Proton Shares Plunge On Report Of Volkswagen Exit

[Mark H]

Jan. 13 (Bloomberg) -- Shares of Proton Holdings Bhd., Southeast Asia's biggest automaker, plunged as much as 20 percent to a four-year low after reports that Volkswagen AG has discarded plans to invest in the Malaysia-based company.

 

Bernd Pischetsrieder, Volkswagen's chief executive officer, told investors at the North American International Auto Show in Detroit this week that the proposed alliance with Proton has been abandoned after disagreements about strategy, the Financial Times and Asian Wall Street Journal reported today.

 

Proton shares fell as much as 20 percent to 5.10 ringgit, changing hands at 5.50 ringgit at 9:37 a.m. in Kuala Lumpur. Proton's spokesman Yusri Yusof said the carmaker had not received formal notice of an end to the investment proposal.

 

``It means Proton has to start looking for a partner all over again,'' said Tan Teng Boo, who oversees about $80 million of investments as managing director of Capital Dynamics Asset Management in Kuala Lumpur. ``It has lost precious time and this will delay further its efforts to be more competitive.''

 

Proton had been in talks with Europe's largest carmaker about an alliance that may have included the sale of a stake to Volkswagen. The carmaker, which produces eight car designs under its brand and two types of Lotus sports cars, has been seeking a foreign partner since Mitsubishi Motors Corp. and Mitsubishi Corp. ended their 21-year investment in January 2005.

 

``As of today, we are still waiting for an official reply from Volkswagen,'' said Yusri, based in Shah Alam outside the Malaysian capital, in a phone interview. ``We are caught by surprise by the announcement.''

 

Government Ownership

 

Proton was set up in 1985 by former premier Mahathir Mohamad. Prime Minister Abdullah Ahmad Badawi in October said the Malaysian carmaker must improve quality and find ways to compete as Southeast Asia's trade barriers are removed.

 

Proton has seen its share fall for five years in the domestic passenger car market, losing sales to Kia Motors Corp., Toyota Motor Corp. and other overseas brands that assemble in Malaysia. Its market share fell to 44 percent in 2004 from as much as 66 percent in 1999.

 

The Malaysian carmaker is 42.7 percent owned by Khazanah Nasional Bhd., an investment arm of the Malaysian government. The Kuala Lumpur-based company was in talks to sell up to 30 percent of Proton to Volkswagen, The Star newspaper reported in July last year.

 

``We have to review the situation and let Proton make the announcement,'' Khazanah Chief Executive Officer Azman Mokhtar said in a telephone interview today. He said Proton continues to need a technical partner and Volkswagen remains a candidate.

 

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