What's wrong with me being a rich man?

Chapter 691 The Current Situation (4k)

Guo Kongcheng arrived in Hong Kong very quickly.

He met Li Song on the first day and took a flight to Shanghai the next morning.

During this time, Yu Xing took the opportunity to sort out Proton's current situation. No wonder Sai Mokhtar wanted to deal with it. Proton's sales forecast for the whole year is only 7 vehicles, a 66% drop from its peak. Its market share in Malaysia has fallen from 20% in previous years to 12%, and it has suffered losses for 14 consecutive years.

Proton's net cash flow is negative, and its apparent debt ratio is as high as 85%. Banks have completely stopped granting new credit, and it is currently basically surviving on financial support from its parent company, DRB-HICOM. Many suppliers and production lines have also experienced multiple shutdowns.

This situation is worse than when some of Lotus's assets were sold off.

More importantly, in 2014, Malaysia issued a "National Automotive Policy" stipulating that Proton, as the national automotive brand, must present a recognized business plan to turn a profit by 2017, or it would be permanently stripped of tax exemptions, government procurement, and local parts subsidies.

From a business perspective, Proton is clearly teetering on the brink of total collapse. And its current actions are not just business-related. Syed Mokhtar, who privatized Proton in 2012, has accumulated his wealth primarily through privatization projects undertaken by the Najib Razak government.

Now 91-year-old Mahathir has returned to power, forming an opposition alliance and is highly likely to come to power in the 2018 general election. At that time, he will most likely hold a reckoning with such privatization actions. At the same time, Proton Group is a project created by Mahathir, and its current decline is also a factor.

Syed Mokhtar is a close associate of the current boss, Najib, but his hasty sale of Proton at this time is partly to protect himself, partly to get rid of the burden, and partly to jump ship in advance.

Yu Xing was able to grasp the general situation, but this level of understanding was insufficient for him to make a decision to invest. Proton Group had clearly become a tool in the political power struggle on the other side, and a rash intrusion would likely yield little result.

He didn't budge, nor did he show any interest. After listening to Guo Kongcheng's persuasion, he politely invited him to visit Lingang first, and said that the Proton Group matter would be discussed internally.

Guo Kongcheng did not get up and continued to talk about the markets in Southeast Asia, ASEAN and even the world, but seeing that President Yu was still unmoved, he brought up another matter.

He took a sip of tea and said with a smile, "Mr. Yu, I have long heard of Shanfeng's great reputation. Today I have truly met the King of Short Sellers."

Since his identity was exposed, Yu Xing has encountered many people who bring it up in person, but it was still a bit unexpected that the other party would talk about the mountain peak so frankly when they first met.

He remained calm and said, "That's all just hype from the outside media. The way Guo Shanfeng is now is not my intention."

Guo Kongcheng nodded and said carefully, "President Yu, I have another favor to ask of you."

Since the request had been made so readily and had flown right in front of him, he naturally couldn't refuse.

Yu Xing was also curious: "President Guo, please go ahead."

“I have the utmost respect for Guo Shanfeng’s efforts in cracking down on fraud by listed companies. My father also often praised him after learning about Mr. Yu’s deeds.” Guo Kongcheng said in a humble manner after praising him, “We invested in two banks in Malaysia, one is Malayan Banking Corporation and the other is Bumiputera Bank. They provided more than 30 billion ringgit in loans to the listed palm oil company FGV. However, at the beginning of the year, we learned that FGV had some illegal related-party transactions that siphoned off assets.”

Yu Xing didn't know the company Guo Kongcheng was talking about, but seeing how confident Guo Kongcheng was, it was probably quite accurate, and his statement that he "learned about it at the beginning of the year" was probably not a casual remark.

Kuok Khoon Cheng continued, “Our family also owns Wilmar International, which is a direct competitor of FGV in the palm oil business. It exports 1200 million tons a year, while we export 2800 million tons a year. It is the source of funding for Najib, who is currently in power. We hope that Mahathir will win in the future. Its current market value is more than 40 billion US dollars. The problems we see now are likely only a small part, while we have everything we need.”

He took the unopened file folder to the table and pushed it forward, bringing the likely fraudulent listed company into the short sellers' view without acknowledging the conflict of interest.

For today's market participants, in some cases, just knowing the name is enough to follow the clues, and even naming it is a negative sign, let alone when there is solid evidence in front of them.

Yu Xing didn't reach for the file folder, saying, "President Guo, I can turn around and go do my own research."

Guo Kongcheng said very seriously, "President Yu, I'm here today to treat people with sincerity."

Yu Xing laughed heartily; this guy had indeed done some research before coming.

He asked a question: "Mr. Guo, I heard that Mahathir places more emphasis on the priority of indigenous people."

Malaysia's population is mainly Malay, Chinese, and Indian, with proportions of approximately 70%, 20%, and 7%, respectively.

According to publicly available information, Mahathir, who is in opposition, has made it clear that he does not want Proton to be owned by foreign capital and advocates for Bumiputera (indigenous Malaysians) priority, which conflicts with the Kuok family's Chinese identity.

