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?

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