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.

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..


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Steve Davies

Steve is an investor, private equity advisor and former Partner at KPMG, PwC and Bain.   Most importantly he's a life-long car enthusiast, mountain biker and active sports enthusiast. He designs and builds technology platforms and is the architect behind Transmission.

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