Mitsubishi sells stake in Proton

Mitsubishi sells stake in Proton

Associated Press, Kuala Lumpur,Malaysia

Japan's Mitsubishi Corp. said on Wednesday it has sold its entire 7.93 percent stake in Malaysian state carmaker Proton Holdings Bhd. to the government for 384 million ringgit (US$101 million).

The move marks the end of a legacy of cooperation between Proton and Mitsubishi that has lasted since Proton's inception in 1983, when it began making cars with the Japanese auto giant's technology and car parts.

However, in recent years analysts have expressed concerns about the Mitsubishi tie-up because it seemed to have failed to provide Proton with the cutting-edge technology needed in new generation cars.

The sale of the nearly 43.6 million Proton shares to Khazanah Nasional Bhd., the finance ministry's investment arm, was confirmed by Mitsubishi spokesman Hidenori Myoshin in Tokyo to Dow Jones Newswires. "There is no reason to keep the stake," he said without elaborating.

The sale sets the stage for the equity entry of Proton's new partner, Volkswagen AG of Germany.

Currently, Volkswagen has no holdings in Proton, though the two have agreed to assemble Volkswagen models at a Proton plant that will be sold in Malaysia and eventually in neighboring countries.

"This paves the way for a proper strategic alliance, (since) one without equity isn't a proper alliance," said Edward Ong, senior investment analyst at Macquarie (Malaysia) Sdn. Bhd.

Most analysts believe an equity partnership between Volkswagen and Proton is necessary for the transfer of real benefits to Proton, such as technology development.

Proton is Southeast Asia's biggest carmaker and Malaysia is the region's largest passenger car market, with over 400,000 new cars sold each year. Most of them are Proton because they are far cheaper than foreign-owned cars - either imported or those assembled here.

The government imposes high tariff on foreign cars to protect Proton, but the duties are being whittled down gradually as mandated by a Southeast Asian free trade area of which Malaysia is a member.

Proton's share in the Malaysian market has slipped to around 45 percent compared to about 65 percent a few years ago.