KUALA LUMPUR: Tan Sri Syed Mokhtar Al-Bukhary’s DRB-Hicom Bhd is understood to have secured Khazanah Nasional Bhd’s 42.7% equity interest in national carmaker Proton Holdings Bhd, with only a few minor issues left to seal the deal, industry sources tell The Edge Financial Daily.
It is understood the price range may be higher than market expectation of about RM5.50 per share.
Industry sources added that an announcement on the sale may be made anytime now. The conglomerate is said to have edged out a rival bid by Proton chairman Datuk Seri Mohd Nadzmi Mohd Salleh.
“[Nadzmi] gave it a good shot. It was a commendable effort by him and the management, but they did not have as much funding muscle as DRB-Hicom,” they said.
A couple of weeks ago, Nadzmi and the other top brass of Proton met Datuk Seri Najib Razak, during the premier’s visit the Proton plant in Shah Alam, as part of a last-ditch effort to sway the deal. It appears this has failed. Najib, by virtue of being prime minister, is chairman of the sovereign wealth fund, Khazanah.
The Edge Financial Daily had earlier reported that the bidders will meet Khazanah this week and show proof of funds or their financial prowess. Initial indications were that the Proton management was slated to meet Khazanah today, while DRB-Hicom was to meet the sovereign wealth fund on Wednesday.
The source indicated that Khazanah opted to contact the two bidders’ financiers in arriving at its decision.
However, other salient features of the deal, such as whether a general offer is in the offing, are not known. It is also not clear if DRB-Hicom has obtained an exemption from making a general offer, or will go ahead and privatise Proton.
At RM5.50, DRB-Hicom would end up paying RM3.02 billion for the entire 549.213 million shares in Proton. Khazanah’s 42.7% block or 234.51 million shares in Proton, meanwhile, would set the conglomerate back about RM1.28 billion.
DRB-Hicom is understood to have roped in Maybank Investment Bank Bhd for its merchant banking requirements and a few banks to provide funding for the acquisition.
For its six months ended Sept 30, DRB-Hicom posted a net profit of RM195.34 million on the back of RM3.06 billion in revenue.
On that date, the company had cash and bank balances amounting to RM1.41 billion, short-term borrowings of RM1.23 billion and long-term debt of RM890.23
million.
It is interesting to note that for the six months ended Sept 30, the company paid more than RM59 million in finance costs.
After weeks of speculation, DRB-Hicom early last week officially confirmed its interest in Proton, announcing to Bursa Malaysia that it “has always viewed Proton as an important automotive industry player and accordingly DRB-Hicom was on the look-out to explore any viable proposal(s) which would benefit and add value to the group’s business and expansion plans.”
“In this regard, the company has submitted a bid for the acquisition of Proton’s shares held by Khazanah,” it said.
Many say DRB-Hicom will rope in German auto giant Volkswagen AG, which has a collaboration and contract assembly arrangement with the former, to assist in its endeavours with Proton.
Other than Nadzmi, another bid or expression of interest for the automaker reportedly came from the Naza group, or parties linked to them.
Tan Chong Motor Holdings Bhd was said to have been invited to bid but the company threw cold water on the speculation. UMW Holdings Bhd was also said to be interested, but the company also denied the rumours.
Other interested parties include a tie-up between Tan Sri AP Arumugam and Gerald Lopez of Genii Capital, but this remains unsubstantiated.
Last Friday Proton tumbled 28 sen to close at RM5.18 with close to 11.8 million shares changing hands.
For its six months ended September, Proton posted a net profit of RM20.11 million and a revenue of RM4.5 billion. In contrast to the corresponding period a year ago, Proton’s net profit tumbled 86.7% despite marginally higher revenue.
Proton obtains grants from the government, which has helped it maintain profitability. However, much of its problems stem from its wholly-owned Lotus Group International Ltd, which has been incurring high expenses.
As at end-September, Proton had cash and bank balances amounting to RM1.31 billion, long-term debt commitments of RM881.2 million and short-term borrowings of RM77.89 million.
The cost to develop a new model can be as high as RM1 billion, which means that Proton does not have much leeway to develop many models at one go.
Proton recently confirmed media reports that it was looking to hive off up to 50% of its Tanjung Malim plant to Detroit-based General Motors Corp. However, it cautioned that the talks were still in the preliminary stages.
Reports suggested that the price tag is as high as RM800 million for a 50% stake in the plant, which will add to its coffers to fund the development of new models.
Other than the Tanjung Malim plant, Proton’s other main asset is its landbank, notably the site of its Shah Alam plant. This land could have a development value in excess of RM1 billion, property players say.
DRB-Hicom gained eight sen last Friday to close at at RM2.17.
This article appeared in The Edge Financial Daily, January 16, 2012.
