Proton's Shares Increase as Its Deal With Volkswagen Near Conclusion

The shares of the troubled Malaysian carmaker Proton has increased slightly last Monday after reports has come out that its deal with Europe’s largest automaker and producer of top-of-the-line quality VW Beetle parts is getting closer to a deal.

Analysts said that such positive news matched with a plan of the government to remove cars that are 15 years old and older have lured investors to the company. According to the Edge business newspaper last Monday, "Malaysian representatives of Proton's stakeholders have inched closer to a final deal with Volkswagen."

Proton’s shares were up by 0.05 ringgit or 0.86 percent and close at 5.85 ringgit after reaching as high as 6.10 ringgit in late trade.

Volkswagen met with Proton for the third time in Germany recently after its earlier meetings in Thailand and the United States. The foreign tie-up with Proton is very important for the Malaysian automaker in order for it to stop the decline in its market share and to stop incurring further losses.

The Edge business newspaper has also pointed some details of talks wherein Proton will still be controlling its domestic distribution network while Volkswagen will take care of the international distribution.

The Edge has also stated that Volkswagen may be required to cash out for its 51 percent equity in Proton. Volkswagen will have to invest few hundred million ringgits to get the company started.

Proton’s state investment arm Khazanah Nasional is the controlling shareholder in proton owning 42.74 percent stake. Meanwhile the state pension fund EPF and the national oil firm Petronas have a share of 12.07 percent and 8.84 percent respectively.

Khazanah’s Managing Director Azman Mokhtar has set the end of this year as the deadline for the completion of the deal with Volkswagen.

Analysts have also attributed the increase in Proton shares to government programme which will scrap old cars giving Proton the opportunity to increase its sales. According to the Edge business magazine the said programme was aimed to boost Proton’s sales. Quoted on the magazine: "It has been decided that those who voluntarily scrap their cars will be offered a subsidy to buy a new Proton car. The subsidy will be on a scale with a maximum of 5,000 ringgit."

Last Monday Aseambankers has also expressed its plan to reinforce Proton’s share price and was quoted by the Edge saying, "although we remain cautious of Proton's ability to deliver more than marginal profitability."

It can be noted that Proton has lost its status as Malaysia’s biggest-selling automaker to its rival Perodua and just recently has reported net losses reaching as high as 591.36 million rinngit or $172.4 million through March 2007.