Investors Tell Proton To Finally Dump Lotus After 15 Profitless Years

By: EW News Desk Team   Date: 27 December 2011

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EW News Desk Team

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27 December 2011

 Malaysian automobile company Proton Holding Bhd., which bought control of British luxury auto manufacturer Lotus Group International in 1996, has been advised by its investors to finally cash in on the legendary sports-car maker, after news emerged that the Malaysian company itself could soon be divested by its state-run parent company, Khazanah Nasional Bhd.

"It will make sense for them to sell it," said Gan Eng Peng, who oversees about US3.6 billion as head of equities at HwangDBS Investment Management in Kuala Lumpur, to Bloomberg.  "Proton and Lotus are not a good fit. They are in different market segments, both in terms of geography and product." 

The British automaker, which has yet to return a profit since it was purchased by Proton, has been the subject of intense speculation over another sale; with claims made earlier this month that Shanghai Automotive Industry Corp. might be interested in buying the British unit, while Proton had to deny just two months ago that they was selling Lotus to Luxembourg-based Genii Capital.

Lotus needs about 2.4 billion ringgit (US$759.975 million) in order to help it return to profitability, said Ahmad Maghfur Usman, an analyst at OSK Holdings Bhd. Even then, the brand could be worth only 1 billion ringgit (US$316.656 million) at most, or about triple its current value, even if it was profitable, said Ahmad Maghfur.

“Proton is better off without Lotus,” said Alexander Chia, a Kuala Lumpur-based analyst at RHB Capital. “There are no product synergies.”

For Proton, whose profits dropped by 76 percent in the latest quarter, unloading the UK auto brand may give it room to invest in more production facilities, given the increased competition it faces from fellow Malaysian carmaker Perodua and foreign auto makers.

The Malaysian carmaker may also need to demonstrate higher profit margins, given the impending sale of Khazanah Nasional Bhd’s 43 percent stake in the company. Former Malaysian Prime Minister Mahathir Mohamad, who founded Proton in 1983, have already told the government not to sell its stake to a foreign company, recommending Malaysian billionaire Syed Mokhtar Al-Bukhary’s DRB-Hicom, an auto assembler, instead.

On Lotus’s part, the UK brand’s Chief Executive Officer Danny Taner Bahar, is optimistic that he can make the company break even by 2014, as long as he has some financial backing.

“Without the funding support and the guarantees given by the Proton group, we would not survive, end of story,” Bahar said. “The only thing we can do is show the current owners, or the new owners, that we are absolutely in line with the business plan that we have presented.”


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