Japan's Mitsubishi Motors and Mitsubishi Corp have offered to sell their collective 15.8 percent stake in national carmaker Proton to its key shareholder, Khazanah Nasional, a report said today.

A senior official from Khazanah, the government's investment arm, told The Edge Financial Daily negotiations have started but no decisions have been made.

"We have been approached (by the two companies). We have discussed the matter with them but nothing has been decided," the official said.

Khazanah and Proton officials were not available for comment.

Proton was established in 1983 by Malaysian companies as well as Mitsubishi Motors and some Mitsubishi group companies. Mitsubishi Motors and Mitsubishi Corp each hold a 7.9 percent stake in Proton while Khazanah has 30 percent equity.

Mitsubishi's pullout could deal a blow to Proton, which is grappling with poor sales due to intense foreign competition ahead of market liberalisation under the Association of Southeast Asian Nations (Asean) Free Trade Area (Afta).

Commercial decision

Proton's market share tumbled to 49 percent last year from 60 percent in 2002, with its car sales falling 27.5 percent to 155,420 units last year.

But one auto analyst told the daily Mitsubishi's withdrawal was a commercial decision to beef up their operations due to financial troubles and did not reflect Proton's fundamentals.

She noted Khazanah has reportedly been approached by other foreign companies for Mitsubishi's stake in Proton.

A report from Tokyo last Friday said Mitsubishi Motors has started negotiations with the Malaysian government on the pullout, which marked part of efforts by the struggling Japanese carmaker to reorganise its production bases in Asia.

The company was now set to focus its production in Thailand, where it currently produces pick-up trucks, according to Jiji Press . Mitsubishi expects its net loss in the year to March to balloon to 72 billion yen (670 million dollars) due to slumping sales in North America.

Strategic alliances

Proton chief executive Mahaleel Ariff told this week's Edge business weekly the carmaker was ready for new strategic alliances but had no need for a foreign equity shareholder that could not contribute to its technological advancement.

He said many companies were interested in Proton in order to gain control of its British subsidiary Lotus group.

"It's so easy for people to say 'oh you need a foreign partner,' but in what and where? You know I am very open. If it makes sense, I will do it," he said.

"We have alliances with Renault now, we have alliances with Mitsubishi, what's wrong with that? And now we already have signed with a European partner to swap car structures... these make sense because you are filling the gaps."

Proton is pinning its hopes on its newly launched GEN-2 model, the first of a new generation of cars fitted with its own Campro engine, and two other new cars expected to be unveiled this year to revive sales.

Under Afta, import tariffs for most products in the region were cut to below five percent from last year. Malaysia obtained a two-year reprieve for its auto industry until 2005 but it recently said it would further defer reducing duties to the required level until 2008. - AFP