Monday, 19 December 2011

A Chinese buyer for Lotus?

KUALA LUMPUR: Market talk is rife that a corporate exercise could be brewing to hive off Proton Holdings Bhd’s Group Lotus plc.

“There are interested suitors for Lotus and one of them is a party from China,” said a source.

In October, Proton managing director Datuk Syed Zainal Abidin Syed Mohamed Tahir dismissed speculation that the company was selling its stake to Genii Capital, which owns the Renault Formula One (F1) team that has Lotus as its title sponsor for the event.

“There are no plans or discussions about Proton selling a stake in Lotus, this is just speculation,” said Syed Zainal two months ago in October.

Lotus CEO Dany Bahar said then that the company’s involvement with the Renault F1 team was “the start of a close relationship” though Gerard Lopez, head of Genii Capital, did not rule out further involvement with Lotus.

“I think they have a good shareholder with Proton. For sure, that is something also that we will be looking at, but its not anything urgent,” he said in an interview with a local media outlet.

Nevertheless, it seems rumours that Proton could see the sale of Lotus continue to swirl around the national carmaker.

Industry observers believe that the severance of Lotus from Proton is expected to provide a cleaner slate for a new entrant to implement improvements.

This is amidst market chatter of Khazanah Nasional Bhd seeking interested buyers for its 42.7% stake in the national automaker.

“Proton is continuing with major losses from Lotus, its cash
resources and bottom line financials are dwindling as a result. The disposal of Lotus would provide a much needed reboot,” said a market observer.

Expenses incurred on Lotus have weighed heavily on Proton’s earnings. Proton is in the second year of its five-year turnaround plan for Lotus, which has been estimated to cost £480 million (RM2.4 billion).

Despite continuing losses from Lotus, Proton has been adamant over its vision and has constantly reaffirmed that it will achieve break-even for Lotus by 2014.

Most recently, net profit for Proton’s second quarter ended Sept 30 fell 76% to RM15.6 million from RM65.9 million a year ago, while its half-year earnings dropped 86.6% to RM20.1 million from RM150 million.

The lower profit was largely attributed to higher expenses incurred by Lotus, in line with Proton’s efforts to achieve Lotus’ long-term business transformation plans.

Proton said the higher expenses incurred for Lotus were partially offset by an increase in the carmaker’s domestic sales volume, which was 2% higher year-on-year 1HFY12.

As at Sept 30, Proton had RM1.31 billion in cash, bank balances and deposits alongside RM959.1 million in total borrowings.

In 1QFY12 ended June 30, Lotus registered a net loss of £14 million driven by high operating costs.

It is interesting to note that Proton opened its first Lotus showroom in China recently.

“We need to seize the opportunity now. Before this, Lotus relied on Europe, the US and Japan for sales but China is now the biggest market for cars globally.

The Chinese appetite for luxury brands is very strong and they are willing to spend to be different,” said Syed Zainal in October.

In 1996, Proton paid £38 million for a 63.75% stake in Lotus Group International Ltd, which owns 100% of Group Lotus plc.

Market talk of Proton selling Lotus first surfaced in 2000.

At the end of December 2007, there were reports that a Malaysian automaker had approached Proton on the sale of the Lotus brand.

Later in 2009, there was talk that Proton was on the lookout for new investors for Lotus. It was said to be seeking a “new long-term equity partner” for Lotus, with an information memorandum drawn up and furnished to potential local and international bidders who were keen to participate.

Following that piece of news, Syed Zainal said in July 2009: “We have no plans to sell Lotus at all. There might be interest somewhere out there but as of now, that is not a possibility. We want to exploit Lotus even more, we want to strengthen Lotus from what it is today and look at what we can do”.

If Proton divests its interest in Lotus, it will be the second major divestment following its sale of a 57.7% stake in MV Augusta for one euro (RM4.14) in 2006.

This article appeared in The Edge Financial Daily, December 19, 2011.

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