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DRB-Hicom expects government to inject $61.3 million in Proton by January-end

KUALA LUMPUR (NewsRise) - Malaysian conglomerate DRB-Hicom expects the government to inject 250 million ringgit ($61.3 million) by January 31, 2017 into its financially stressed car making unit Proton Holdings as the final tranche of an aid program.

Proton has signed the second loan stock agreement with Govco Holdings, a company owned by Malaysia's Finance Ministry, as part of the total 1.5 billion ringgit cash infusion program, DRB-Hicom informed the stock exchange. Loan stocks refer to shares that are typically pledged as collateral for loan.

"The proposed issuance represents the most appropriate avenue as it allows Proton to raise funds without the need to service the fund raising cost within the short to medium term," DRB-Hicom said.

In June, the company had said it will use proceeds from issuance of loan stocks worth 1.25 billion ringgit to Govco to settle money long-owed to various local and international creditors, vendors and suppliers. "This will also help rebuild confidence" in Proton, DRB-Hicom had said.

DRB-Hicom, which also assembles vehicles ranging from Honda motorcycles to Audi passenger cars, has been struggling with the loss-making Proton since its 2012 acquisition from state-owned investment company Khazanah Nasional.

Meanwhile, an industry-wide decline in automotive sales over the past two years added to Proton's woes as the company struggled to stall a persistent slide in domestic market share.

Proton's troubles have also weighed heavily on DRB-Hicom's finances. For its latest fiscal quarter ended June 30, net loss widened to 169.3 million ringgit from a loss of 19.7 million ringgit last year as revenue at its mainstay automotive business plunged 21% on year.

To support the financially strained carmaker, the government, earlier this year, agreed to grant a soft loan of 1.5 billion ringgit to Proton.

In addition to close monitoring by a special panel, Proton is tasked to seek "a strategic and renowned partner" to help in research and compete internationally within a year as part of the loan stock agreement.

Proton is currently seeking initial bids, or request for proposal, for a partner that could provide "strategic, operational and cultural fit on a permanent basis with the intention to grow its automotive business," it had said.

A successful partnership would allow Proton, which mostly makes mass-market passenger cars, to increase utilization rate at its two manufacturing plants in Malaysia that currently run at less than 50% of their total combined capacity of 200,000 units.

Shares of DRB-Hicom fell 1.6% to 1.26 ringgit on Tuesday while the benchmark FTSE Bursa Malaysia KLCI ended 0.7% higher.

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