3rd UPDATE: AvtoVAZ Steps Up Pressure On Government As Losses Mount
October 12 2009 - 6:51AM
Dow Jones News
Russian carmaker AvtoVAZ (AVAZ.RS) Monday stepped up pressure on
politicians to put up more money to help it through the current
downturn and refinance its debt mountain, saying it remained on the
edge of bankruptcy.
AvtoVAZ, which is 25% owned by France's Renault SA (RNO.LN),
said there is "significant doubt" about its ongoing existence as it
reported that its net loss widened ninefold and it was relying on
the Russian government to refinance $2 billion of short-term debt.
It said it was confident the Kremlin would come to its rescue.
"Without the continued support of the Russian government,
(there) is a material uncertainty that gives rise to significant
doubt about the company's ability to continue as a going concern,"
AvtoVAZ said. There are no current plans or need to shut down
operations, it added.
Russian car sales have halved in the last year as banks stopped
lending to consumers amid the country's worst financial crisis in a
decade. The industry slump has pushed AvtoVAZ toward insolvency,
forcing management to address long-standing inefficiencies -
chiefly its bloated work force and outdated product range.
The company has been talking to the Russian government for
weeksabout RUB12 billion in additional aid after receiving a RUB25
billion ruble interest-free loan in the spring which was largely
used to pay off suppliers.
The Kremlin has, in turn, been pressuring Renault to put up more
money to help AvtoVAZ or have its stake in the company diluted.
Renault has so far shied away from making a financial commitment
but has pledged technological support.
Monday, AvtoVAZ said it will spend RUB42 billion ($1.42 billion)
in the "near future" on a new line of cars based on Renault's Logan
model.
Renault (RNO.LN), and Japan-based sister company Nissan Motor
Co. Ltd (7201.TO) are expected to provide up-to-date technology for
the modernization of AvtoVAZ production, Russian Deputy Prime
Minister Igor Shuvalov said in a release.
"What AvtoVAZ needs to do, and do quickly, is to spruce up its
dated product lineup," said Michael Tyndall of Nomura Securities in
London. "That's a huge task that will require time and money."
Nomura has a neutral recommendation on Renault with a target
price of EUR31.
Renault, which already operates a Logan plant in Russia, has
received $220 million from AvtoVAZ for licenses to use its patents
to spruce up vehicles.
AvtoVAZ's loss widened to 19.48 billion ($657.9 million) in the
first half of 2009, from 2.15 billion in the same period last year.
Its liabilities exceeded assets by RUB52.8 billion as of June 30,
and short-term debt totaled RUB58.22 billion.
Russian automobile executives on Monday discussed government
support with the industry ministry, which said it doesn't expect
domestic car demand to return to pre-crisis levels until 2014.
Government purchases made up an estimated 42% of AvtoVAZ revenue
this year, the ministry said.
The Russian government will extend by nine months an elevated
tariff on foreign car imports that's designed to protect domestic
automakers, the official Rossiyskaya Gazeta newspaper said
Monday.
AvtoVAZ, maker of the boxy Lada sedan, made almost a quarter of
the cars sold in Russia in 2008. Its shares fell 2.3% on the Micex
Stock Exchange, compared with a 3% gain for the Micex Index.
-By William Mauldin and Jacob Gronholt-Pedersen, Dow Jones
Newswires; +7 495 937 8445; william.mauldin@dowjones.com
(David Pearson in Paris and Will Bland in Moscow contributed to
this story.)