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China's Geely buys 49.9 percent of Malaysian automaker Proton
May 24, 2017 / 6:02 AM / 7 months ago

China's Geely buys 49.9 percent of Malaysian automaker Proton

KUALA LUMPUR/BEIJING (Reuters) - Geely [GEELY.UL], the owner of Sweden’s Volvo Car Group, on Wednesday said it would buy 49.9 percent of struggling Malaysian carmaker Proton from conglomerate DRB-HICOM Bhd (DRBM.KL), marking the Chinese automaker’s first push into Southeast Asia.

FILE PHOTO: The Geely Automobile Holdings logo is pictured at the Auto China 2016 auto show in Beijing, China April 25, 2016. REUTERS/Kim Kyung-Hoon/File Photo

Zhejiang Geely Holding Group Co Ltd, parent of Hong Kong-based Geely Automobile Holdings Ltd (0175.HK), will also acquire 51 percent of Proton’s stake in British car maker Lotus, the companies said, without disclosing the value of the deals.

The investment comes on the back of deals worth billions of dollars signed recently between China and Malaysia, but stands out as formerly state-owned Proton is often regarded an emblem of post-independence industrialization and economic growth.

“Proton will always remain a national car and a source of pride, as Proton will still have a majority holding of 50.1 percent,” Malaysia’s Second Finance Minister Johari Abdul Ghani said at a news conference to announce the deal.

“Our very own much-loved brand now has a real chance in making a comeback, a huge one I hope.”

People close to the matter told Reuters that Geely had hoped for a stake of at least 51 percent. But industry experts said Geely can still take a lead in defining Proton’s future having significantly strengthened its vehicle technologies since buying Volvo.

“Geely has validated the model of using their Volvo technology platform to create good products. That should be the same for Proton,” said James Chao, Shanghai-based Asia-Pacific chief of consultancy IHS Markit Automotive.

Geely will take a leadership role in areas including production, manufacturing, sales and marketing, said DRB-HICOM, which will handle distribution.

DRB-HICOM said it expects to sign a deal in July.

NATIONAL PRIDE

Proton was founded in 1983 during an industrialization push of former prime minister Mahathir Mohamed. Its domestic market share peaked at 74 percent a decade later as drivers took advantage of cheap loans as the government encouraged Malaysians to buy home-grown products.

    But lower-standard cars, limited after-sales service and competition from foreign automakers saw its domestic market share drop, to around 15 percent last year.

“There is still national pride among us enthusiasts,” said Khafif Japri, president of Proton enthusiasts WiraOwnersClub. “What most of us here wants is for the brand to be better, stronger, and as good as other brands outside.”

Proton largely assembles cars designed by foreign automakers and re-badges them mainly for the local market, though it does have a small international presence - including North Korea, where its cars are commonly used as taxis. Its two factories can produce 400,000 cars but are not running at full capacity.

In April last year, it received 1.5 billion ringgit ($364.08 million) in government aid on condition it find a strategic foreign partner.

    Interested automakers included France’s Renault SA (RENA.PA) and Peugeot SA (PEUP.PA) as well as Japan’s Suzuki Motor Corp (7269.T), Reuters previously reported.

    ASEAN BEACHHEAD

    For Chinese automakers, Proton’s base of Southeast Asia is increasingly regarded as a growth market as their technological know-how and vehicle quality improves.

    Shanghai-based SAIC Motor Corp Ltd (600104.SS) formed a joint venture in Thailand in 2012 and built a factory in Indonesia three years later. Dongfeng Motor Group Co Ltd (0489.HK) has also been active in the region.

    With the Proton deal, Geely said it can develop a beachhead in Southeast Asia. It could also gain access to right-hand-drive markets such as Malaysia, India, Australia and Britain.

    “Malaysia and ASEAN countries are very good potential markets for us,” said Geely Chief Financial Officer and Vice President Daniel Donghui Li, referring to the Association of Southeast Asian Nations.

    “Our target is to produce 3 million cars by 2020,” he said. “We will have potential of half a million cars in Malaysian and ASEAN markets by working with Proton.”

    HSBC Holdings PLC (HSBA.L) advised Geely on the deal.

    Reporting by Rozanna Latiff and Norihiko Shirouzu; Additional reporting by Liz Lee; Writing by Praveen Menon; Editing by Stephen Coates and Christopher Cushing

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