Guo Kongcheng said, "Mr. Yu, FGV is completely dependent on Najib, but we cooperate with Mahathir. He does promote Bumiputera priority, but Najib is engaging in racial discrimination."

Yu Xing was slightly taken aback.

"Mahathir is already quite old when he forms the Pakatan Harapan coalition. Even if he succeeds in coming to power, he won't hold onto it for long. The next one will be Anwar. He's different from Mahathir; he'll bring more inclusive policies." Kuok Khoon Cheng's expression was quite solemn as he said this. He paused, then continued, "Najib is different. This year, he implemented a mandatory Bumiputera (indigenous Malaysians) procurement policy, requiring us to purchase crude oil at high prices from our competitor, FGV. This single cost alone will take away 20% of our net profit in Malaysia."

In March 2016, Malaysia released the "2016 Mandatory Framework for Bumiputera Sourcing in the Palm Oil Processing Industry," requiring that at least 30% of the crude palm oil purchased by refining companies must come from Malaysian Bumiputera-owned plantation companies.

The policy does not name Wilmar International and FGV, but it is tailored entirely to the interests of the latter, as FGV is the largest Bumiputera-owned crude oil producer in Malaysia, accounting for 65% of the country's crude oil supply from Bumiputera companies.

Wilmar was buying from a third party at a price of 1280 per ton, but is now being forced to buy from FGV at a price of at least 1720.

The two sides are the most direct competitors, and the current bias is essentially a conflict of interest between the Malaysian Chinese and the government.

Guo Kongcheng's statement was very direct: Mahathir, who is currently in opposition, is stronger than Najib, who is in power, and Anwar, who is expected to succeed him, is even stronger than Mahathir.

"Mr. Yu, to be honest, my father has also decided to provide public opinion support for Mahathir's Pakatan Harapan coalition in this election. Currently, a huge corruption case has broken out in power, and public opposition is growing louder. The year after next will be a great opportunity."

Robert Kuok is highly respected in Chinese business circles, and he has not publicly interfered in politics for decades. His current stance is tantamount to representing the entire circle in providing funds and resources to the opposition.

Guo Kongcheng added, “Anwar will provide more protection for the rights and interests of Chinese businesses and has also promised to open up more foreign investment. Mr. Yu, what Proton Group lacks now is a start-up resource that German and Japanese car companies are unwilling to provide. But Mr. Yu is fully capable and has the courage to take over this market. Not only in ASEAN countries, but also in other ASEAN and global markets, tariffs are more favorable.”

Yu Xingzhi now had a basic understanding of the Guo family's purpose in coming here.

For present and future benefits, the Guo family is betting on the out-of-opposition Mahathir and hoping that his successor, Anwar, will implement better policies. Whether Mahathir and Anwar's promises are reliable remains to be seen; their relationship will likely extend beyond mere words, involving more complex alliances. Proton, as Malaysia's national car brand, needs to be acquired from Syed Mokhtar, who previously acquired it, and its assets need to be revitalized. Meanwhile, FGV, suspected of fraud, is a direct business competitor of the Guo family.

At the same time, both Proton and FGV are sources of funding and votes for Najib Razak, who is currently in power, and their failures are also a blow to Najib.

Guo Kongcheng basically revealed the entire plan on this trip.

Yu Xing pondered for a moment and asked a question: "Can Mahathir win? After all, he is also advocating for indigenous people first."

Malaysia is predominantly Malay, so whoever is elected will naturally have to appease this group. The private exchanges and promises made now may not be kept if he actually wins.

"Mr. Yu, Mahathir is willing to accelerate the development of the new energy industry after taking office. Imported models will be exempt from tariffs, and the purchase tax will also be waived." Guo Kongcheng revealed Mahathir's follow-up policies. "No matter who is in power, the goal is to develop the economy. Malaysia is currently dominated by Japanese cars. On the one hand, we need to revitalize benchmarks like Proton Group, and on the other hand, we need to attract foreign investment. These are all things they should do."

He looked at President Yu and said, "President Yu, I am willing to vouch for this matter."

The renowned Guo family, the sect leader is willing to protect them.

Yu Xing remained silent, offering only a half-smile.

Guo Kongcheng paused for a moment, then spoke even more slowly: "President Yu, my father is also willing to provide guarantees for taking over Proton this time."

Upon hearing this, Yu Xing finally spoke up: "President Guo, you're exaggerating. It's not that I don't trust you, it's just that our carbon silicon may not be up to the task. I'm not familiar with the situation of Proton Group. Carbon silicon is also a new player in the car market. We are still receiving domestic subsidies and are also facing financial difficulties."

“Mr. Yu…” Guo Kongcheng said, “Proton’s production lines are currently shut down. If Silicon Carbon is willing to take over, I am willing to coordinate with Malayan Banking to provide Proton with a low-interest loan of 5 million ringgit and extend its maturing debts. This will solve part of the cash flow problem.”

