Yesterday, the Prime Minister, Dato’ Seri Najib Razak was absolutely right to ask the question, “will you retain a loss-making company?”, in a pointed justification for the sale of Proton. It is a rhetorical question of course, as no one wants and should retain the company if it is in this case, almost forever making losses.
However, aside from the fact that the Prime Minister sets double-standards by not asking the same question to other bleeding companies such as Malaysia Airlines (MAS) which received a RM6 billion bailout package in 2014, Dato’ Seri Najib Razak must ensure that the sale of 49.9% of Proton to Geely by DRB-Hicom does not become a cover for a multi-billion ringgit bailout of the latter.
DRB-Hicom, a conglomerate owned by Tan Sri Syed Mokhtar Al-Bukhary, who has received billions of ringgit in preferential contracts and concessions from the Government in the past, has been making hundreds of millions of losses over the past 2 financial years.
For the years ending 31 March 2017 and 2016, DRB-Hicom recorded losses of RM260.4 million and RM871.6 million respectively. The share price of DRB Hicom has declined by 56% from RM2.60 as at the end of 2012 to RM1.15 as at the end of 2016.
As Second Finance Minister, Dato’ Seri Johari Abdul Ghani announced, as part of the Geely acquisition, the Government will still pay RM1.1 billion in R&D grant to Proton, which will be “refunded” to DRB-Hicom.
In addition, the Government is disbursing another RM250 million, on top of the existing RM1.25 billion in soft loans for the beleagured company.
Proton will also be stripped of its assets in the process, with the Lotus car company being sold to a Geely-led joint venture for GBP100 million (RM556 million) and real estate properties worth at least RM540 million transferred to DRB-Hicom.
The Edge Weekly also reported last week that the bulk of the proceeds from the Lotus sale will find its way back to DRB-Hicom.
Hence the question, Dato’ Seri Najib Razak, is not whether we should dispose of “a loss-making company”. We have already disposed 100% of Proton to DRB-Hicom in 2012 and hence no longer owns loss-making ‘national car-maker’.
The question Malaysians are asking the Prime Minister is why are we allowing DRB-Hicom to benefit billions of ringgit by helping them dispose half of their loss-making company, Proton?
Two days ago, I’ve already issued a statement seeking the Ministry of Finance to elicit a shareholders’ joint and several guarantee on the Government’s RM1.5 billion soft loan to Proton if the Government refuses to recall the loan in the light of the Geely acquisition.
On top of that, given the factors above, the Government must block the transfer of cash and assets to DRB-Hicom unless the Government’s soft loan is repaid first. In other words, the proceeds from the GBP100 million Lotus sale and the RM540 million property transfer to DRB-Hicom must not be allowed to take place, until and unless the Government is paid first.
Otherwise, the 49.9% stake sale of Proton to Geely has only become just a façade not only for Proton’s assets to be stripped, but for Tan Sri Syed Mokhtar and DRB-Hicom to benefit billions of ringgit in the process at the expense of the Malaysian tax-payers.
Showing posts with label Proton. Show all posts
Showing posts with label Proton. Show all posts
Saturday, June 03, 2017
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.
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.
Tuesday, May 30, 2017
Will we be left with a skeletal Proton, stripped of its assets?
The Second Finance Minister, Dato’ Seri Johari Abdul Ghani announced that the Ministry of Finance (MoF) agreed to pay RM1.1 billion in “research grant” and drawdown the final instalment of RM250 million of its RM1.5 billion soft loan to Proton.
However, as I wrote yesterday, I found it inexplicable that Geely needed only to pay RM170 million for a 49.9% stake in Proton which is about to receive the above RM1.35 billion in cash from the MoF.
Worse, despite the high profile acquisition signing by the respective parties, Geely makes no mention at all on its future plans for Proton, particularly if it plans to invest more funds into Proton to, in the words of Dato’ Seri Johari, “bring back the glory days”.
In fact, when you study the transaction in detail, Malaysians are concerned that the deal is essentially an asset stripping exercise with Proton’s skeletal remains to be returned to the Malaysian government in time to come.
Under the deal, Proton will dispose of it’s entire stake in UK-based Lotus car manufacturer to a Geely-led joint venture company for GBP100 million or approximately RM556 million. It should be remembered that Proton had paid RM1.96 billion to acquire Lotus in 1996. From the above transaction details, it is obvious that Geely is more interested in Lotus which it will become the majority shareholder, as opposed to Proton.
In addition, we have also discovered that as part of the disposal exercise, the valuable landbank previously held by Proton worth an estimated RM540 million in book value will also be fully-transferred to DRB-Hicom, who acquired Proton from Khazanah Nasional in 2012. Property analysts interviewed by the Edge Weekly suggested that the market value for these assets are significantly higher.
