The government has set a timeframe of five years for Proton to complete its turnaround plan and has put a priority for the national carmaker to secure a strategic partner, according to The Star.
The English language daily quotes international trade and industry minister Datuk Seri Mustapa Mohamad as saying that the RM1.5 billion soft loan extended to Proton needs to be repaid with cumulative dividends of 4% per annum over 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.
Last week, the government completed the transfer of the cash assistance to Proton, which included the company issuing RM1.25 billion worth of redeemable convertible cumulative preference shares (RCCPS) – the government subscribed to these shares through GovCo Holdings.
Mustapa said that the government chose the preference shares route because it was the fastest way to address Proton’s financial problems, adding that a loan or a subordinated loan would have required consent from the company’s existing lenders.
The process would have taken a long time, further delaying the much-needed assistance that is required to solve Proton’s crisis with its vendors – it could also lead its lenders to request for the retirement of their loans. “The company is in dire need of liquidity to pay its vendors,” Mustapa said, adding that Proton’s total long-term borrowings stood at RM847 million as of March 31, 2015.
Despite this, Mustapa said that the current deal has its own punitive terms and features. The first of which entails that should Proton decide to convert the shares, the conversion rate would be set at 87 sen per share and the government would receive 87 sen per share. This is around 46% below Proton’s current net tangible asset of RM1.86 per share.
What’s more, a non-dilution clause has also been set to protect the government, should Proton secure dilutive financing under the 87 sen conversion rate. There will also be no dividend or shareholders advance being declared by the company as long as it still had RCCPS outstanding.
However, Mustapa made it clear that the government has no intention of turning Proton around nor take over its management, but instead wants to assist it in ensuring that the conditions imposed for the 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.
As for a strategic partnership, Proton has had a long and rocky history in this regard – the company has held discussions with companies like Volkswagen and General Motors in the past, but nothing has resulted from those talks. The company was reportedly close to a deal with Volkswagen in 2007, but the Cabinet shot down those plans at the last minute.
After collaborations with Mitsubishi and Honda (the latter resulting in the upcoming Accord-based Perdana), Proton has now turned to Suzuki – both companies signed a memorandum of understanding (MoU) and licensing agreement last year. The long-term strategic collaboration and partnership plan will allow Proton access to Suzuki’s models, platforms, powertrain and automotive technology, while the Japanese carmaker will provide specific technical assistance for the selected products and scope.
Most recently, a report from The Edge speculated that Proton is currently discussing a potential tie-up with the PSA Group and Renault. The publication cited industry sources familiar with the matter as saying that discussions are ongoing with the automaker’s parent, DRB-Hicom.
