Malaysia’s Proton shares tumble after VW talks end

Posted on November 21, 2007. Filed under: proton |

Shares of Malaysian state-controlled car-maker Proton slid to a near-seven-year low on Wednesday after the government ended talks with Germany’s Volkswagen over a possible alliance.

The government had been talking with Volkswagen on-and-off since 2004 about an alliance, fuelling hopes among investors that Volkswagen would transform the loss-making firm and take it global, just as it had done with Czech car-maker Skoda.

Tuesday’s announcement that Proton would go it alone took the market by surprise and led to speculation that the government had surrendered to strong lobbying against the deal by Proton management and by other forces within the local car industry.

“We are taken aback by the government’s decision to end talks with Volkswagen and let Proton operate without a strategic partner,” local brokerage CIMB said in a note to clients, slashing its target price on the stock to 3.50 ringgit a share.

Proton shares were down 9 percent at 4.52 ringgit in morning trade, having touched 4.40 ringgit near the open, its lowest point since March 2001.

Second Finance Minister Nor Mohamed Yakcop, in explaining the government’s decision on Tuesday, said Proton no longer needed a foreign partner because the local market was picking up and that the prospects for its business were brightening.

But the market did not see it that way, betting that Proton’s go-it-alone strategy would play into its rivals hands.

As Proton shares slumped, investors bought up shares in domestic rivals DRB-Hicom, which distributes some top foreign brands in Malaysia, lifting the stock by 4 percent.