KUALA LUMPUR: Khazanah Nasional Bhd will book a modest divestment gain from selling its 42.7% strategic stake in Proton Holdings Bhd for RM5.50 per share or a total cash consideration of RM1.29 billion.
Speaking to the media during Khazanah’s annual review, managing director Tan Sri Azman Mokhtar maintained that Khazanah’s entry cost into Proton in 2002 was lower than RM8 as reported.
Azman, however, declined to disclose Khazanah’s investment cost in Proton or the expected divestment gain from the transaction, only saying that the RM5.50 per share price tag was slightly higher than Khazanah’s holding cost.
Khazanah’s move to sell its 42.72% stake in the national carmaker to DRB-Hicom Bhd had drawn criticisms with some arguing that Khazanah could have negotiated a higher price for its asset.
This was partly because the RM5.50 per share was a nearly 44% discount to Proton’s net tangible assets (NTA) of RM9.81 per share.
Nevertheless, on a longer term horizon, the offer price from DRB-Hicom represented a 39.24% premium over Proton’s five-year average price of RM3.95.
Speculation that Khazanah’s stake in Proton was up for sale had pushed up Proton’s share price since mid-November, from RM2.70 on Nov 14 to a high of RM5.46 on Jan 12. Proton yesterday closed down one sen to RM5.40.
However, some analysts note that the discount to NTA was justified given Proton’s lacklustre prospects and its heavy capital expenditure.
Commenting on that, Azman pointed out that Proton’s share price had been “languishing” around the RM3-levels prior to the deal and the market “did not believe” in Proton’s RM9 NTA per share.
Azman also stressed that the RM5.50 per share offer was a “fair price” although he declined to comment if any bidders made a higher offer.
“Put it this way, the bids that we count are the bids with full financing. The financial aspect is not the only criterion,” Azman said.
According to him, there are “more than three reasonably serious bids” but he declined to disclose who the bidders are.
Azman stressed that Khazanah needed to find Proton a company that was already a significant local player with the ability to take the national carmaker to the next level of growth.
Azman also pointed out that Khazanah’s divestment of its stake in Proton, which was done through a restricted bid process, has to be contrasted from the disposal of its stake in Pos Malaysia Bhd.
The Proton deal comes less than a year after DRB-Hicom won the bid to acquire Khazanah’s 32.2% controlling stake in Pos Malaysia last April for RM623 million.
”For Pos Malaysia, it had to be a bit more of a blank canvass because we needed to get a broader set of proposals to see who has got a good idea on how to unlock the value of Pos Malaysia’s inherent assets,” he said.
Azman said Khazanah and the government had chosen DRB-Hicom given that the latter is a local player with quite a good track record, has existing alliances with several global auto manufacturers and the financial capabilities.
Once it takes over Proton, DRB-Hicom would need to inject cash and possibly new businesses to help turn around Proton, which has been battling lacklustre financial performance, shrinking sales volume and under-utilisation of its Tanjung Malim plant.
Azman noted that apart from having the funds to buy Khazanah’s strategic stake, the purchaser would also need the financial muscle to acquire the stake, fund a mandatory general offer and plough in investment for Proton’s growth.
“Just as we must be responsible sellers, they must be responsible buyers. The test of that is whether they will do it in a way that will promote the industry, for example, how much they will re-invest into the company and what they are going to do,” he added.
After winning the bid to acquire Khazanah’s stake, DRB-Hicom on Tuesday bought 39.93 million Proton shares, or a 7.27% stake, on the open market.
This brings DRB-Hicom’s total interest in Proton to 50.01% assuming its acquisition of Khazanah’s block goes through.
DRB-Hicom yesterday told a separate press conference that it was open to selling Proton’s unprofitable sports car subsidiary, Lotus Group International Ltd, which has been partly blamed for Proton’s woes.
Commenting on that, Azman said the decision rests with DRB-Hicom and that the moratorium imposed on significant asset disposal is merely on “some assets”.
This article appeared in The Edge Financial Daily, January 19, 2012.