Malaysian Government Back in Proton Picture With Pending Ownership Stake

The Malaysian government bails out Proton, injecting 1.25 billion ringgit ($308.4 million) into the national car company by subscribing to new redeemable convertible cumulative preference shares.

If the government chooses to fully convert the special shares, it again would become Proton’s controlling shareholder.

The government’s investment company, Khazanah Nasional, sold its 42.7% stake in Proton to DRB-Hicom for about $412 million in 2012. This raised DRB-Hicom’s holdings in Proton to about 50.0%, and an unconditional offer for all remaining shares gave it 100% control of the automaker.

In announcements this week to the Malaysian Stock Exchange, DRB-Hicom says Proton Holdings (PHB) has issued 1.25 billion new RCCPS at an issue price of MYR1.00 ($0.2467) each to the Ministry of Finance’s Govco Holdings.

DRB-Hicom says the deal will allow Proton to regularize its cash flow and settle debts with local and international creditors, vendors and suppliers.

DRB-Hicom last month reported a net loss of MYR992 million ($245 million) in the financial year ended March 31. It said if Proton’s results were excluded, the group’s performance was commendable.

“PHB group has been experiencing flagging vehicle sales in the recent years and this has affected PHB group’s cash-flow position,” DRB-Hicom says in its announcement.

Within a year from now, or such other date as the sides agree, Proton is to use its best endeavor to seek and identify “a strategic and renowned partner” that will assist in R&D to make it a competitive player in automotive industry at the international level.

“Notwithstanding the aforesaid, in the event that PHB is not able to fulfil the aforesaid requirement after exercising its best efforts and endeavors, the parties shall mutually discuss for alternative solutions or options towards achieving similar objective,” the DRB-Hicom statement says.

Malaysia’s The Star newspaper says if Govco converts all 1.25 billion Proton shares and the unpaid dividend declared for the Proton shares into 2.1 million new PHB shares at the end of the tenure, DRB-Hicom’s holdings in Proton will be diluted from 100% to about 20.72%, while Govco will hold about 79.28%.