The problem is, despite the above assets being stripped from Proton, the Government’s RM1.5 billion soft loan to Proton will remain outstanding.
Under all sensible circumstances, with Geely’s acquisition of Lotus and the transfer of property assets to DRB-Hicom, the Government’s soft loan must be repaid in full. At the very least, the “new” joint-shareholders of Proton – DRB Hicom and Geely must provide full corporate guarantees for the loan in the event of default by Proton.
However, we have since discovered that in the event of default, the soft loan will be converted into 2.1 billion new shares in Proton, which constitutes at least 65% of the company!
In other words, if Geely and DRB-Hicom chooses not to continue investing and sustaining Proton, and as a result, the latter fails to repay the Government’s RM1.5 billion soft loan, then the bleeding company will once again be owned by the Government!
The clear winners in this outcome are Geely which got what it wanted out of the transaction – the Lotus car and brand; and DRB-Hicom which got all the valuable property assets. In the event that Proton fails to recover, then the loss-making baby will be inevitably returned to the unwitting arms of the Malaysian tax-payers.
If Proton for whatever reason becomes very profitable, the private companies will keep all the profit. However, if Proton, in the plausible scenario of continuing to make hundreds of millions of losses annually, the losses will be ultimately be “socialised” by the Malaysian Government.
The Ministry of Finance must answer as to why the Government has provided two private companies – one local and one foreign, such a fantastic financial failsafe. Its heads, Geely and DRB-Hicom wins; and tails, the rakyat loses.
However, as I wrote yesterday, I found it inexplicable that Geely needed only to pay RM170 million for a 49.9% stake in Proton which is about to receive the above RM1.35 billion in cash from the MoF.
Worse, despite the high profile acquisition signing by the respective parties, Geely makes no mention at all on its future plans for Proton, particularly if it plans to invest more funds into Proton to, in the words of Dato’ Seri Johari, “bring back the glory days”.
In fact, when you study the transaction in detail, Malaysians are concerned that the deal is essentially an asset stripping exercise with Proton’s skeletal remains to be returned to the Malaysian government in time to come.
Under the deal, Proton will dispose of it’s entire stake in UK-based Lotus car manufacturer to a Geely-led joint venture company for GBP100 million or approximately RM556 million. It should be remembered that Proton had paid RM1.96 billion to acquire Lotus in 1996. From the above transaction details, it is obvious that Geely is more interested in Lotus which it will become the majority shareholder, as opposed to Proton.
In addition, we have also discovered that as part of the disposal exercise, the valuable landbank previously held by Proton worth an estimated RM540 million in book value will also be fully-transferred to DRB-Hicom, who acquired Proton from Khazanah Nasional in 2012. Property analysts interviewed by the Edge Weekly suggested that the market value for these assets are significantly higher.
The problem is, despite the above assets being stripped from Proton, the Government’s RM1.5 billion soft loan to Proton will remain outstanding.
Under all sensible circumstances, with Geely’s acquisition of Lotus and the transfer of property assets to DRB-Hicom, the Government’s soft loan must be repaid in full. At the very least, the “new” joint-shareholders of Proton – DRB Hicom and Geely must provide full corporate guarantees for the loan in the event of default by Proton.
However, we have since discovered that in the event of default, the soft loan will be converted into 2.1 billion new shares in Proton, which constitutes at least 65% of the company!
In other words, if Geely and DRB-Hicom chooses not to continue investing and sustaining Proton, and as a result, the latter fails to repay the Government’s RM1.5 billion soft loan, then the bleeding company will once again be owned by the Government!
The clear winners in this outcome are Geely which got what it wanted out of the transaction – the Lotus car and brand; and DRB-Hicom which got all the valuable property assets. In the event that Proton fails to recover, then the loss-making baby will be inevitably returned to the unwitting arms of the Malaysian tax-payers.
If Proton for whatever reason becomes very profitable, the private companies will keep all the profit. However, if Proton, in the plausible scenario of continuing to make hundreds of millions of losses annually, the losses will be ultimately be “socialised” by the Malaysian Government.
The Ministry of Finance must answer as to why the Government has provided two private companies – one local and one foreign, such a fantastic financial failsafe. Its heads, Geely and DRB-Hicom wins; and tails, the rakyat loses.
Monday, May 29, 2017
Did the Malaysian Government effectively pay Geely to acquire Proton?
After more than a decade of tie-up talks with car manufacturers around the world, including repeated on-off talks with Volkswagen, Proton finally tied the knot with China’s rising upstart Geely, which took over the Swedish Volvo in 2010.
The debate since has focused on two issues – first, the “loss” of a “national car” and second, the Government relieved of all future obligations to finance the company which has bled tax-payers for more than 20 years.
