Khazanah’s divestment of Proton will be tricky

STEMMING from the perceived success of its divestments in Time dotCom Bhd and POS Malaysia Bhd, Khazanah Nasional Bhd is said to be looking to do the same with its controlling stake in Proton Holdings Bhd. If that is true (Khazanah has declined to comment on the rife speculation on its planned Proton sale), this divestment is going to be one of its trickiest thus far.

Unlike Time dotCom and POS (which are involved in more simpler businesses one which essentially earns it money by providing high-speed Internet access and the other by providing postal services and adding on services such as financial products), Proton is in a cut-throat industry that has seen many giants collapse over the years. Everyone knows that if the current tax structure that favours Proton were to be removed, the national carmaker would be hard pressed to stay afloat. Car-making is about having the necessary high levels of intellectual property that takes years of research and development to create, savvy marketing and a very specialised workforce. As one industry player put it recently, it is interesting to note that two countries that have succeeded well in the car industry, namely Japan and Germany, have one of the most hardworking, dedicated and skilled workforces in the world. Not many countries can match that.
Natonal car maker Proton displays its upcoming model called 'TUAH ' during the UMNO AGM at PWTC. - AZHAR MAHFOF/The Star

On that score, having another company that is involved in the assembly of cars, and take over Proton, isn't necessarily going to fix the problem. There is a very big gap between functioning as an assembler of cars and being a manufacturer of your own brand of cars.

What Proton needs is a significant change in structure and approach. Hopefully, those putting in their bids will have the wherewithal to come up with a solid plan for Proton's future and not just one that looks into the superficial balance-sheet type restructuring that we often see in corporate Malaysia.

There are other complications in the deal: How will Khazanah recoup its investment cost at around RM8 per Proton share? Will the new party be willing to buy out the other shareholders of Proton? Will the new owner be obliged to use the preferred vendors of Proton? Will the new owner be allowed to downsize Proton into, say, just making one type of car and focusing its resources on making that work?

Whatever the case, Khazanah needs to get this divestment process going, especially after all previous failed “marriage” attempts for Proton. The longer it waits, the lesser Proton's value may be, considering that while the car-manufacturing industry is moving ahead and car sales in this region keeps growing, Proton isn't exhibiting signs that it is growing in tandem with that.