The Malaysian government's investment arm, Khazanah, today rejected speculation it planned to sell its majority stake in Proton following reports that German auto giant Volkswagen could purchase a 30 percent share in the national car maker.

"Khazanah Nasional, as the controlling 42.7 percent shareholder in Proton, wishes to state that it does not have any plans at this point to divest all or part of its existing stake in Proton," it said in a statement.

Khazanah added that it remained committed to "current efforts to improve operations and the strategic position of the company, including the ongoing discussions with respect to a proposed alliance with Volkswagen."

The company announced last October it would assemble and sell VW cars locally and abroad as part of a "long-term strategic partnership" that could lead to technology sharing and the joint development of new models.

Citing sources close to the government, media reports said Friday that Volkswagen could purchase up to a 30 percent stake in the national carmaker in talks due to end over the next few days.

Share prices up

VW representatives in Kuala Lumpur this week had worked out most of the aspects of the tie-up, including the company's proposed stake, the Sun said.

Proton shares shot up in morning trade on the news, gaining 10 sen to RM9.35 on speculation that the sale price could be up to RM10 a share.

Proton used to sell six out of every 10 new cars in Malaysia but growing foreign competition is eating into its market share which fell to 44 percent last year from 48 percent in 2003.

Prime Minister Abdullah Ahmad Badawi recently said Malaysia would gradually reduce protection measures for Proton and urged it to improve quality and become more competitive amid declining sales.

Proton sales in the first half of 2005 stood at 75,983 vehicles, with a 40 percent share of the market, compared to 77,890 or 45 percent a year earlier, according to industry figures.