Russia’s largest carmaker, Avtovaz, is on the verge of bankruptcy, according to the Kommersant business daily, which also said the company needs to cut almost 50,000 jobs if it is to have any hope of survival.
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The newspaper cited a government memo written by deputy industry minister Andrei Dementiev for the government, which cast doubt on cooperation with Avtovaz’s 25% shareholder Renault.
According to Kommersant, Dementiev said the carmaker would have RUR76.3 bn (US$2.6 bn) of debt at the start of next year, excluding RUR9.8 bn (US$300m) owed to suppliers.
The memo was apparently written two weeks ago and added that restructuring such debts was “impossible under market conditions,” adding that Avtovaz showed all the signs of a company heading for bankruptcy.
AvtoVAZ has already said it plans to slash 27,600 jobs from its workforce of 102,000 in a bid to cope with the slumping demand caused by the economic crisis.
But the memo said the workforce should be only 55,000 to match current output levels which would mean cutting almost 50,000 jobs. Retaining current staffing levels would “lead to the irreversible worsening of its financial condition and put into doubt the possibility of the company continuing its activities”, the memo said.
Renault paid around US$1bn early last year for a 25% stake in Avtovaz, hoping to take advantage of what was then Europe’s fastest growing car market. This year, though, sales have slumped about 65% industry-wide causing many vehicle makers to temporarily halt Russian output for varying periods.
Dementiev’s memo said Renault was meeting the needs of the AvtoVAZ factories in terms of new models, which were “essential for ensuring effective and profitable production”. But also accused Renault of being unwilling to share its technology and that Avtovaz risked becoming “completely dependent” on Renault’s position on intellectual property.
Earlier this month, Russian prime minister Vladimir Putin warned Renault its stake in Avtovaz could be diluted unless the French company provided help for the crisis-ridden Russian automaker.
Dementyev also said there was no point in providing funds to support AvtoVAZ as government measures may be ineffective, Kommersant said. AvtoVAZ needs a RUR70bn (EUR2.4 bn) capital boost.
Separately, Reuters reported that Russia’s largest lender, Sberbank, has no plans to convert the debt owed by AvtoVAZ into equity.
It quoted Sberbank chief executive German Gref as telling reporters: “We are not considering converting AvtoVAZ’s debt into shares. We are currently working together with AvtoVAZ on the anti-crisis programme.”
