AvtoVAZ on Monday increased pressure on politicians to put up more money to help it through the current downturn and refinance its debt mountain, saying it remained on the edge of bankruptcy.
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According to Dow Jones Newswires, AvtoVAZ, 25% owned by Renault, said there was “significant doubt” about its ongoing existence as it reported that its net loss widened nine times and it was relying on the Russian government to refinance US$2bn of short-term debt. It also said it was confident the Kremlin would come to its rescue.
“Without the continued support of the Russian government, [there] is a material uncertainty that gives rise to significant doubt about the company’s ability to continue as a going concern,” AvtoVAZ said. There are no current plans or need to shut down operations, it added.
Dow Jones noted that Russian car sales had halved in the last year as banks stopped lending to consumers amid the country’s worst financial crisis in a decade. The industry slump pushed AvtoVAZ toward insolvency, forcing management to address long-standing inefficiencies – chiefly its bloated work force and outdated product range.
The company has been talking to the Russian government for weeks about RUB12bn in additional aid after receiving a RUB25bn interest-free loan last spring which it used largely to pay off suppliers.
The Kremlin has, in turn, been pressuring Renault to put up more money to help AvtoVAZ or have its stake in the company diluted. Renault has so far shied away from making a financial commitment but has pledged technological support.
On Monday, according to the news agency, AvtoVAZ said it would spend RUB42bn ($1.42bn) in the “near future” on a new line of cars based on the Logan architecture.
Renault and alliance partner Nissan Motor were expected to provide current technology for the modernization of AvtoVAZ production, Russian deputy prime minister Igor Shuvalov said in a statement.
“What AvtoVAZ needs to do, and do quickly, is to spruce up its dated product lineup,” Michael Tyndall of Nomura Securities in London told Dow Jones. “That’s a huge task that will require time and money.”
Renault, which already operates a Logan plant in Russia, has received $220m from AvtoVAZ for licenses to use its patents to improve its vehicles.
AvtoVAZ’s loss widened to RUB19.48bn ($657.9m) in the first half of 2009, from RUB2.15bn a year ago. Its liabilities exceeded assets by RUB52.8bn as of 30 June 30 and short-term debt totalled RUB58.22bn, according to the report.
The report said Russian automobile executives on Monday discussed government support with the industry ministry, which said it doesn’t expect domestic car demand to return to pre-crisis levels until 2014.
Government purchases made up an estimated 42% of AvtoVAZ revenue this year, the ministry also said.
The official Rossiyskaya Gazeta newspaper said on Monday the Russian government would extend by nine months an increased tariff on foreign car imports intended to protect domestic automakers.
Lada sedan maker AvtoVAZ made almost a quarter of the cars sold in Russia in 2008, Dow Jones noted.
