Geely transfers Proton stock to another subsidiary to reduce ‘connected trading’ – what is this?

Last month, Bursa Malaysia-listed DRB-Hicom issued a notice stating that Zhejiang Geely Holding (ZGH), through its wholly owned subsidiary Geely International (Hong Kong) Ltd (GIHK), has transferred his entire stake in Proton. to another subsidiary in the broader Geely group.

In a filing with the local stock exchange, the group said the transfer included 547.2 million shares of common stock, representing a 49.9% stake in Proton (the remainder is owned by DRB). and the receiver 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, transfers, share capital, share structure, and share ratio of the significant shareholders of the Company. group DRB-Hicom for the financial year ending December 31, 2023,” the company said, calling the move an “internal restructuring within the Geely group”.

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

Proton shares have been transferred to Linkstate, a wholly owned direct subsidiary of Geely Automobile Holdings Limited, a Hong Kong-listed company we will refer to as Geely Auto. Just consider Geely Auto as the Geely brand, the automaker, and ZGH as the holding company that belongs to Li, who controls about 40% of Geely Auto. According to Geely Auto’s HKSE filing of January 20, placing Proton under its umbrella would streamline things, financially.

“The Group currently sells automotive parts and components, and provides technology licensing and R&D services to Geely Holding Group in connection with the production of Proton-branded vehicles. Upon completion of the Proton Acquisition, the Group will directly sell automotive parts and components, and provide technology licensing and R&D services to the Proton Corporation, after which it will not is also a related person of the Company,” said Geely Auto.

“The above arrangement will reduce the number of continuously connected transactions between the Group and the Geely Holding Group and thereby reduce the Group’s dependence on the Geely Holding Group,” it added. Geely Auto will also “continue to support Proton’s business growth and will consider providing additional pro-rata financial support towards their interest in Proton”.

Now, we always see Proton as Geely’s arm in Malaysia and ASEAN, and that’s because Proton – under Geely’s leadership – has always declared its aim to be number one in Malaysia and a Top 3 Southeast Asian players. And so we think Geely products will enter our national and regional markets with the Proton badge, like how is it with Brunei?.

But now we’re hearing that Geely is in talks to directly enter the Thai market. While the automaker flatly refused Reuters Reportedly, Thailand’s Investment Commission held talks with five major Chinese electric vehicle manufacturers including Geely in a showcase to China in April.

Additionally, in November 2021, we reported that Lynk & Co – a joint venture between Geely Auto and Volvo – going to Malaysia. In its “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 other countries,” which no timeline is given. Premium EV brand Zeekr might be on his way here too.

So, besides simpler accounting, whether the transfer of Proton shares from ZGH/GIHK to Linkstate/Geely Auto could eliminate the possibility of a conflict of interest if Lynk & Co entered our market and Proton’s rival? Legally, of course, since both the left and right hands belong to ZGH and ultimately Li Shufu. Just speculation at this point, of course.

How can Geely do this with Proton, some may ask. Isn’t Proton supposed to be the sole executor of the Geely empire in the region? We’ll never really know what Geely’s original plans for Proton were, or if the difficulty of the mission (the initial claim of number one in Malaysia and top three in ASEAN at the time sounded like too ambitious, and still is) changed the big plans for the ambitious Chinese company. Anyway, Proton has excess capacity in its car and engine factory in Tanjung Malim and assembly contracts for the broader Geely group can be a source of income.