Presentations have been made to Malaysian deputy premier Najib Razak by three business groups - Sime Darby, DRB-Hicom and Naza Motors - interested in acquiring an interest in state-owned carmaker Proton Holdings, but a government official says they will all have to wait until Kuala Lumpur first decides on Proton's foreign partner.

That decision will reportedly be made by end-March with two bidders having clearly emerged.

The two: France's PSA Peugeot Citroen and Germany's Volkswagen AG.

Yesterday, the New Straits Times reported that General Motors of the US was also interested and had opened preliminary talks with Proton's shareholders.

The national carmaker is 42 per cent owned by state investment agency Khazanah Nasional. Analysts said that Volkswagen is still tipped as the front runner as it also has submitted a comprehensive production and strategic plan to turn the ailing carmaker around.

The Volkswagen plan calls for the global carmaker to buy a 51 per cent control of the manufacturing, vendor and design operations and leave control of the holding company with the state (Khazanah) or whoever Kuala Lumpur wants to sell it to (Sime, DRB-Hicom or Naza Motors). The model is fashioned around Malaysia's highly successful Perodua car company whose production is controlled and managed by Japan's Daihatsu, a unit of Toyota Motors.

Proton's market share is dropping - it is expected to lose to Perodua this year - and analysts expect it to make a loss of close to RM500 million (S$219 million) for the year to end-march 2007, from a RM47 million profit last year. The market erosion is directly traceable to Proton's failure to come up with new models amid fierce competition from relatively inexpensive models from global carmakers like Toyota, Honda and Hyundai.

Even so, Proton is alluring to global carmakers. Two key reasons come to mind: Malaysia's passenger car market is the largest in the region, and the carmaker's spanking new production facility at Tanjung Malim is said to be state of the art.

Moreover, buying into Proton would also give its foreign partner access to the markets of the 10-nation Asean grouping where a trade pact of lowered duties across the board is in force.

In addition, entry into Proton and effective Malaysianisation would enable the carmaker's foreign partner access to Japan's markets as well: Tokyo and Kuala Lumpur inked a free trade agreement last year.

While the foreign partner portion of the deal is pretty much on, it isn't clear if Khazanah will sell its interest to either of the three local parties that are interested. 'Khazanah might just keep its interest at the holding company level,' said the government official. 'If the foreign partner is good for Proton why should it sell at all.'

Indeed, talk of a foreign partner has certainly been good for Proton's shares: its shares have moved up 28 per cent since November to RM6.15 apiece yesterday.