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DRB-Hicom's adviser urges shareholders to approve Proton stake sale to Zhejiang Geely

KUALA LUMPUR (Nikkei Markets) - Malaysian conglomerate DRB-Hicom's independent adviser Tuesday urged shareholders to approve a proposed stake sale in carmaker units Proton Holdings and Lotus Group to China's Zhejiang Geely Holdings as the deal is "fair and reasonable."

In June, DRB-Hicom signed a definitive agreement to sell a 49.9% stake in Proton to Geely in a deal worth 460.3 million ringgit ($107.3 million) while its sports car unit Lotus will be separately sold for 100 million British pounds to Geely and Etika Automotive, a firm controlled by Malaysian tycoon Syed Mokhtar al-Bukhary.

"We are of the view that the proposals are fair and reasonable and are not detrimental to the non-interested shareholders," Affin Hwang Capital said in a statement to shareholders. "We recommend that you vote in favour of the resolution pertaining to the proposals to be tabled at the forthcoming EGM."

An extraordinary general meeting will be held on August 30 to seek shareholders' approval for the sale, marking one of the final steps in the government-backed restructuring program to help reverse Proton's long-running financial woes.

DRB-Hicom has been struggling with Proton since its 2012 acquisition from state-owned investment company Khazanah Nasional. Proton, which mostly manufactures mass-market passenger cars, has been hurt by persistent decline in sales that saddled the company with years of deep financial losses.

Geely will inject 170.3 million ringgit cash and help Proton develop its first-ever sports utility vehicle based on its Boyue model. The deal excludes Proton's non-automotive assets, such as its charity foundation, collectively worth 1.2 billion ringgit.

"The Boyue license, which is part of the subscription price will allow Proton to have immediate access to a platform for a new car model with minimum lead time from R&D to production and launching," said Affin Hwang Capital. "The sale price of GBP100 million is the highest of all the binding bids received for the Lotus Group."

A recent industry-wide slump in vehicle sales in Malaysia has also worsened Proton's health. Last year, the government agreed to grant a soft loan of 1.5 billion ringgit to Proton. In addition to monitoring by a special panel, Proton was tasked to seek a strategic partner within a year as part of the loan agreement.

Proton posted a net loss of 975 million ringgit in the fiscal year ended Mar. 31 while its market share slipped to 14% in 2016 from 20% in 2014. To bolster sales, Proton has launched three new models in the past one year but its turnaround effort was hampered by weak demand and stiff industry competition.

Shares of DRB-Hicom rose 1.3% to 1.61 ringgit on Tuesday trading, while the benchmark FTSE Bursa Malaysia KLCI was relatively unchanged.

--Gho Chee Yuan

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