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Renault-Nissan signs deal on AvtoVAZ ownership

13 Dec 12

As was predicted last week, Renault-Nissan has signed a deal with AvtoVAZ's main state-backed shareholder Rostekhnologii, which should in theory give it full control of the Russia's biggest carmaker.



IHS Automotive perspective

 

Significance

As predicted, Renault-Nissan and main AvtoVAZ shareholder Rostekhnologii have finalised the joint venture vehicle that will give Renault-Nissan full control of Russia's biggest car company.

Implications

The new company of which the Renault-Nissan alliance will control a majority stake i,s called Alliance Rostec Auto BV. As part of the deal Renault-Nissan will invest a total RUB23 billion for a 67% share of the JV company by the middle of 2014.

Outlook

After a long gestation period, Renault-Nissan should now be in the position to call the shots of AvtoVAZ's future strategy both in Russia and in export markets, Renault-Nissan supported efforts to provide AvtoVAZ's Lada brand with a competitive and relevant new model range can also now move forward.

After a long period of negotiations and due diligence, the Renault-Nissan Alliance has finally signed a contract to create a new joint venture (JV)company with Rostekhnologii, the anchor shareholder of Russia's biggest carmaker AvtoVAZ, which will eventually act as a vehicle for Renault-Nissan to have full control over AvtoVAZ. According to a joint company press release the creation of the JV company, which will be called Alliance Rostec Auto BV, will facilitate the acceleration of product development and launches and the transfer of Renault-Nissan knowhow to AvtoVAZ. As was reported last week prior to the official confirmation of the deal (see Russia: 7 December 2012: Renault set to announce majority control of AvtoVAZ, Largus demand outstripping production) the Renault-Nissan Alliance will invest a combined total of RUB23 billion (USD742 million) in the new JV company which in turn will give the two partners a 67.13% share in the new company by the mid-point of 2014. Of this total Renault will invest RUB11.3 billion in the JV which will give it a 50.1% in the joint venture by June 2014. This is because the company already owns a 25% share of AvtoVAZ outright which it acquired in March 2008. Nissan's investment of RUB11.7 billion will give it a 17.03% stake in the JV business and will eventually see that Renault-Nissan has the controlling stake of 67.13% in the JV business referred to above. Rostekhnologii will therefore hold the remaining 32.87% stake in the JV. Commenting on the signing of the deal Renault-Nissan Chairman and CEO Carlos Ghosn said, "Today's historic agreement is a win-win-win for all companies: Renault, Nissan and AVTOVAZ. It is a significant new chapter in an already solid partnership. The joint venture will help accelerate our Russian market offensive. It will support the competitiveness of AVTOVAZ, Russia's auto industry leader."

The deal will also see Rostekhnologii restructure outstanding loans to AvtoVAZ with the state investment company planning to recoup RUB8 billion of its outstanding debt to the company from the sale of non-core assets such a property and non-automotive businesses. The remaining RUB46 billion of outstanding debt, which is effectively government loans to AvtoVAZ – incurred mostly when the company was struggling badly in the financial crisis – has been extended until 2032. The long-term nature of this agreement shores up AvtoVAZ's balance sheet and significantly eases its burden in terms of annual debt repayments. The statement also said that by the time of the completion of the deal in 2014, Alliance Rostec Auto BV will have bought out all the shares in AvtoVAZ currently owned by Troika Dialog Investment Ltd, the Russian state investment bank, which hitherto has been another state-owned anchor investor.

As part of the deal, Carlos Ghosn will become Chairman of the Board of Alliance Rostec Auto BV. The Board of Directors will comprise:

Three representatives of the Renault-Nissan Alliance: Dominique Thormann, Executive Vice-President and Chief Financial Officer for Renault; Joseph Peter, Executive Vice-President and Chief Financial Officer for Nissan; and Bruno Ancelin, Senior Vice-President and Chairman for the Eurasia Region at Renault.

Two representatives of Rostekhnologii: Sergey Chemezov, General Director; and Igor Zavyalov, Deputy General Director.

The AvtoVAZ board will be increased from 12 to 15 members with Renault-Nissan having a majority of eight board members. The candidates will be approved at the extraordinary AvtoVAZ shareholder meeting on 12 February 2013. Sergey Chemezov will remain Chairman of the Board of AvtoVAZ and will alternate with Carlos Ghosn as Vice-Chairman starting in June 2013.

Outlook and implications

This agreement gives AvtoVAZ what it has been needing for a long time – a clear and stable ownership structure that will ultimately give the Renault–Nissan Alliance full strategic control. This will presumably mean that Renault-Nissan will be afforded full R&D and model strategy control over AvtoVAZ, as well as sales and marketing strategies for the brand both in Russia and in export markets. However, the JV company will also see a more closely integrated approach to the three companies' activities in Russia. we are already seeing this is in the form of the investment that has gone into the production line of AvtoVAZ's main Togliatti plant earlier this year (see Russia: 10 April 2012: Russia: Renault-Nissan Launches New Production Line at AvtoVAZ's Togliatti Plant) and the commencement of production of the Renault B0 platform-based Lada Largus, which is effectively a Lada-badged Dacia Logan MCV, while the new B0-platform based Nissan Almera, is also being manufactured on the line, with the model going on sale in the early months of 2013 having gone into production at the plant this week. Production at Togliatti will soon span five models across three brands – LADA, Renault and Nissan. Investments in this project will total about EUR400 million. Perhaps Renault-Nissan's biggest challenge with regards to AvtoVAZ is to launch a compelling Lada-badged passenger car model based on the B0 platform that will help transform the way the Lada brand is perceived in its domestic market. Renault-Nissan has a similar opportunity that VW had with Skoda in the early 1990s to transform a brand with a reputation for outmoded, poor quality cars. However, this turnaround in perception will take time and will have to be backed by quality product. The long-term restructuring of AvtoVAZ's significant debt to Rostekhnologii is also an important step towards securing the financial stability of AvtoVAZ and the new three-way alliance. It means that AvtoVAZ's debt can be managed as the repayment schedule is highly generous. The three companies now control three separate plants in Russia, Moscow, St Petersburg and Izhevsk, which will give them capacity to meet demand as the Russian market expands. With improvements at Togliatti and those planned at other manufacturing complexes, Renault-Nissan and AvtoVAZ will have a Russian capacity of at least 1.7 million cars per year starting from 2016. In 2011 the three companies sold a combined figure of 878,990 units, which was a combined share of 33.0%. IHS Automotive forecasts that going forward sales of the three brands will rise to over 1 million units by 2015, with the level of 1.2 billion units predicted by 2020.

 
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