My profile:
Prime Minister Vladimir Putin on Friday told Renault to either help its partner, struggling carmaker , or risk the dilution of its 25 percent stake.
Putin said the government had protected Renault’s interest in the company this summer, when it gave AvtoVAZ 25 billion rubles ($829 million) in financing.
“Now they either have to participate in funding the enterprise or we will have to discuss our relative stakes,” Putin said at a meeting of senior government officials.
The comments come as the government is making an effort to attract foreign capital into state-owned companies. First Deputy Prime Minister Igor Shuvalov said last month that a new wave of state asset sales could begin by the end of the year.
Shuvalov is scheduled to meet with executives from Renault and Nissan — which is 44 percent owned by Renault — on Monday.
Renault officials said they would have no comment on Putin’s remarks.
The French carmaker paid nearly $1.2 billion for its stake in AvtoVAZ in early 2008, in a bid to reap benefits from what was then Europe’s fastest-growing car market. For AvtoVAZ, which built eight cars per employee in 2008 compared with Renault’s 28 cars per employee, the investment provided hope of access to Renault’s technology.
But as the financial crisis took a toll on Russia’s economy, AvtoVAZ quickly fell on hard times. The company went through its government loan in a matter of months, and recently announced that it would lay off 27,600 employees — about a quarter of its workforce — as part of a restructuring plan.
AvtoVAZ officials could not be reached for comment Sunday.
Car sales in Russia plummeted by 51 percent in the first eight months of 2008. The Association of European Businesses this month cut its forecast for Russian sales to 1.4 million new cars and light commercial vehicles in 2009.
Renault reported a $187 million loss on its AvtoVAZ stake in the first half of this year.
Analysts said while Putin’s demands came as a surprise, the government was not overstepping its boundaries by asking Renault to help bail out the car giant.
“Each month, this company [AvtoVAZ] generates about 2 billion rubles in losses,” said Sergei Udalov, who tracks the car industry with Avtostat. “It would be wrong for anyone to assume that the state would continue financing the company and not expect Renault to participate.”
The next logical step the French carmaker could take would be to offer financing while pushing for a more active role in AvtoVAZ, Udalov said.
“To date, Renault has been a rather passive shareholder. Now they can change that,” he said.
The government has shown a heavy hand with foreign shareholders before, most notably in 2006 when federal regulators threatened to close Sakhalin-2 on environmental grounds until Royal Dutch Shell agreed to cede control in the $22 billion oil and gas project to state-owned .
Renault has a blocking stake in AvtoVAZ and the right to appoint senior managers. But many of those managers have left this year, and Renault would lose its blocking stake if AvtoVAZ shares were diluted.
Finance Minister Alexei Kudrin said last week that the government was willing to help AvtoVAZ one last time, possibly by adding to the 25 percent share it already owns through Russian Technologies.
“I don’t think AvtoVAZ will die,” Kudrin said.
The aid, however, would come with demands for a restructuring of the company, he said.
It will take two weeks to figure out how much money AvtoVAZ needs, Shuvalov told Putin at Friday’s meeting.
Troika Dialog is the third large majority shareholder in AvtoVAZ, with a 25 percent stake. The remaining 25 percent of the company’s shares trade in the open market.
