Proton’s turnaround plan for Lotus hits snag

PETALING JAYA: National carmaker Proton Holdings Bhd's turnaround plan for its British sports carmaker subsidiary, Lotus Group, might be in jeopardy, unless the new owners get their act together soon.

In its recently-released third-quarter results, the company noted that its subsidiary was in a technical breach of certain post drawdown covenants on its existing long-term loan, mainly due to the longer-than-expected timeframe required for the execution of a management shares subscription and a joint-venture agreement on product development.

Proton has requested for an extension of time to fulfil the covenants and has submitted an appeal to the lenders.

Hong Leong Investment Bank Research said with Lotus breaching certain convenants to the long-term loan facilities, it risked having the facility being withdrawn.

“Revenue from Lotus units also trended down in the third quarter due to restructuring exercise and the on-going economic crisis in eurozone and subdued economy in United States,” it said.

The long-term loan facility was initially obtained to finance its turnaround plan of RM2.4bil for Lotus.

A local research house analyst said the loan was supposed to be utilised for the first phase of the Lotus turnaround plan, and with developments going on right now with the sale of Proton to DRB-Hicom Bhd, things were pretty much on shaky ground.

“It seems that the financiers are tightening financing measures for its long-term facility, while Lotus remains a big drag on Proton's earnings,” he said.

For now, the loan amounting to about RM1.01bil had been reclassified as a short-term loan as at Dec 31, until the receipt of approval for the extension of time.

Meanwhile, another analyst said the shift towards being a short-term loan didn't seem to be an issue for now.

“Though Proton is appealing for an extension, the sale to DRB just puts a lot of uncertainties over the turnaround plan for Lotus, and it's not good for the morale of the bankers extending the facility,” he said.

DRB had to act fast and decide on what to do with Proton, he said, adding: “Things would escalate to critical levels if decisions are delayed or when DRB decides to dispose of Lotus, as the access to the facility would be withdrawn and the turnaround plan would be in trouble.”

In a way. he said Lotus still needed Proton and vice versa, as it seemed that Proton was acting as a guarantor for Lotus.

“If the turnaround plan is scuttled, Proton would have to cough up with additional money to service the loan facility. There seems to be a lot of things for DRB to address when it officially becomes the owner of the national carmaker,” he said.