"AvtoVAZ" will turn into a non-public producer of nasty cars

GC "Rostekh" and Renault can redeem 100% of the shares of PJSC "AvtoVAZ".
Alliance Rostec Auto B.V (a joint venture between Rostek Holding and Renault) can consolidate up to 100% of shares of PJSC AvtoVAZ, said the head of Rostek, Sergei Chemezov. This version of events is confirmed by the statements of AvtoVAZ management about the planned redemption of shares from minority shareholders. Experts believe that the main one is Cypriot Renaissance Securities is interested in selling its stake. The result of this process may be the transformation of AvtoVAZ into a non-public company and its approval as a full-fledged part of the Renault Group.

The joint venture of Rostek Group and Renault-Alliance Rostec Auto B.V can consolidate up to 100% of shares of PJSC AvtoVAZ, the head of Rostek, Sergei Chemezov, told the media at the St. Petersburg International Economic Forum. The possibility of such a variant of events was confirmed by Kommersant in the press service of Rostekh.

"At the moment the Alliance's share is 83.5%. This is the result of a deal to recapitalize AvtoVAZ, during which the plant has been cleared of debts in excess of 100 billion rubles. Much of the debt is converted into shares of the automaker, which are bought out by the Alliance with a private subscription. In the future, the Alliance package can grow to 100% if the corresponding conditions are created - in theory there are no restrictions. For this, all measures permitted by law can be used, "said Sergey Chemezov to the TASS news agency.

• At the moment, shares of PJSC AvtoVAZ are shared by Dutch AllianceRostecAuto B.V (83.5%), Cyprus Renaissance Securities (11.22%) and minority shareholders. In the alliance structure, 61.1% belong to Renault, 38.9% belong to Rostek. In 2017, AvtoVAZ managed to increase revenues by 23.1%, to 233 826 million rubles. Nevertheless, the company worked with a net loss of 12 384 million rubles. (-65.1%).

Recapitalization of AvtoVAZ began after the company received a record loss of RUB74 billion in 2015. In 2016, the main shareholders of the plant - the alliance Renault-Nissan (in September 2017, Nissan left the alliance) and Rostek - decided to recapitalize the company in order to improve its financial health. As part of the first phase in December 2016 AvtoVAZ conducted an additional issue of 26.1 billion rubles. Then the shares of the company were bought by Alliance Rostec Auto, the Cyprus subsidiary of the Renaissance Capital group Renaissance Securities and other minority shareholders. During the second stage of recovery in the spring of 2018, the concern converted into debt shares a debt of 61.4 billion rubles, which, through a private subscription, was acquired by the Alliance. At the same time, Rostekh and Renault ceded in favor of the joint venture the right of claim for AvtoVAZ's debts - 30.7 billion rubles.

In April this year, Sergei Chemezov said that the recapitalization of the company for a total of more than 107 billion rubles. should be completed in October. Then, according to Mr. Chemezov, "Rostekh" should transfer about 20 billion rubles to Avtovaz. without increasing the share in the authorized capital. Mr. Chemezov reported that Renaissance Capital would sell its stake, while Rostek and Renault would transfer to direct ownership of the concern. But the head of the state corporation did not name specific terms, as well as the terms of the deal.

The fact that the Alliance plans to make an offer to buy out AvtoVAZ shares from minority shareholders, the chairman of the company's board of directors, Sergei Skvortsov, reported May 17. Based on the weighted average price of the company's ordinary shares for half a year, analysts estimate the total cost of minority shareholders' packages at 22.7 billion rubles. The share of Renaissance Capital - in 15.5 billion rubles. AvtoVAZ declined to comment on this topic, noting that it is in the competence of shareholders. The Renault Group did not respond to the request of the editorial staff.

As noted in the press service of the Rostek Group of Companies, the Alliance, as a majority shareholder with a package of more than 75%, is obliged to make a mandatory tender offer to minority shareholders. The corresponding package of documents has already been submitted to the Central Bank. After verification, the tender offer will be officially announced.

"It is still difficult to forecast further events - many things depend on the situation on the market, the position of other shareholders, etc. We also note that Rostek has no plans to increase its participation in AvtoVAZ's capital. The corporation will remain on existing positions, in the role of a minority shareholder - this ensures an optimal balance of interests. All issues related to the work and development of the plant are regulated by the share agreement between Rostech and Renault. The terms of this document remain unchanged, regardless of the size of the shareholders' shares, "Rostekh said.

Expert analyst Finam Alexei Kalachev notes that there are no legal restrictions for the consolidation of a 100% stake in AvtoVAZ in the hands of Alliance Rostec Auto B. V. This is possible in the presence of agreements with Renaissance Securities, which may be interested in selling its stake.

"This asset is not for Renaissance either strategic or profile, it is a purely portfolio investment. We do not know, but it may even be that this package was "parked" in the company in the interests of a third party. Offering an affordable price for this package, and having bought a little from the market, Alliance Rostec will be able to collect over 95% of the shares. After that, he will get the right to declare a forced redemption of shares from the remaining shareholders and collect a full package, "- said Alexei Kalachev.

He noted that, having bought out the remaining shares and conducting delisting, the co-owners can make AvtoVAZ a non-public company. In this case, the company will lose market valuation of capitalization, while the company's valuation will be calculated on the basis of financial indicators. "In addition, reporting will be reduced, and a number of indicators will not be disclosed," Mr. Kalachev said.

Director of the expert group Veta Dmitry Zharskiy notes that with the withdrawal of Nissan from the alliance, the purchase of shares of Renaissance Securities and the prospective decrease in the share of Rosteha in the main structure, AvtoVAZ could become a full-fledged part of the Renault Group.

"This is good on the one hand, because the higher the control over the asset, the more the owner develops the asset with great interest, for AvtoVAZ this development is undoubtedly integration into the world sales chain. On the other hand, the fewer beneficiaries and shareholders, the lower the chances of raising funds, if necessary, capitalization. The problems for AvtoVAZ over the past 2-3 years have been significantly less, but solely through the efforts of shareholders and the state, but globally they have not gone anywhere. Will Renault independently pull the VAZ to the world level - the issue is open, "said Dmitry Zharskiy.