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Proton-Honda tie-up may be the start of more events from DRB-Hicom [31-10-2012]  
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THE latest strategic collaboration between Proton and Honda might just be the beginning of a string of events that parent DRB-Hicom Bhd has in store for the national carmaker.

Way back in January, DRB-Hicom group managing director Datuk Seri Mohd Khamil Jamil mentioned keywords like foreign strategic partners (FSP) and tie-ups when the automotive conglomerate bought Khazanah Nasional's Proton stake for RM1.29bil and subsequently took over the company in May for RM3bil.

True to his word and after just a mere five months, Honda Motor Co Ltd has become the new global FSP for Proton, catching analysts and investors by surprise in terms of the identity of the FSP and the rapid speed DRB-Hicom was getting things done for Proton amid its diversification trail to pare down its debt.

Honda Motor is the first FSP to tie up with Proton under the wings of DRB-Hicom.

When contacted, Khamil merely said there was a confidentiality clause and that he would only be able to provide more details once the dust settled down.

Though the freshly-inked collaboration may still be at a preliminary stage as it encompasses a wide range of areas the parties can delve into, questions are already being raised on how Honda and Proton can gel together as a much more probable candidate was said to be long-time girlfriend, Mitsubishi Motor Corp, which Proton had had a on-off relationship over the years.

After all, Proton was set up in 1983 in a tie-up with Mitsubishi. On the other end, Honda prefers to venture into markets and grow the business on its own. Collaborations and joint ventures like the Proton partnership were basically unheard of since Honda's inception in 1948.

Honda's hunt for a new partner could have possibly been driven by events at its plant in Ayutthaya following the severe floods in Thailand which disrupted its global supply chain and affected its car production network along with parts for the market. The planned RM1bil investment by DRB-Hicom to accelerate the development of Proton City in Tanjung Malim and Proton's under-utilised plant there could present an opportunity to Honda, which may be looking for a more strategic location for its plant.

Leveraging on Honda's extensive product line-up to rebadge some models for Proton might be an easy way out, but to that end, Khamil had previously stressed that Proton was not going into the “rebadging” business. He even described it as “a step back” for Proton. Despite being a non-exclusive agreement, could the tie-up put a spanner into the works of a Volkswagen (VW) collaboration with Proton.

According to takeover documents that were glanced by StarBiz previously, VW was going to make its mark with Proton under Phase 2 of DRB-Hicom's takeover.

However, developments are fluid and Honda's presence could clash with the interest of Europe's largest carmaker should it take up an equity position in Proton in the future.

VW and DRB-Hicom have a standing joint-venture agreement currently to assemble VW cars such as the Jetta and Passat for the regional export markets.

Remember the on-again off-again talks between Proton and VW in 2007 that finally was called off at the eleventh hour? The move to pare down DRB-Hicom's debt by RM1bil to RM1.5bil through non-core assets sales would see more corporate exercises coming from the conglomerate. There could be short-term pains in return for long-term gains.

DRB-Hicom had just hived off Hicom Power Sdn Bhd to Malakoff Corp Bhd's unit Sterling Asia Sdn Bhd for RM575mil cash and is in the midst of parading its insurance arm, Uni.Asia General Insurance Bhd and Uni.Asia Life Assurance Bhd to potential suitors. DRB-Hicom's 70% unit Bank Muamalat had also obtained the green light from Bank Negara to conduct talks with Affin Bank Bhd to buy a substantial stake in Bank Muamalat.

Nevertheless, looking back at DRB-Hicom and Proton, the national carmaker has been a drag on the conglomerate's profit, with its first quarter net profit ended June plunging by 64% to RM32.6mil from RM91.1mil previously, due to higher finance cost following the acquisition of Proton as well as the losses incurred by Proton's wholly-owned subsidiary Group Lotus plc. DRB-Hicom is slated to release its second quarter results on Nov 23.

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