The Renault-Nissan alliance will form a joint venture with Russian Technologies Corp to become the largest shareholder in OAO AvtoVAZ, Russia’s biggest auto maker.
Renault SA and Nissan Motor Co will together invest $750 million to take a majority holding in the joint venture, which will in turn own 74.5 per cent of AvtoVAZ, the companies said on Thursday. They aim to complete the deal by 2014.
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 per cent of the auto market in five years, or 40 per cent 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 “hold” recommendation on the shares, said in a note to clients on Thursday.
“With AvtoVAZ and Nissan the group will officially become the leader in Russia.”
Renault rose as much as 64 cents, or 1.9 per cent, to ^34.48 and was up 1.1 per cent as of 10:25 am in Paris trading. AvtoVAZ was down 5.5 per cent in Moscow. Nissan rose 0.8 per cent to 808 yen at yesterday’s close. The stock exchange is closed for a public holiday on Thursday and tomorrow.
Expansion plans
AvtoVAZ Chief Executive Officer Igor Komarov said last month he plans to borrow as much as 60 billion rubles ($2 billion) 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.
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 on Thursday’s statement. The sales could yield about 7 billion rubles, reducing Russian Technologies’ loans to 46 billion rubles.
“The parties expect to sign definitive agreements and close the transaction by the end of 2012, subject to customary regulatory approval,” the companies said.
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.
In 2009, the state agreed to give AvtoVAZ a 75 billion- ruble bailout loan ($2.6 billion) 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.
Sales Drop
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.
