Malaysia to pump more than $300 million into car maker Proton

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Proton Saga
Proton Saga, the company’s flagship sedan

Malaysia’s homegrown and notoriously loss-making car brand Proton is getting financial assistance of up to 1.25 billion ringgit ($306 million) from the government as part of its turnaround plan, the company’s owner, industry conglomerate DRB-Hicom, said. The money is pumped into the company as a “soft loan” by subscribing to convertible debt to be issued by the auto maker, DRB-Hicom Bhd said.

The funds are lower than the 1.5 billion that DRB-Hicom announced Proton would receive in its annual report on the financial year ended March 31 and released on May 31.

The Ministry of Finance will now inject the amount into Proton by subscribing to 1.25 billion units of new redeemable convertible cumulative preference shares (RCCPS) issued by the national car maker. If the government chooses to fully convert the debt into shares at a later point of time, it could become Proton’s largest shareholder at around 80 per cent again after it sold the company to DRB-Hicom in 2012.

It is, however, unclear if this is going to happen. The government emphasised the importance of keeping Proton operating as it “plays a crucial role in the national automotive industry, with about 12,000 workers directly under the group and some 50,000 employed under the various vendor companies.”

Proton was the result of the ambition of Malaysia’s former prime minister Mahathir Mohamad to establish a domestic car industry. The company was launched in 1983 and at first assembled and re-badged Mitsubishi cars, but later produced several indigenously designed models.

Between 1985 and 2015, Proton sold about 3.7 million cars in Malaysia and exported about 400,000, namely to the U.K., Australia, Singapore, Thailand, the Middle East and China. But sales since have been shrinking due to íncreasing competition in the lower-price segment, and on the domestic market additionally due to gradual scaling back in import tariffs for foreign-made cars.

Proton is also facing competition in the compact car segment from Malaysia’s other domestic car brand Perodua, a company backed by Daihatsu.

Proton substantially contributed to DRB-Hicom’s losses in the past financial year. The group incurred a pre-tax loss of 821 million ringgit ($201 million) compared with a pre-tax profit of 502 million ($123 million) in the previous year. The losses were attributed largely to the poor performance of Proton with lower sales of motor vehicles amidst stiff competition, volatility in foreign exchange rates and weak consumer sentiment in Malaysia.

The weak foreign exchange also affected Proton’s raw material costs, the ability to launch new models and profit margins.

DRB-Hicom has been working on a turnaround plan for Proton for some time, which includes, apart from the government’s cash injection, the search for a strategic partner on the international level, cost rationalisation and the roll-out of several new models, one of it in collaboration with Suzuki.

 

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Reading Time: 2 minutes

Proton Saga, the company’s flagship sedan

Malaysia’s homegrown and notoriously loss-making car brand Proton is getting financial assistance of up to 1.25 billion ringgit ($306 million) from the government as part of its turnaround plan, the company’s owner, industry conglomerate DRB-Hicom, said. The money is pumped into the company as a “soft loan” by subscribing to convertible debt to be issued by the auto maker, DRB-Hicom Bhd said.

Reading Time: 2 minutes

Proton Saga
Proton Saga, the company’s flagship sedan

Malaysia’s homegrown and notoriously loss-making car brand Proton is getting financial assistance of up to 1.25 billion ringgit ($306 million) from the government as part of its turnaround plan, the company’s owner, industry conglomerate DRB-Hicom, said. The money is pumped into the company as a “soft loan” by subscribing to convertible debt to be issued by the auto maker, DRB-Hicom Bhd said.

The funds are lower than the 1.5 billion that DRB-Hicom announced Proton would receive in its annual report on the financial year ended March 31 and released on May 31.

The Ministry of Finance will now inject the amount into Proton by subscribing to 1.25 billion units of new redeemable convertible cumulative preference shares (RCCPS) issued by the national car maker. If the government chooses to fully convert the debt into shares at a later point of time, it could become Proton’s largest shareholder at around 80 per cent again after it sold the company to DRB-Hicom in 2012.

It is, however, unclear if this is going to happen. The government emphasised the importance of keeping Proton operating as it “plays a crucial role in the national automotive industry, with about 12,000 workers directly under the group and some 50,000 employed under the various vendor companies.”

Proton was the result of the ambition of Malaysia’s former prime minister Mahathir Mohamad to establish a domestic car industry. The company was launched in 1983 and at first assembled and re-badged Mitsubishi cars, but later produced several indigenously designed models.

Between 1985 and 2015, Proton sold about 3.7 million cars in Malaysia and exported about 400,000, namely to the U.K., Australia, Singapore, Thailand, the Middle East and China. But sales since have been shrinking due to íncreasing competition in the lower-price segment, and on the domestic market additionally due to gradual scaling back in import tariffs for foreign-made cars.

Proton is also facing competition in the compact car segment from Malaysia’s other domestic car brand Perodua, a company backed by Daihatsu.

Proton substantially contributed to DRB-Hicom’s losses in the past financial year. The group incurred a pre-tax loss of 821 million ringgit ($201 million) compared with a pre-tax profit of 502 million ($123 million) in the previous year. The losses were attributed largely to the poor performance of Proton with lower sales of motor vehicles amidst stiff competition, volatility in foreign exchange rates and weak consumer sentiment in Malaysia.

The weak foreign exchange also affected Proton’s raw material costs, the ability to launch new models and profit margins.

DRB-Hicom has been working on a turnaround plan for Proton for some time, which includes, apart from the government’s cash injection, the search for a strategic partner on the international level, cost rationalisation and the roll-out of several new models, one of it in collaboration with Suzuki.

 

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