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Five-Year Lifeline For Proton

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PETALING JAYA: The Government has given the management of the national car company, Proton Holdings Bhd, five years to improve its financials, and has described it as crucial for it to get a strategic partner for a turnaround.

International Trade and Industry Minister Datuk Seri Mustapa Mohamed said that Proton needed to repay the RM1.5bil that was injected into the company with cumulative dividends of 4% per annum in the next five years.

“It is therefore crucial for Proton to find a strategic partner and implement its turnaround plan that would be closely monitored by a task force,” he said in a statement yesterday, clarifying the reasons why the Government had to step in with a cash injection for the ailing national car manufacturer.

In justifying the reason for the cash assistance, Mustapa said that the Government chose to subscribe for preference shares because it was the fastest route to address Proton’s financial problems.

“The company is in dire need of liquidity to pay its vendors,” he said.

Last week, the Government completed an exercise that saw Proton receiving a total of RM1.5bil in cash assistance. It included Proton, the company, issuing RM1.25bil worth of redeemable convertible cumulative preference shares (RCCPS) that the Government subscribed through GovCo Holdings Bhd.

As of March 31 last year, Proton’s total long-term borrowings stood at RM847mil.

Should the Government propose to give a loan or a subordinated loan to Proton, the company’s existing lenders’ consent would be required and the process will take a long time, further delaying the crisis faced by the Proton vendors.

There is also the possibility that existing lenders would request for the early retirement of their loans.

Nevertheless, the financial assistance, according to Mustapa, has its punitive terms and features.

The first is that should Proton decide to convert the RCCPS, the conversion price has been set at 87 sen per share and the Government will receive 87 sen per share. This is about 46% below Proton’s current net tangible asset per share of RM1.86.

Additionally, there is a non-dilution clause where the Government is protected should Proton secure dilutive financing below the agreed conversion price of 87 sen.

Also, there will be no dividend or shareholders advance being declared or paid by Proton as long as the RCCPS is still outstanding.

Having said that, Mustapa reiterated that the Government’s role is neither to turn around Proton nor take over its management, but instead, to assist it in ensuring the conditions imposed for the financial assistance are met.

“The Government has agreed to approve the soft loan of RM1.5bil to ensure that Proton remains sustainable as a national carmaker, providing jobs for 12,000 direct employees and another 50,000 employees along the local automotive supply chain,” he said.

Coming back to the crucial issue of strategic partnership, Proton in the past had held alliance talks with several global car companies, including Volkswagen group and General Motors, but none had materialised.

It was reported that the Cabinet in 2007 had shot down the plan to have Volkswagen enter as Proton’s strategic partner.

The latest is Proton’s proposal of a long-term strategic collaboration and partnership with Suzuki Motor Corp of Japan, where both had signed a memorandum of understanding and licence agreement about a year ago.

The deal was said to encompass the four main areas of products, technology, people and market, but is still work in progress,

Last month, there was also news reports speculating that Proton was in talks with two French companies, Groupe PSA (formerly known as PSA Peugeot Citroën) and Renault SA.

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