General Motors in Talks on Proton, Malaysia Says

Jan. 15 (Bloomberg) -- General Motors Corp., the world's largest automaker, may buy a stake in Proton Holdings Bhd., the Malaysian state-owned carmaker that's seeking a partner to stem losses, a government official said.

Detroit-based GM has ``shown interest'' in Proton, Malaysia Second Finance Minister Nor Mohamed Yakcop told reporters today. Separate talks with Volkswagen AG and PSA Peugeot Citroen are continuing, which could also lead to the sale of a stake in the state-controlled carmaker, he said.

Proton ended a 21-year alliance with Japan's Mitsubishi Motors Corp. in March 2004 and is seeking a new partner to revive revenue, which fell to the lowest in at least seven years in the quarter ended Sept. 30. GM is expanding in China, India and other Asian emerging markets, as sales slump at home.

``GM can use Malaysia as an Asian platform, and that's very positive for Proton,'' said Nik Azhar Abdullah, who oversees about $684 million at Avenue Asset Management Sdn. in Kuala Lumpur. ``If you have three big names who want to get involved with Proton, it's very good.''

Proton shares jumped 35 sen, or 5.5 percent, to 6.75 ringgit in Kuala Lumpur, giving the company a market value of 3.71 billion ringgit ($1.1 billion). GM stock closed down 0.4 percent at $30.75 on Jan. 12 in New York.

Malaysia's state investment arm Khazanah Nasional Bhd. owns 43 percent of Proton. GM may offer as much as 10 ringgit for each Proton share, the New Straits Times said on Jan. 13.

``The best partner is not necessarily the one that offers the highest price,'' said Sharifah Farah, an analyst at CIMB Securities Sdn. ``Proton needs a partner that it can work with to achieve its objectives over the next 10 years.''

Previous Talks

Rob Leggat, a Shanghai-based spokesman for General Motors, said by phone that the company has held talks with Proton. He declined to say what was discussed and called the New Straits Times report ``very speculative.'' Faridah Idris, a spokeswoman at Proton, declined to comment.

General Motors said in November 2000 it was in talks with Proton about forming an alliance in Malaysia, Southeast Asia's biggest passenger car market. The discussions didn't produce a partnership.

Proton is worth pursuing because of its share of the local market, said Graeme Maxton, managing director for Asia at Autopolis, an adviser to the Malaysian government. Proton had 24 percent of Malaysia's car market as of Sept. 30, according to the Malaysian Automotive Association.

`Biggest Asset'

``That's about the biggest asset that it has,'' said Maxton. ``It's not big by world standards but it's worth some of the car manufacturers taking an interest in that.''

Still, an alliance may not be enough to save Proton, according to former premier Mahathir Mohamad, who set up the company more than two decades ago. Proton, led by Managing Director Zainal Abidin Syed Mohd Tahir, also needs fresh leadership to return to profit, Mahathir, who formed Proton in 1983 as prime minister, said on Jan. 8.

Proton, which makes the Gen.2 compact car and the Saga, a four-door saloon favored by Malaysian taxi drivers, said in November its loss widened to 250.3 million ringgit in the three months ended Sept. 30 from 154.3 million ringgit a year earlier.

Asian Markets

Asia has become GM's second-largest production base, after North America, and accounts for 20 percent of the company's vehicles, Chief Executive Officer Rick Wagoner said on Jan. 12. GM increasingly will depend on overseas markets to boost its global sales total.

GM's sales increase in markets such as China, where the Buick Excelle is the second-most popular car, contrasts with an 8.8 percent drop in the company's U.S. sales last year.

The U.S.-based carmaker plans to sell more than 1 million vehicles in China by next year at the latest. Its vehicle sales in China rose 32 percent to a record 876,747 vehicles last year.

In India, GM plans to triple its share to 10 percent by the end of the decade. In South Korea, GM completed in October 2002 a $1.17 billion acquisition of factories and other assets from insolvent Daewoo Motor Co. through a joint venture it controls.

The venture, GM Daewoo Auto & Technology Co., took over two of Daewoo Motor's assembly plants in South Korea and one in Vietnam. It later took over a third plant in South Korea.

GM's Woes

Wagoner is under pressure to show improvement in the carmaker's finances after last year rejecting an alliance with Renault SA and Nissan Motor Co. proposed by GM's then largest individual investor, Kirk Kerkorian. The billionaire sold his 9.9 percent stake after the company rejected his plan.

GM has posted more than $13 billion in losses over seven quarters, including more than $3 billion in the first nine months of last year. Its global sales fell about 0.8 percent to about 9.1 million vehicles worldwide last year.

The perceived risk of owning GM bonds has fallen as Wagoner has sold $17 billion of assets over the last 15 months to bolster the company's cash, credit-default swap prices show.

Credit-default swaps based on $10 million of GM bonds fell 1 percent to $367,500 on Jan. 12 in New York, according to CMA Datavision in London. That's down from a high of $1.35 million at the end of 2005, data compiled by Bloomberg show.

Traders use the five-year contracts to bet on a company's ability to repay debt. A drop suggests improving credit quality.

To contact the reporters on this story: Soraya Permatasari in Kuala Lumpur at soraya@bloomberg.netAngus Whitley in Kuala Lumpur at awhitley1@bloomberg.net