The Guo family are shareholders of Malayan Banking, and 5 million ringgit, which is approximately US$1.25 million, can solve their immediate crisis.

Yu Xing smiled slightly: "President Guo is indeed sincere, but I do not know much about Proton. We need to discuss the situation and possibilities within the company. To be honest, I am indeed apprehensive about President Guo's trust in me."

Guo Kongcheng didn't detect any fear and responded to such humble words by saying, "President Yu, I see that there is already a new energy industry cluster in Lingang, and silicon carbon is developing rapidly. I believe silicon carbon has the capability."

Yu Xing thanked Guo Kongcheng for his trust by offering tea instead of wine.

After Guo Kongcheng was taken to visit the Silicon Carbon Group, the president's office held a small meeting to discuss related matters.

Silicon Carbon Group doesn't know much about Malaysia and Proton, so they invited people from Lotus Engineering to come and offer their advice.

It's hard to say about political matters, but I do know quite a bit about the problems at Proton.

Since Cyril Mokhtar acquired Proton, he directly abolished the original procurement bidding mechanism through the board of directors, replacing it with a strategic supplier clause that exempts all bidding processes. He then included affiliated companies in the list of strategic suppliers, granting them exclusive supply rights, while Proton's procurement department had no right to review prices or change suppliers.

The prices quoted by these affiliated companies are a package deal with no breakdown of costs such as raw materials, processing fees, and taxes. It is a completely opaque pricing system. Furthermore, the supply agreements are long-term exclusive agreements of three to five years, with a fixed annual increase of 3% to 5%.

With serious problems in the supply chain, it's natural for the company to suffer losses.

“President Yu, the main problem is easy to solve. If the supplier is not good, we can cut off the supply chain. What we lack is the supply chain.” Cui Zhiyu was quite interested after the people from Lotus Project left. “The Guo family is willing to provide some cash flow. The supply chain can be cut off through controlling stake. We can also provide alternative supply chain links in China. What is uncertain now is whether the opposition can actually take power.”

Yu Xing remained silent, lost in thought.

At this moment, Cui Zhiyu suggested, "President Yu, isn't there a Mus index on the seventh floor? That could be used to test the situation in Malaysia."

The Mus index is no secret within small circles.

Yu Xing was both amused and exasperated, and shook his head, saying, "That's not allowed."

Cui Zhiyu thought to himself, "If the index is inaccurate, how dare the funds bet on it?"
Yu Xing was considering whether Mahathir could win. The MUS index was inaccurate, but Lotus was later acquired by Geely. Although it was unclear whether Geely had invested in Proton, judging from this cooperation between Chinese and Malaysian capital, the situation was likely to improve.

After listening to everyone's discussion for a moment, he said, "The cash flow problem can be solved, the supply chain can be replaced, and there may be new energy support policies later. We will not consider Mahathir for now. The problem is that our carbon silicon is not very helpful for Proton to develop new models that are suitable for their market."

After being acquired, Proton was essentially a "eaten-up" asset, and for many years it did not produce new models or technologies, naturally leading to a continuous decline in market share.

The silicon carbon group focuses on new energy range extenders, and while it is positioned in the mid-to-high-end market, it only has one SUV model, so its capabilities in this area are lacking.

Yu Xing was grateful to Guo Kongcheng for thinking highly of the Silicon Carbon Group.

“Mr. Yu, we don’t have that, but we can pool our resources with the domestic supply chain and our domestic counterparts. Baosteel has high-strength steel, Lingang has millimeter wave technology, air suspension, and batteries. Geely, BYD, and Great Wall have experience in entry-level and mid-range products. The Malaysian market probably needs this more,” Cui Zhiyu said. “We have the capability domestically; it just depends on how we negotiate. But I still think that if the situation changes there, our investment might be wasted.”

You can't trust what people in opposition say.

If the silicon carbon group invests resources and then suddenly turns its back on them, it will be very difficult to recover the losses.

"What Mr. Guo means is that Mahathir has made a private promise, and the Guo family is willing to guarantee this promise," Yu Xing said. "But the one who can truly guarantee the cooperation is ourselves. The joint venture model used by foreign companies is a good teacher for us. After all, it is indeed a good stepping stone."

While it is true that complete vehicles are exempt from tax within ASEAN, there is a prerequisite: the Regional Value Content (RVC) of ASEAN must be ≥ 40%. In other words, the cumulative costs of local production, labor, parts, etc., in the 10 ASEAN countries must exceed 4% of the price of the complete vehicle.

Similar to the initial joint ventures in China, which had similar requirements, the localization rate had to exceed 40% within three years of officially starting production.

Therefore, there are mature models in this regard, using low-value-added local assembly and low-tech component production to meet Malaysia's compliance requirements, while keeping the core technology in China and transferring most of the profits back to China through related-party transactions via key component supply and intellectual property licensing.

In this way, even without the Guo family holding shares as a concerted party, they can still control key profits and dominate the cooperation.

(End of this chapter)