China’s Geely in about face with decision to buy 49.9pc stake in Malaysia’s Proton

PUBLISHED : Wednesday, 24 May, 2017, 4:35pm
UPDATED : Wednesday, 24 May, 2017, 11:27pm

Geely, the Chinese owner of Volvo, has agreed to acquire a 49.9 per cent stake in struggling Malaysian car manufacturer Proton, and control of British sports car brand Lotus, in what is believed to be the biggest move by a Chinese company to tap the Southeast Asian car market.

The Hangzhou-based carmaker agreed to “support the transformation of Proton and Lotus” to make Proton “the most competitive brand in Malaysia”, according to a press statement released on Wednesday.

The deal, which came as a dramatic about face after senior executives of the Chinese car giant had previously said they dropped their bid, is expected to help Geely grow in the Southeast Asian car market and to claim ownership of an iconic global sports car brand owned by Proton.

It was also struck at a time when Chinese corporate giants have increasingly been eyeing Malaysian assets, as evident in Dalian Wanda Group’s recent interest in investing in the Bandar Malaysia project.

Geely pulls out of buying Malaysia’s Proton, as its profits surge by 126 per cent

Proton, described by Malaysia’s former prime minister Mahathir Mohamad as “a symbol of Malaysians as a dignified people”, was put up for sale earlier this year, drawing heavyweight suitors such as France’s Renault and Peugeot parent PSA.

Geely’s shares added 0.17 per cent to HK$11.68 in Hong Kong trading on Wednesday afternoon.

“With Proton and Lotus joining the Geely Group portfolio of brands we strengthen our global footprint and develop a beachhead in South East Asia,”said Daniel Donghui Li, chief financial officer of Geely Holding Group.

“We also aim to unleash the full potential of Lotus Cars and bring it into a new phase of development by expanding and accelerating the rolling out of new products and technologies.”

Analysts said the agreement should allow Proton to ship vehicles tax-free across the Association of Southeast Asian Nations (Asean) bloc, which covers a population of 623 million.

While observers have raised questions over why Malaysian authorities would agree to sell their prominent car brand to a foreigner, Syed Faisal Albar, group managing director with Proton’s owner DRB-Hicom, said the intention was “always to ensure the revitalisation of the Proton nameplate”.

“It was Malaysia’s first national car brand and has more than 30 years of history. This deal will be the catalyst to elevate a brand that Malaysians resonate with,” he said.

Proton has been bleeding red ink with its market share declining year after year after failed attempts by its conglomerate owner DRB-Hicom to rehabilitate the company.

“Geely will extend its footprint into the Southeast Asian common market, which is enormous,” said Liang Yonghuo, analyst with China Merchant Securities. “The takeover of the controlling stake in Lotus will give Geely access to some cutting-edge technologies.”

Geely will extend its footprint into the Southeast Asian common market, which is enormous
Liang Yonghuo, analyst with China Merchant Securities

Meanwhile, Geely’s product line would be enriched with Lotus targeting the luxury market, Volvo the premium segment and its own namesake brand the rest of the market, Liang added.

“We believe it will bode well for Geely in the long term, but it may take a year or so for them to incorporate the Malaysian brand into their own business.”

Ka Leong Lo, an analyst from Kim Eng Securities said: “The partnership will give Geely access to Proton’s Tanjung Malim plant in Proton City, which is currently in very low utilisation. Geely could then enjoy tax exemption across Asean by producing vehicles in Malaysia.”

However, Lo expects the immediate impact on Geely will be limited. Proton is loss making and received 1.5 billion ringgit (US$338.2 million) in government aid last year on condition that it pursue a turnaround plan and seek a foreign partner. “Longer term, we believe it could facilitate Geely’s and its new car brand Lynk & Co’s overseas expansion,” he added.

“We see execution of its new business plan as the key risk as Geely’s parent is only acquiring 49 per cent of Proton, short of a controlling stake,” he added. “ In addition, manufacturing in Malaysia may not be as cost-competitive as in other regional countries. Still, the deal is being executed at the parent level and we see Geely potentially capturing upside without financial commitments at this stage.”