Handing Proton on a silver platter to Syed Mokhtar: The numbers just don't jive

When Khazanah National announced that it would sell its 42.7 per cent stake in the national carmaker to DRB-Hicom Bhd via a conditional sale at RM5.50 per share, or RM1.29 billion cash, many Malaysians were left puzzled at the business merits of the deal.

Critics contend that the state investment arm will incur a loss by selling its assets at almost half of Proton’s book value of RM9.81 per share - and to of all parties, a crony-linked firm. Yes, that's right - DRB-Hicom is controlled by tycoon Syed Mokhtar Albukhary. And Khazanah will also incur a real loss over the disposal after having acquired its stake in Proton for roughly RM8 per share, although its managing director insists otherwise.

“RM8.00 (per share) is not our cost. Our cost is significantly lower,” Khazanah managing director Azman Mokhtar told reporters. “We will book a gain from this one, a modest one. So we feel the divestment price was fair,” he said, noting that the holding cost was “somewhat lower” than RM5.50 per share.

How can it make sense unless books are not transparently kept

The statement by the director of Khazanah is illogical and senseless. How can the purchase price of RM8 not be cost to Khazanah at the time of purchase? And if it was not RM8, what was the actual price that Khazanah bought the shares of Proton? Did he include depreciation on the shares or some sort of amortization of an internal loss provision. If so, this is still cheating.Or was this another case of selling on the cheap on Proton’s part when it first divested the shares to Khazanah.

By having Khazanah selling to DRB-Hicom at a price of RM5.50 per share, this would roughly put the cost for Khazanah in the RM4 per share region. Proton shares have been trading at a five-year average of RM3.95 before the counter began to climb from RM2.70 on November 14 to as high as RM5.46 last Thursday on rumours of Khazanah’s stake sale.

The math suggest that for all this time the state investment arm has been operating at a lost, using public money to prop itself up to mask its losses. Being a state investment arm, were the members of Parliament or the Cabinet aware of Khazanah’s decision to sell at RM5.50 per share? Or was Khazanah employing smart accounting to mask their books so as to hide their loses.

Given its monopoly on the industry, should not the Proton stake be valued higher?

It is also puzzling to note that a 42.7 per cent stake in the national car-maker would cost so little. One would expect a price far higher than RM1.29 billion since the national car-maker has enjoyed a strangle hold on the automotive business in Malaysia. With strong governmental restrictions against import cars in place, Malaysian have been forced to purchase Proton cars at a premium price. Yet, surprisingly; Proton has been performing poorly - reflected in it’s average share price and also in the price Khazanah was willing to release its shares.

Does the RM1.29 billion also take into account the value of the 250-acre land upon which the company built its Shah Alam plant? Land that was acquired at low prices but undoubtedly has risen in price over the years. DRB-Hicom would benefit greatly if it chooses to close plants down and sell the land at a premium price. A price that can far exceed the RM1.29 billion it initially doled out to acquire its stake in Proton. Giving DRb-Hicom unlimited authority to dictate the business landscape in Malaysia.

DRB-Hicom as a business has every right to via for a stake in Proton, once the shares where on the market. What is shady is the choice of DRB-Hicom by Khazanah when there were two other bidders for the shares. As a state body that invests public money, Khazanah is obligated to inform the Malaysian public, who the other bidders were and justify, in concrete terms why DRB-Hicom was picked over the others.

Talk of reforms and yet Malaysians may have lost another huge tract of land to the Umno elite

It is ironic to hear statements on reforms to the business landscape in Malaysia by the Najib administration when its very own investment arm is a proponent to establishing monopolies.

By selling its stake to DRB-Hicom, Khazanah has built another sprawling monopoly-company in Malaysia. And DRB-Hicom has massive control over other business entities in Malaysia including Pos Malaysia, KTM, MMC Corp, defence contracts, rice and sugar, independent power generation and telecommunications.

With DRB-Hicom having so much controlling stakes in GLCs in the country, one has to wonder - has Malaysia itself been turned into a giant corporation that serves the need of an elite few?

And when there is a change in government, would the chairman of DRB-Hicom, a known UMNO-BN crony be willing to work with a new government?

Or will this controlling stake in a corporate Malaysia be used as leverage to influence the mechanisms of government?

Malaysia Chronicle