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The Government will provide Proton Holdings Berhad (PHB) with RM1.25 billion worth of funding by subscribing to new redeemable convertible cumulative preference shares (RCCPS) in the carmaker. The funding should form part of a RM1.5 billion soft loan that was awarded to Proton back in April.

In a filing with Bursa Malaysia, DRB-Hicom said Proton had entered into a conditional agreement with Minister of Finance Incorporated’s 99.99% owned Govco Holdings. The move may result in the Government being Proton’s controlling shareholder again.

Under the terms of the agreement, Govco will subscribe to 1.25 billion new RCCPS by way of cash payment. Each share will have an issue price of RM1, comprising par value of one sen each and premium of 99 sen. Proton will use the funds to settle outstanding debts to its creditors, vendors and suppliers.

Should Govco convert the entire 1.25 billion RCCPS in Proton and the unpaid dividend declared for the RCCPS (totalling RM574 million) into 2.1 million new Proton shares at the end of the 15-year tenure, DRB-Hicom’s shareholdings in PHB will be diluted from 100% to about 20.72%, while Govco will hold about 79.28% in Proton.

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“The proposed RCCPS issuance will enable PHB to regularise its cashflow and settle the long outstanding balance payable to the PHB group’s various local and international creditors, vendors and suppliers. This will also help rebuild the vendors/suppliers’ confidence in the PHB group,” as stated in the filing.

The subscription of the RCCPS is also subject to various conditions, chief among which is a restructuring plan that will be overseen by a task force led by Performance Management and Delivery Unit (Pemandu) CEO Datuk Seri Idris Jala. The task force will also be responsible for entailing an outline plan to relocate Proton’s Shah Alam production to Tanjung Malim (freeing the Shah Alam land for development), in addition to creating a strategic business expansion plan for domestic and international markets.

“PHB Group has been experiencing flagging vehicle sales in the recent years and this has affected PHB Group’s cashflow position. PHB Group plays a crucial role in the national automotive industry where there are about 12,000 workers directly under the PHB Group while approximately 50,000 are employed under the various vendor companies. In cognisance of this, the Government of Malaysia agreed to subscribe to the PHB RCCPS to provide financial support to PHB.”

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In the event that Proton is unable to meet the aforementioned requirements after exercising its best efforts and endeavours, both parties will mutually discuss for alternative solutions or options towards achieving a similar objective.

On the other hand, should Proton’s turnaround plan prove to be successful, it has the option to convert partially or wholly any outstanding PHB RCCPS into PHB shares at any time after the five-year grace period. The conversion price listed in terms is 87 sen per PHB share arising from the conversion ratio of one PHB RCCPS to 1.152 new PHB share. Govco is not entitled to call for a conversion.

If you’d like to read the Bursa filing in full, it is provided below. Let us know your thoughts on the matter in the comments below.