Two Malaysian firms are interested in forming a pact with troubled automaker Proton, the second finance minister said today as the government holds talks with PSA Peugeot Citroen and Volkswagen AG.

Nor Mohamed Yakcop said the government has not excluded local companies from buying the government's 43 percent stake in Proton held by Khazanah Nasional Bhd, the government's investment arm.

"The government is still in the process of talking to various parties and is evaluating to get the best deal for Proton.

"The interest shown by them indicates that Proton has good value," he was quoted as saying by Bernama news agency.

Local motor giant, Naza Group said it had submitted a letter of intent to buy Khazanah's controlling stake.

"We are interested in Proton as a whole. We believe we can bring Proton to a different level," Naza Group chairman Nasimuddin Amin was quoted as saying by the Star newspaper.

Meeting with Peugeot

DRB-Hicom, controlled by business tycoon Syed Mokhtar Al-Bukhari, has also expressed an interest in Proton.

"We are talking to foreign investors but that does not preclude talking to local investors as well," Nor Mohamed added.

A team from PSA Peugeot is expected to shortly arrive in Malaysia to discuss areas of possible collaboration while German automaker Volkswagen is reportedly keen on a majority stake in Proton's manufacturing arm.

Proton and PSA Peugeot have signed a letter of intent to evaluate and study possible cooperation. The first round of talks began in September.

Analysts say Proton needs to find a strong foreign partner to help revive its fortunes - it reported a RM58.6 million loss in its first quarter to June.