China's Geely to acquire 49.9% of Malaysian car-maker

Chinese billionaire Li Shufu’s Zhejiang Geely Holding Group agreed to acquire a 49.9% stake in unprofitable car-maker Proton Holdings from Malaysian conglomerate DRB-Hicom.

Geely will also buy a 51% stake in British sports-car maker Lotus Cars from Proton and the two parties expect to sign a final agreement before the end of July, the Chinese company said on Wednesday.

DRB-Hicom is still negotiating on the transaction price for stake in Proton, after reaching agreement on a ballpark figure, Group Managing Director Syed Faisal Albar said at a press conference in Putrajaya.

The Chinese automaker, which bought Sweden’s Volvo Cars in 2010, said the pact lays the foundation for it to explore synergies with Proton and Lotus in areas such as research and development, manufacturing and marketing.

Geely will seek to transform the two car makers, and aims to build Proton into the most competitive brand in Malaysia and a leading nameplate in Southeast Asia.

"With Proton and Lotus joining the Geely Group portfolio of brands we strengthen our global footprint and develop a beachhead in Southeast Asia," chief financial officer Daniel Li said in the statement.

"We also aim to unleash the full potential of Lotus Cars and bring it into a new phase of development, thanks to our experience accumulated through Volvo Car’s revitalization."

Proton, controlled by Malaysian tycoon Syed Mokhtar Al-Bukhary’s DRB-Hicom, was set up in 1983 by former Prime Minister Mahathir Mohamad to steer the Southeast Asian nation’s industrialisation plan.

The deal marks the end of a lengthy sale process for the car maker, which had to seek a foreign partner as part of conditions for a government rescue loan. For Geely, the purchase comes about seven years after it bought Volvo Cars from Ford Motor for $1.5bn.

Asean opportunity

An investment "would allow Geely to move into the Asean market efficiently with a ready-made after-market network, which otherwise would take years," said Jochen Siebert, the Singapore-based managing director of JSC Automotive Consulting, referring to the grouping of Southeast Asian nations.

"Li Shufu probably knows that the European, US, Japanese and Korean markets are not good targets for a new player, while Asean could become the next big thing.

Proton has two factories in Malaysia - one in Shah Alam and the other in Tanjung Malim - with a combined capacity to build 350 000 vehicles a year. DRB-Hicom said in a February statement that a new partner would help improve the utilization rate at the Tanjung Malim plant.

The Malaysian car-maker will get Geely’s Boyue sport utility vehicle platform as well as get access to the Chinese group’s design studios, Li said.

Lotus deal

Lotus Cars, known for its lightweight chassis technology, may help Geely in meeting stringent fuel-economy rules set to kick in over the next few years. In 2012, Proton bought car engine technology from state energy company Petroliam Nasional when it was involved in motor sports.

While Geely will own a majority stake in Lotus Cars, Etika Automotive will hold 49% of the British car maker, said Syed Faisal.

DRB-Hicom’s selling Lotus for £100m with each paying proportionately, he said.

Etika Automotive is controlled by Syed Mokhtar.

Geely was advised by HSBC Holdings, DRB-Hicom by Mohammed Rashdan’s QuantePhi Sdn Bhd. and Proton by The Boston Consulting Group.

When DRB-Hicom privatized the car-maker in 2012 after buying a 43% stake from state-owned investment firm Khazanah Nasional, the deal valued Proton at 2.8 billion ringgit. With sales flagging, Malaysia’s government stepped in April 2016 to make a 1.5 billion ringgit loan to the car maker, which allowed it to avoid defaulting on obligations to suppliers.

The agreement came with a rider that Proton find a major new investor to put it on a more sustainable financial footing.

Geely will help repay Proton’s loan from the government as part of the deal, Malaysia’s Second Finance Minister Johari Abdul Ghani said at the press conference in Putrajaya.