Proton

Sources say Lotus Group Intl Ltd is being courted by a Chinese suitor interested in a possible stake in the US based automobile.

Sources say China-based Shanghai Automotive Industry Corp has expressed interest in Lotus and visited the plant in England . If the talks are successful, the purchase will give Lotus’ turnaround plan a much needed boost.

SAIC is one of the top auto corporations in China and produces passenger cars, commercial vehicles and auto components.

Lotus has been dragged on Proton of late. This is mainly due to Lotus’ turnaround plan, which utilizes Proton’s financial muscle. Lotus has taken a 270 million pound loan from a consortium of six banks for a five year turnaround plan while the entire turnaround is expected to cost Proton some 480 million pound.

The Lotus turnaround plan came about as the loss making auto manufacturer had begun to impact Proton’s balance sheet.

One of the suggestions to put Lotus on a sound financial footing was to divest a portion of its equity to a strategic investor that is able to market Lotus cars. The proceeds could then be used to develop future car models.

In Oct 2011, Proton denied reports that it might be looking to sell a stake in Lotus to Luxembourg-based investment firm. However SAIC has a presence in China , where Lotus has a following.

Lotus already has large orders despite not having a branch in China . It would be a smart move for Proton to sell a stake in Lotus to the Chinese party if it is indeed interested.

As at Sept 30, 2011, Proton had rm1.31 billion in cash, bank balances and deposits. Its short and long term borrowings grew to rm960 million.

A major concern is that Proton is only in the second year of a five year turnaround plan for Lotus. Proton expects Lotus to reach break even by 2014.

The repayment of the 270 million pound syndicated loan is due from March 31, 2015, and the maturity date is six years from the first drawdown.

SAIC has an existing tie up with GM, which has also rumored to be talks with Proton. GM had previously been keen on a JV with Proton to utilize its manufacturing facilities in Tanjong Malim when the national carmaker was still under Petronas. The deal fell through.

SAIC also has ties with VW.