Malaysian govt raises stake in Proton

Malaysian govt raises stake in Proton

Agence France-Presse, Kuala Lumpur

The Malaysian government has emerged as the controlling shareholder in national carmaker Proton after acquiring a 15.6 percent stake in a move seen as a precursor to consolidation in the automotive industry.

In a statement late Thursday, national oil company Petronas announced a share swap which would lift the stake of the government's investment arm Khazanah Nasional Bhd. in Perusahaan Otomobil Nasional Bhd. (Proton) to 32.3 percent.

Petronas will sell 84.71 million Proton shares at 7.87 ringgit (US$2) each to Khazanah, in return for a 24.4 percent stake in Putrajaya Holdings, developer of the new federal government administrative center south of the capital.

"Petronas will remain a shareholder of Proton with a reduced interest of 11.8 percent and will continue to provide the necessary support to Proton especially in the areas of engineering and technological resources," the statement said.

Friday's Business Times said the move was connected to the reduction of tariff protection for the domestic auto industry under ASEAN Free Trade Area (AFTA) and World Trade Organization rules.

Under AFTA, tariffs on automotive products will fall to between zero and five percent from 2003 although Malaysia has been granted a two year reprieve until 2005.

An industry observer was quoted as saying that the local auto industry was not ready for competition against big foreign players and the move to lift the government stake could herald a government-led restructuring of the industry.

"The government is logically better placed to push for a consolidation... it can introduce measures that are not purely commercial in nature but are necessary for the industry as a whole."

Another industry source agreed, saying the restructuring could spread through the auto sector and its support industries.

The newspaper said the Khazanah purchase also raised the possibility of bringing in a new foreign partner for Proton.

Currently, Japan's Mitsubishi Corp. and Mitsubishi Motors own a combined 16 percent stake in the national carmaker.

Prime Minister Mahathir Mohamad has told Proton to cut its production costs to stay competitive ahead of tariff cuts and said the government was prepared to authorize the sale of up to 30 percent of Proton.

Proton now has more than 65 percent of the Malaysian market due to high tariffs on imported cars.