12-07-2007: Will Proton be privatised?
Talk of Proton Holdings Bhd being taken private has surfaced yet again as the car maker continues its search for the elusive foreign strategic partner.
In a repeat of its view more than a year ago, JP Morgan yet again believes that Proton may be headed for privatisation, and "broken up", with key assets injected into a newco that will facilitate the entry of the foreign partner.
JP Morgan has even upgraded its outlook on Proton to neutral with a target price of RM6 on the assumption that the government would privatise Proton as a first step to the restructuring story.
"Our upgrade lies in the assumption that the government will privatise Proton as a first step to the restructuring story, before the assets are re-injected into a private entity.
"Although the outcome of the negotiations with VW is still inconclusive, we believe that a decision will be made rather soon given the impatience of all parties involved to resolve the issue," it said in a report.
Proton shares shed 10 sen yesterday to RM5.95 with 1.13 million shares traded.
JP Morgan believes that a local party, most likely Khazanah given its 42.7% stake, would privatise Proton, where it would then break up Proton and inject key assets into the newco whereby VW would take up 51% and the rest by a local party.
"We believe that this is the most likely outcome arising from the negotiations, given that VW is only interested in the selected few assets in Proton.
"Proton would need to be privatised and be removed from public scrutiny and public shareholders in order for the "break-up" on Proton to take place," it said.
"Summing up the existing shareholdings of the government, which include Khazanah, EPF (Employees Provident Fund) and Petronas, we find that sovereign control amounts to over 65% of total shareholders," it said.
"We are also uncertain whether VW will offer cash, shares, a waiver-in-kind for the royalty fees, or a combination of the above in exchange for the 51% stake of the newco," JP Morgan said.
It also believes that the deal structure would be complex and would serve to benefit VW rather than the government, despite the government 's intention to retain the identity of Proton. "While we do not think that the local bidders are capable of solving the issues plaguing Proton, we expect a local party to absorb the remaining 49% of the newco, assuming that Proton will remain as a private entity," JP Morgan said.
However, SJ Securities research head Cheah King Yoong disagreed with the view as Khazanah would have to pay too high a price for the exercise.
"If you were to take into account that Khazanah is in talks with VW for the Proton stake, as well as its assets, Khazanah will have to pay RM9.52 per share."
Khazanah would need to pay about RM3 billion to take Proton private. Proton has a total of 549.213 million shares, of which Khazanah owns 42.7%.
Cheah said there was also "market talk" that VW now wanted a stake in the holding level of Proton and this makes the move to privatise Proton even more unlikely.
In a repeat of its view more than a year ago, JP Morgan yet again believes that Proton may be headed for privatisation, and "broken up", with key assets injected into a newco that will facilitate the entry of the foreign partner.
JP Morgan has even upgraded its outlook on Proton to neutral with a target price of RM6 on the assumption that the government would privatise Proton as a first step to the restructuring story.
"Our upgrade lies in the assumption that the government will privatise Proton as a first step to the restructuring story, before the assets are re-injected into a private entity.
"Although the outcome of the negotiations with VW is still inconclusive, we believe that a decision will be made rather soon given the impatience of all parties involved to resolve the issue," it said in a report.
Proton shares shed 10 sen yesterday to RM5.95 with 1.13 million shares traded.
JP Morgan believes that a local party, most likely Khazanah given its 42.7% stake, would privatise Proton, where it would then break up Proton and inject key assets into the newco whereby VW would take up 51% and the rest by a local party.
"We believe that this is the most likely outcome arising from the negotiations, given that VW is only interested in the selected few assets in Proton.
"Proton would need to be privatised and be removed from public scrutiny and public shareholders in order for the "break-up" on Proton to take place," it said.
"Summing up the existing shareholdings of the government, which include Khazanah, EPF (Employees Provident Fund) and Petronas, we find that sovereign control amounts to over 65% of total shareholders," it said.
"We are also uncertain whether VW will offer cash, shares, a waiver-in-kind for the royalty fees, or a combination of the above in exchange for the 51% stake of the newco," JP Morgan said.
It also believes that the deal structure would be complex and would serve to benefit VW rather than the government, despite the government 's intention to retain the identity of Proton. "While we do not think that the local bidders are capable of solving the issues plaguing Proton, we expect a local party to absorb the remaining 49% of the newco, assuming that Proton will remain as a private entity," JP Morgan said.
However, SJ Securities research head Cheah King Yoong disagreed with the view as Khazanah would have to pay too high a price for the exercise.
"If you were to take into account that Khazanah is in talks with VW for the Proton stake, as well as its assets, Khazanah will have to pay RM9.52 per share."
Khazanah would need to pay about RM3 billion to take Proton private. Proton has a total of 549.213 million shares, of which Khazanah owns 42.7%.
Cheah said there was also "market talk" that VW now wanted a stake in the holding level of Proton and this makes the move to privatise Proton even more unlikely.
posted by SEE FU at 9:24 AM
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