuance of the RCCPS was completed yesterday. The Cabinet had in April approved a conditional soft loan amounting to 1.5 billion ringgit to Proton in which a bulk of that money would be used to pay its vendors.

 

DRB-Hicom Bhd, which has a 100 per cent-stake in Proton, said on Monday the government agreed to subscribe to 1.25 billion RCCPS issued by Proton via GovCo Holdings Bhd by way of 1.25 billion ringgit cash payment.

 

DRB-Hicom shares closed up 17 sen to 1.03 ringgit yesterday, its highest since April 20. It was one of the more actively traded stock with 19.88 million shares done.

 

With a tenure of 15 years, AmInvestment Bank said in a report yesterday that the RCCPS carry a 4 per cent dividend and a conversion ratio of one RCCPS to 1.152 Proton shares, giving a conversion price of 87 sen per Proton share.

 

“Proton is given a five-year grace period in respect of the dividend, conversion and redemption. It retains the right to redeem the RCCPS at any time, and holds the option to partially or fully convert the RCCPS after the grace period.

 

“GovCo will not be entitled to call for conversion.”

 

As at June 6, 2016, Proton’s paid-up capital amounted to 550.2 million ringgit comprising 549.2 million shares.

 

According to DRB-Hicom, the proposed RCCPS issuance will enable Proton to regularise its cashflow and settle the long outstanding balance payable to various local and international creditors, vendors and suppliers.

 

“This will also help rebuild the vendors/suppliers’ confidence in Proton,” it said.

 

The conditions precedent, which have been fulfilled, included the submission to a government-led task force of a turnaround plan that entails an outline plan on the relocation of Proton’s Shah Alam plant to Tanjung Malim and a strategic plan for domestic and international expansion, said AmInvestment Bank.

 

The government’s Performance Management and Delivery Unit will monitor Proton’s business recovery plan.

 

“Proton will within a year endeavour to identify a strategic and renowned partner that will assist in research and development for it to become a global player.”

 

The research house added that if Proton could not do so, the parties would discuss options for it to achieve the objective.

 

“This, we believe, opens the door for the potential entry of a strategic equity investor – one which would require the government’s nod. The exercise, which does not require DRB-Hicom shareholders’ approval, is positive insofar as it regularises Proton’s cash flow and keeps it as an ongoing concern while it seeks a foreign partner.”

 

DRB-Hicom saw its earnings dragged by Proton in its fourth quarter ended March 31, 2016. The company reported a net loss of 790.76 million ringgit from a previous net profit of 89.8 million ringgit in the corresponding quarter of 2015.

 

The weaker earnings was mainly due to Proton’s lower vehicle sales, volatility in foreign exchange (forex) rates and weak consumer sentiment.

 

The reduced profit margins was due to weak forex which affected Proton’s raw material cost and the lack of new models during the financial period. In addition, Proton made provisions relating to certain non-recurring charges which had affected its bottom line.

 

DRB-Hicom’s revenue, meanwhile, dropped 17.98 per cent to 2.63 billion ringgit.

 

According to Public Investment Bank Research, Proton has total borrowing of around 1.7 billion ringgit, which accounted for 24 per cent of DRB-Hicom’s total debt.

 

The research house said the issuance of the RCCPS would reduce DRB-Hicom’s 2016 net gearing from 0.88 times to 0.58 times.

 

“We are positive on this as we believe it can help to regularise the cash flow of Proton during a challenging operating environment at its automotive segment and accelerate the turnaround plans at Proton.”