Thursday, June 01, 2017

Government soft loan to Proton must be recalled with immediate effect unless the “new” Proton shareholders jointly and severally guarantee the RM1.5bn loan

Two days ago I had raised the concern that despite Geely’s acquisition of 49.9% of Proton from DRB-Hicom, the Government may ultimately end up with more than 65% of the shares in Proton, should Proton fail to repay the RM1.5 billion soft loan provided by the Government.

This is because the terms of the soft loan in the form of “Redeemable Convertible Cumulative Preference Shares” (RCCPS) are such that Proton has the rights to convert the loan into its shares at any point of time.  If the loan is still unpaid as at maturity, then the entire sum, including any outstanding interest in the form of dividends, will be converted into shares in Proton.

Hence the fear for Malaysian tax-payers is, if Proton’s purported turnaround plan is successful, DRB-Hicom and Geely will share all the profit, but if the plan fails, we have to be left carrying the baby once again.

In a response to Malaysiakini yesterday, the Second Finance Minister, Dato’ Seri Johari Abdul Ghani tried to assure Malaysians that “we will make sure that the RM1.5 billion will be fully secured.”

Dato’ Seri Johari further revealed that based on the deal between Geely and Proton, the option of a conversion is no longer available.  He even confirmed that there is a clause in the agreement stating so.

"We will secure the assets instead and will continue to receive the coupon rate. We will treat this as a strictly private deal.  Whatever we have promised and committed before Geely came in, we will fulfil them," he added.

Therein lies the confusion and contradiction.  First the Second Finance Minister says that the terms of the RCCPS is no longer valid post-Geely acquisition.  Then he says that whatever the government “have promised and committed before Geely came in, [the Government] will fulfil them”.

So which is which?

If the deal is now “strictly private”, then why does the Government need to continue with the soft loan to Proton which have a tenure of up to 15 years.  Why should a new repayment time-table be set?  On the contrary, the Government is proceeding to disburse the final instalment of RM250 million from the RCCPS to Proton.

Even if we were to agree to continue to lend Proton the sum of RM1.5 billion, which we should not, what is this new “security” for the loan Dato’ Seri Johari is talking about?

Let us not forget that Geely is acquiring 49.9% of Proton for a mere RM170 million, providing an indication of the worth of the company.  So what assets could possibly be left in Proton that is worth RM1.5 billion which could “secure” the borrowings from the Government?  Worse, Proton’s key assets – the Lotus car company and brand and its real estate properties would all have already been disposed under the current Geely deal.

Hence even if the RCCPS “conversion to shares” terms are modified, ultimately the failure of Proton to produce the necessary assets valued at RM1.5 billion to repay the loan would still mean the Government taking possession of Proton once again.

Therefore, the only way to ensure that the Government is “protected” and Malaysians can be assured that Proton does not end up in our unwittingly hands again is to elicit a joint and several guarantee from both shareholders of Proton – DRB Hicom and Geely.  This will be nothing less that what any commercial bank would demand from Proton.

We hope that the Ministry of Finance can provide an official undertaking to concerned Malaysians that such a shareholders guarantee for the RM1.5 billion soft loan, or whatever outstanding amounts, will be secured before the Geely’s 49.9% acquisition of Proton can be officially completed.
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