Geely transfers Proton shares to another subsidiary to reduce 'connected transactions' – what is this about? –

Last month, there was an announcement by Bursa Malaysia-listed DRB-Hicom, which said that Zhejiang Geely Holding (ZGH), via wholly-owned subsidiary Geely International (Hong Kong) Ltd (GIHK), has transferred its entire equity interest in Proton to another subsidiary within the wider Geely group.

In a filing with the local bourse, the conglomerate said the transfer comprised 547.2 million ordinary shares, representing 49.9% equity interest in Proton (the rest is owned by DRB) and the recepient is a company called Linkstate Overseas Ltd.

“The transfer of Proton shares from GIHK to Linkstate will not have any effect on the net assets, earnings, gearing, share capital, shareholding structure and substantial shareholders’ shareholdings of the DRB-Hicom group for the financial year ending Dec 31, 2023,” the company said, branding the move as “internal restructuring in Geely group”.

Proton shareholding in 2023 – click to enlarge

From Geely’s left hand to its right hand, so there’s nothing to look at? Asked by readers, we did some checking and here are the findings. First, the parties involved. ZGH is the holding company that is fully controlled by founder Li Shufu and his proxy, and ZGH is the sole shareholder of investment holding company GIHK, which before this, held the 49.9% stake in Proton. Geely values the equity at RMB 1,063 million (RM689.3 million).

The Proton stake has been transferred to Linkstate, a direct wholly-owned subsidiary of Geely Automobile Holdings Limited, a Hong Kong-listed company we’ll call Geely Auto. Just think of Geely Auto as the Geely brand, the carmaker, and ZGH as the holding company belonging to Li, who controls about 40% of Geely Auto. According to Geely Auto’s HKSE filing dated January 20, the placement of Proton under its umbrella streamlines things, financially.

“The Group currently sells automobile parts and components and provide R&D and technology licensing services to the Geely Holding Group in relation to the manufacture of Proton-branded vehicles. After completion of the Proton Acquisition, the Group will directly sell automobile parts and components and provide R&D and technology licensing services to the Proton Group, which will then cease to be a connected person of the Company,” Geely Auto said.

The Zhejiang Geely Holding Group and its companies – click to enlarge

“The above arrangement will reduce the number of continuing connected transactions between the Group and the Geely Holding Group and thus reduce the Group’s reliance on the Geely Holding Group,” it added. Geely Auto will also “continue to support the business development of Proton and will consider to provide further financial assistance pro-rata to its interest in Proton”.

Now, we’ve always seen Proton as Geely’s arm in Malaysia and ASEAN, and that’s because Proton – under Geely’s leadership – has always stated its aim to be number one in Malaysia and a top three player in ASEAN. And so, we’re assuming Geely products will enter our country and regional markets with Proton badges, just like how it is with Brunei.

But we’re now hearing that Geely is in talks to directly enter the Thailand market. While the carmaker flatly rejected the Reuters report, it is known that Thailand’s Board of Investment held talks with five major Chinese EV makers including Geely during a roadshow to China in April.

Also, back in November 2021, we reported that Lynk & Co – a JV between Geely Auto and Volvo – will enter Malaysia. In the “Smart Geely 2025” strategic roadmap, the group said that “Lynk & Co will expand its global presence by entering Russia, Malaysia, Australia, and New Zealand among others,” without giving a timeline. Premium EV brand Zeekr might also be on the way here.

So, besides more straightforward accounting, could the Proton share transfer exercise from ZGH/GIHK to Linkstate/Geely Auto also remove the possibility of conflict of interest should Lynk & Co enter our market and rival Proton, so to speak? In legal terms, of course, as both left and right hands belong to ZGH and ultimately Li Shufu. Mere speculation at this point, of course.

How could Geely do this to Proton, some might ask. Wasn’t Proton supposed to be the Geely empire’s sole enforcer in the region? We will never truly know what Geely’s original plans for Proton were, or whether the difficulty of the task (an early declaration to be number one in Malaysia and top three in ASEAN sounded overambitious then, still is now) has altered the grand scheme for the ambitious Chinese company. Anyway, Proton has excess capacity in its car and engine plants in Tanjung Malim and contract assembly for the wider Geely group can be a source of income.

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