DRB-Hicom Chairman confirms Lotus is 'not safe' and considers its disposal
By Steve Davies•November 27, 2012•In Industry•9 Minutes
Yesterday at an extraordinary general meeting (EGM) in Shah Alam, DRB-Hicom’s Chairman Datuk Syed Mohamad Syed Murtaza confirmed what we’ve known for a while, that the company is ‘seriously’ considering its options for Group Lotus, including disposing of its stake to focus on more profitable investments.
DRB-Hicom Chairman Datuk Syed Mohamad Syed Murtaza released a statement this morning (28/11) denying he is considering the sale of Lotus, as was previously reported in The Edge Financial Daily, instead he sought to re-clarify the meaning of the words he spoke at Monday’s EGM.
By saying, “We are looking at the company seriously” he was apparently referring to looking at how to improve Lotus’ performance by improving its operations and growing its business, not disposing of the group’s stake in the company.
His original statement on Monday was in response to the question from shareholders as to ‘why’ DRB-Hicom was retaining loss-making Lotus, while disposing of businesses (such as Hicom Power) that are contributing to DRB’s earnings.
Datu Murtaza’s response was to reassure shareholders that all steps were being taken to repay the company’s debt and focus on growing shareholder value, so that the sale of Hicom Power could be approved. One can only speculate as to why he chose not to elaborate on his statement at the time, but then did so two days later.
Updated: 28/11/2012 13:00 GMT
The EGM, which saw shareholders approve the sale of Hicom Power Sdn Bhd, became heated when minority shareholders questioned the logic of selling good assets like Hicom Power, while retaining the toxic business of loss-making Lotus. Although five of these minority shareholders voted against the decision, the sale of Hicom Power was approved.
Murtaza said in response, “I assure you we are looking at it [Lotus] deeply and seriously… I’ve visited the company twice..”, and he promised to update shareholders on the matter soon including whether DRB-Hicom would be disposing of its stake in the British sports cars maker.
As we explained last month, DRB-Hicom is servicing loans of US$800 million for its 100% acquisition of Proton Holdings in June this year. In total the company spent more than US$1 billion in acquiring Proton, leveraging 85% of this with debt, but this level of gearing is unsustainable and needs to be quickly reduced.
With the sale of Hicom Power generating US$190 million in cash and reducing interest payments by US$12.25 million (ironically purchased by DRB’s billionaire owner Tan Sri Syed Mokhtar Al-Bukhary), the company is considering further asset disposals to pare back its debt.
The company says it will repay the full US$800 million of loans with a combination of asset disposals and internal funds, however with the turnaround of Proton far from assured, the company has come under increasing pressure to trim away any non-core businesses.
So where does that leave Lotus?
It leaves Lotus precisely where we said it was over a month ago. On life support with the reserve power running out.
Since last month’s revealing exposé, Lotus has done what I guess you’d expect them to do – call in favours from the UK media and try to distract attention away from ‘the elephant in the room’.
During this time we’ve witnessed perhaps the most inept example of modern-day automotive journalism when Autocar claimed last week that the ‘Lotus Esprit was close to fruition’. This ‘news’ was then picked up by 124 outlets (I’ll save them the embarrassment of being named) and the smoke and mirrors seemed back in place.. until DRB’s Chairman sent them a wake-up call with yesterday’s statement.
During the past 25 years I’ve advised some of the largest corporations around the world, and my job, if you like, has been to cut through all the corporate bullshit and determine what’s really going on – I’m known for being a fixer rather than a diplomat. So perhaps the most disappointing part of this Lotus saga has been the misinformation that’s served only to damage the long-term prospects of the company rather than save it.
Put simply, I was originally called in by Lotus to draw attention to their plight (following DRB’s acquisition by Proton) and convey the urgency for a decision to be reached about their future. The (considerable) risk the business faced was losing the previous 18 months hard-work and investment, including the skills and support of some very talented people that former-CEO Dany Bahar had brought in to support the company’s turnaround.
Since Lotus was first acquired by Proton in 1996, it’s been a titillating side-order on the Malaysian company’s corporate menu. What Bahar understood, although we may still question his methods, is that Lotus has to earn its strategic independence if it’s ever to compete with the might of Ferrari, Porsche or Aston Martin.
But Lotus isn’t just competing within the automotive markets, it’s also competing for capital on the financial markets and while the company has been spinning its tyres these past nine months, those financial markets have been seeing an asset being devalued – losing customers, the goodwill of suppliers and the confidence of its automotive partners.
Nobody in my line of work is under any illusion that the company is now worth considerably less than it was at the beginning of this year, and now DRB-Hicom is thinking ‘seriously’ about disposing of the hors d’œuvre which has given them such a bad case of financial indigestion.
While DRB-Hicom desperately needs to reduce its debts, Lotus requires significant investment just to stay afloat, with little chance of a return on such investment in the next 5-8 years. This was precisely the case when DRB-Hicom acquired Proton earlier in the year, so it’s somewhat puzzling to find it’s only just realising this now.
Back in 2011, both Lotus and Aston Martin were pitching to the financial markets for capital to help fuel their growth, but it was Lotus who secured the money which would see them compete for a seat on the world stage.
Now with such uncertainty over its future, investors have realised Gaydon would be a much safer place for their money than Hethel, leaving Lotus out in the cold.
This could all have been avoided had DRB-Hicom understood the market Lotus was in, and then nurtured the sports car maker’s reputation rather than hiding their plans (or lack thereof) behind a veil of secrecy.
Which brings me back to the earlier point about the media’s complicity in such a ruse. True journalism should be about rooting out the truth and telling both sides of a story, but I fear that with such a partisan agenda the real potential of Lotus has been squandered.
DRB-Hicom officials have said they intend to announce more details on the company’s plans for Proton by end of this month, when an update may also be forthcoming on the fate of Lotus.
Let’s see how the media ‘spin’ this one..
car industry Dany Bahar debt DRB-Hicom financial markets lotus malaysian
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John Mansfield
Steve, DRB-Hicom have issued a clarification on its remarks in the EDGE
http://www.theedgemalaysia.com/highlights/225936-stocks-to-watch-ijm-corp-misc-parkson-tan-chong-maxis-protasco-drb-hicom-.html
Apparently Lotus is not to be sold.
That’s right John, Datu Murtaza has clarified that his original EGM statement about “considering seriously what they would do with Lotus”, actually meant ‘what’ they would do to turn around its fortunes, rather than what they would do with it (as in quickly dispose of it).
Fortunately this clarification came ‘after’ the vote had been given to sell Hicom Power, otherwise perhaps more than 5 shareholders might have objected.
There’s been a distinct lack of Lotus coverage lately. Is there no development going on regarding Lotus’ viability? I thought you would have some update by now.
@Chris, various things things have happened over the last few months such as DRB’s acquisition of Symphony Lotus Limited (SLL) in China, but none of which question the fundamental commitment to Lotus Cars.
The good news is Lotus are back again at Goodwood this year, which is the first major international event they’ve attended for a long while, they’ve released some updated product (Exige S Roadster, Elise S Club Racer) and I’m finding them more and more open to talking about future plans.
I’m not able to reveal anything yet, and there’s still much to fix, but for the time being DRB-Hicom are remaining true to their word – there’s a plan (albeit a modest one) and no talks that I’m aware of to sell the business.
There’s a broader issue, which concerns Lotus, Caterham et al about what their Malaysian owners ultimately intend do with them and a real concern that they’ll remain little more than trophy brands providing their owners with trading credibility on the global markets.
We’re working on a number of these threads, and have an article coming out soon (next few weeks) which explores the subject from the viewpoint of a former insider.
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