The issue of a “national” car has always been one of misplaced ego and pride. A "national" car doesn't add value to the country's economy if it doesn't create sufficient jobs and a competitive industry.
On the other hand, if every foreign vehicle manufacturer wants to set up factory in Malaysia, it'll create thousands of jobs, facilitate knowledge and technology transfer, create a highly competitive industry and ultimately provide a big boost to our wealth and economy, even if the so-called brands are not "national".
Hence the yardstick by which we must measure the Geely acquisition must be by it’s plans for Proton. The markets are still clueless as to how much investment Geely will bring into Proton other than the meagre cost of acquiring DRB-Hicom’s 49.9% stake in Proton for RM170 million.
If Geely has no plans to further invest in strengthening Proton’s technical capacity, then the latter will pretty much fade into the oblivion. We are not even sure if Geely intends to fully utilise the oft-cited “excess capacity” in Proton to produce more cars, regardless of whether they are branded Proton, Geely or Volvo.
The Second Finance Minister, Datuk Seri Johari Abdul Ghani who boasted that the Geely acquisition will bring back Proton’s “glory days”, further adding that there will be no more subsidies for Proton after the final payment of RM1.1 billion.
In addition, the Ministry of Finance will disburse the final RM250 million from the RM1.5 billion soft loan provided to Proton last year.
For those that did the simple mathematics, effectively, Geely is paying only RM170 million to acquire a 49% stake in a company which the Government is about to inject RM1.35 billion (RM1.1bn + RM250mil) of cash!
As highlighted above, to date, there has been no mention at all of any commitment or additional investment by Geely into Proton in order to turn around the beleagured “national” car maker.
Hence, despite the fact that Proton is already a private company sold to DRB-Hicom in 2012, it looks like the Government is effectively bailing out DRB-Hicom, a company owned by Syed Mokhtar Al-Bukhari, by indirectly “paying” Geely to make it worthwhile for the latter to acquire 49% of Proton.
The action by the Ministry of Finance is completely inexplicable, making absolutely no financial sense. What is the point of privatising Proton by selling its entire stake to DRB Hicom when at the end of the day, the Government continues to “finance” the company’s sustenance?
This further raises the question – if Geely fails to resuscitate Proton and gives up on the company, will the Government step in again to keep Proton on life support?
The debate since has focused on two issues – first, the “loss” of a “national car” and second, the Government relieved of all future obligations to finance the company which has bled tax-payers for more than 20 years.
The issue of a “national” car has always been one of misplaced ego and pride. A "national" car doesn't add value to the country's economy if it doesn't create sufficient jobs and a competitive industry.
On the other hand, if every foreign vehicle manufacturer wants to set up factory in Malaysia, it'll create thousands of jobs, facilitate knowledge and technology transfer, create a highly competitive industry and ultimately provide a big boost to our wealth and economy, even if the so-called brands are not "national".
Hence the yardstick by which we must measure the Geely acquisition must be by it’s plans for Proton. The markets are still clueless as to how much investment Geely will bring into Proton other than the meagre cost of acquiring DRB-Hicom’s 49.9% stake in Proton for RM170 million.
If Geely has no plans to further invest in strengthening Proton’s technical capacity, then the latter will pretty much fade into the oblivion. We are not even sure if Geely intends to fully utilise the oft-cited “excess capacity” in Proton to produce more cars, regardless of whether they are branded Proton, Geely or Volvo.
The Second Finance Minister, Datuk Seri Johari Abdul Ghani who boasted that the Geely acquisition will bring back Proton’s “glory days”, further adding that there will be no more subsidies for Proton after the final payment of RM1.1 billion.
In addition, the Ministry of Finance will disburse the final RM250 million from the RM1.5 billion soft loan provided to Proton last year.
For those that did the simple mathematics, effectively, Geely is paying only RM170 million to acquire a 49% stake in a company which the Government is about to inject RM1.35 billion (RM1.1bn + RM250mil) of cash!
As highlighted above, to date, there has been no mention at all of any commitment or additional investment by Geely into Proton in order to turn around the beleagured “national” car maker.
Hence, despite the fact that Proton is already a private company sold to DRB-Hicom in 2012, it looks like the Government is effectively bailing out DRB-Hicom, a company owned by Syed Mokhtar Al-Bukhari, by indirectly “paying” Geely to make it worthwhile for the latter to acquire 49% of Proton.
The action by the Ministry of Finance is completely inexplicable, making absolutely no financial sense. What is the point of privatising Proton by selling its entire stake to DRB Hicom when at the end of the day, the Government continues to “finance” the company’s sustenance?
This further raises the question – if Geely fails to resuscitate Proton and gives up on the company, will the Government step in again to keep Proton on life support?
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