Bloomberg News

Renault-Nissan to Take Control of Lada Maker AvtoVAZ

May 03, 2012

Renault-Nissan will combine its current 25 percent AvtoVAZ holding with the stake held by state-owned Russian Technologies. Photographer: Andrey Rudakov/Bloomberg

Renault-Nissan will combine its current 25 percent AvtoVAZ holding with the stake held by state-owned Russian Technologies. Photographer: Andrey Rudakov/Bloomberg

The Renault-Nissan alliance will form a joint venture with Russian Technologies Corp. to become the largest shareholder in OAO AvtoVAZ (AVAZ), Russia’s biggest automaker.

Renault SA (RNO) and Nissan Motor Co. will together invest about $750 million to take a majority holding in the joint venture, which will in turn own 74.5 percent of AvtoVAZ, the companies said today. They aim to complete the deal by 2014, later than some originally anticipated.

Carlos Ghosn, who runs both Renault and Nissan, is looking to the maker of Lada brand vehicles to fuel growth in Russia, where the market may surpass Germany to become Europe’s biggest in 2014, according to the Russian Industry Ministry. AvtoVAZ aims to hold 25 percent of the auto market in five years, or 40 percent together with Renault and Nissan.

“We see this move as very positive for Renault, which will continue to heavily invest in this growing market,” Xavier Caroen, an analyst at Kepler Capital Markets with a hold recommendation on the shares, said in a note to clients today. “With AvtoVAZ and Nissan the group will officially become the leader in Russia.”

Renault rose 0.8 percent to 34.12 euros at the close of trading in Paris. AvtoVAZ dropped 7.1 percent to 20.71 rubles in Moscow. Nissan rose 0.8 percent to 808 yen at yesterday’s close. The Tokyo stock exchange is closed for a public holiday today and tomorrow.

Combined Holdings

Sergey Skvortsov, deputy chairman of AvtoVAZ shareholder Troika Dialog, said in February that a memorandum of understanding could be signed at the end of that month or in March, with the transaction completed three months later.

Renault-Nissan will combine its current 25 percent AvtoVAZ holding with the stake held by state-owned Russian Technologies. The joint venture will then purchase the shares owned by Troika Dialog in order to reach the 74.5 percent holding. The French- Japanese car alliance alone would eventually control more than two thirds of AvtoVAZ’s shares.

As part of the deal, Russian Technologies agreed to repay part of its outstanding loans in AvtoVAZ by selling some of the automaker’s “non-core assets,” according to today’s statement. “AvtoVAZ has all sorts of activities,” Jeremie Papin, Renault- Nissan Alliance finance director and lead negotiator on the deal, said in a phone interview. “We have agreed on an asset sales program for activities that are not directly related to automaking, such as auto-supplying activities or social-related activities.”

Definitive Agreements

The sales could yield about 7 billion rubles ($237 million), reducing Russian Technologies’ loans to 46 billion rubles. This debt will be extended “well beyond its current maturity date,” the companies said in the statement. “This means that the $1.5 billion debt held by RT will be paid back in more than 20 years,” Papin said. “Payments of this debt were previously scheduled over a period from 2012 to 2019.”

The parties “expect to sign definitive agreements and close the transaction by the end of 2012, subject to customary regulatory approval,” the companies said in the statement.

AvtoVAZ Chief Executive Officer Igor Komarov said last month he plans to borrow as much as 60 billion rubles by 2015 to finance the carmaker’s biggest overhaul “in decades” to revamp its vehicle lineup and compete against international brands. Prime Minister Vladimir Putin visited the plant in April for the unveiling of the Lada Largus, its first model based on a Renault platform.

Doubling Output

AvtoVAZ’s main Togliatti plant, which was built with the assistance of Fiat SpA (F) in the late 1960s, will more than double output from last year to 1.2 million cars by 2017 thanks to the partnership with Renault-Nissan, Komarov said in an interview in April. Renault, based in the Paris suburb of Boulogne- Billancourt, paid $1 billion in 2008 for its initial 25 percent holding in AvtoVAZ.

Total investments to 2015 will reach 75 billion rubles, most of which will be financed with loans from state-controlled OAO Sberbank, VTB Group and development bank VEB, Komarov said. The carmaker has started talks with VEB on credit lines for specific projects, he said. The company may also sell bonds to help raise funds, he said.

Bailout Funds

In 2009, the state agreed to give AvtoVAZ a 75 billion- ruble bailout loan to avoid social unrest in Togliatti as the company cut its workforce from 102,000 to 66,000 through accelerated retirement and spinning off subsidiaries. The city depends on the factory as its principal employer.

AvtoVAZ will probably generate a profit for this year following a loss in the first half, after the government phased out its rebate program, which had encouraged purchases of new domestically made cars to replace old models, Komarov said.

Lada sales have dropped for the past six months in a row, according to the Association of European Businesses or AEB. The Russian cash-for-clunkers program, which started in March 2010, accounted for almost 40 percent of AvtoVAZ’s total sales in the period, according to Bloomberg calculations.

To contact the reporters on this story: Mathieu Rosemain in Paris at; Yuki Hagiwara in Tokyo at; Yuliya Fedorinova in Moscow at

To contact the editor responsible for this story: Chad Thomas at; Young-Sam Cho at

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