Translated material
Problem “for crazy people”
Sergei Chemezov no longer wants to control AvtoVAZ
The flagship of the domestic automotive industry, AvtoVAZ, as it turned out yesterday, is preparing for another change of ownership. The head of the Federal State Unitary Enterprise Rosoboronexport, Sergei Chemezov, told reporters that his company intends to retain no more than a blocking stake in the car plant.“There is no need for control here. We have collected more than 75% of the shares, and now this is a normal joint-stock company, a package of which can be offered to investors,” Interfax quotes Mr. Chemezov. According to him, AvtoVAZ is now worth $4 billion, and Rosoboronexport intends offer 25% of the plant's shares to a strategic investor from among automakers (negotiations continue with the French Renault and Italian FIAT), another 25% to investors during a public offering of shares on the market. In addition, he said, a small stake could be offered to Russian metallurgists for security. enterprises with high-quality steel: “We plan to sell less than a blocking stake... We negotiated with Mordashov (head of Severstal Alexey Mordashov - Ed.), and with Usmanov (head of Metalloinvest Alisher Usmanov - Ed.).”
Thus, it can be stated that the federal state unitary enterprise, which was unable to obtain government money for the development of AvtoVAZ, no longer intends to control the car plant and is going to, if not retreat, then reduce its presence in the capital as much as possible.
Such a quick disposal of property was clearly not expected in 2005, when Rosoboronexport began to control AvtoVAZ. Boris Aleshin, who was then the head of Rosprom (in early September he moved to the chair of the head of the plant), said that the state “delegated successful managers” to the plant so that they could help solve “tasks for the development of the enterprise.” Among the main “development tasks” he named putting things in order in the plant’s ownership structure, so that a corporation could be created on the basis of AvtoVAZ with the prospect of bringing its shares to world markets. At the same time, he indicated that “work in this direction should be completed no later than 2015.” And Vladimir Artyakov, who then held the post of deputy head of Rosoboronprom (who later headed AvtoVAZ, and in August became the governor of Samara) said: “There is no talk of nationalization. We are talking about government support." AvtoVAZ needed “support” primarily because the company, as government managers said, was approaching bankruptcy. The reason for this was a very complicated ownership scheme (when more than 60% of AvtoVAZ shares are owned by its subsidiaries and granddaughters), as well as a criminalized system of procurement of auto components and sales of products. “If things at AvtoVAZ continued to go like this, the plant would very soon find itself bankrupt,” Mr. Artyakov said in March 2006. “We are faced with a very difficult task, one for the crazy,” to bring the enterprise out of the crisis. This is probably what we are, since we took it on.”
To be fair, it should be noted that AvtoVAZ, together with Troika Dialog, managed to straighten the ownership structure, and this process is expected to be completed by the end of this year. The component supply system was greatly “cleaned up” and diversified - the plant practically stopped working with the Samara SOK group. The sales system has also been reformed - last year a 100 percent subsidiary of AvtoVAZ began to handle sales, thereby largely eliminating the chain of intermediaries.
But with the production itself everything turned out to be much more complicated. At first, Rosoboronexport planned to actively develop existing production. AvtoVAZ management announced plans to build another automobile plant in Tolyatti. It could assemble cars on three new platforms, which were supposed to be developed at AvtoVAZ and put into production within three years. We were talking about 12 new models. This is almost more than has been mastered by the enterprise in its entire history. And in the future, the top management of AvtoVAZ dreamed of mastering the production of class D and, possibly, E cars (now the car plant produces cars of class C and B). Under these plans, Mr. Aleshin even developed a strategy for the development of the entire Russian automobile industry, which involves “using the investment potential of the state in the field of R&D, subsidizing expenses in the social sector and in the form of budget guarantees to subsidize bank interest rates.” To implement this program, Rosprom requested $5 billion from the state until 2010.
However, it was not possible to get money: the Ministry of Industry and Energy (which includes Rosprom) was surprised by the appearance of this strategy, since before that the ministry had developed and approved its own.
As a result, the development of AvtoVAZ stalled. Prices for existing models rose and profits fell. The fact is that assembly production of foreign cars has already started in Russia, offering cheaper and higher quality products. They managed to squeeze out AvtoVAZ in the Russian market. Last year, the plant managed to sell 745 thousand cars out of 765.6 thousand produced. This year AvtoVAZ is going to produce almost 960 thousand cars, but, according to experts, it is unlikely to be able to sell more than last year’s volume: in seven months the plant sold 347 thousand cars in Russia, although in January-July last year - - 377 thousand. In addition, AvtoVAZ’s share in the domestic market last year decreased compared to 2005 from 40 to 35%, and this year, as analysts predict, it may fall to 30%. According to AvtoVAZ's plans, the company's profitability this year will be 3%. Although under the previous management the plant showed 4.5%. And competitors’ profitability is only growing.
In this regard, the plant, which is constantly agitated by strikes, obviously has no choice but to live on the money raised and engage in the production of foreign models. Plans to place a blocking stake in AvtoVAZ on the stock exchange appeared almost immediately, as it became clear that the state would not allocate money from the investment fund to the plant. However, listing is not a quick process. Therefore, in parallel, Rosoboronexport was negotiating the sale of a blocking stake with Fiat and Renault. The first concern in the summer refused to buy the plant on the terms proposed by the Russian side (obviously, it was about preserving existing production), and negotiations with the second have been ongoing with varying success for two years , and almost every three months Renault announces its refusal to buy. Russian automakers were also interested in AvtoVAZ, but they were apparently interested in control over the enterprise, which Rosoboronexport refused to give up until recently.
But he does not intend to give it to Russian companies even now: Mr. Mordashov, with whom negotiations are underway on the sale of a non-blocking stake in AvtoVAZ, recently sold his stake in Severstal-Auto, and Mr. Usmanov has never been involved in the automotive industry. Representatives of these businessmen did not comment on the situation yesterday. And Interfax experts claim that shares of the Tolyatti plant could be of interest to Magnitogorsk. Yesterday it was impossible to get a comment there, but earlier MMK press secretary Elena Azovtseva told the agency that AvtoVAZ, like all other automakers, is a key partner for the company: “We are interested in developing our relations, including on a strategic basis ". According to her, Magnitogorsk is implementing a project to build a new complex for the production of cold-rolled steel (automotive sheets) with a production capacity of 2.1 million tons per year, which it plans to bring to its design capacity in 2010. “When implementing such a project, we are considering all possible forms of cooperation with both existing and potential partner automakers,” said Ms. Azovtseva.
So, analysts cannot assume who will be interested in an enterprise with unattractive financial and production indicators. Moreover, the real price of AvtoVAZ, as analysts say, is much lower than $4 billion. They agree on $2.3-3 billion.