Global car giants to take control at Soviet behemoths

By bne IntelliNews January 31, 2012

bne -

Global car giants look set to take control of the heart of Russia's dilapidated automotive industry, with reports on January 31 suggesting Daimler could take a controlling stake in legendary truck maker Kamaz, while Renault-Nissan is set for a similar role at Lada-builder Avtovaz. The news offers hope that the Kremlin is serious when it says it's ready to let foreign investors help revamp its ailing industrial base.

When Russian state holding Russian Technologies effectively nationalized Kamaz and Avtovaz in 2007, Kremlin critics decried "state capitalism" and predicted a black hole in the budget. True enough the government shoveled money at the companies during the financial crisis in 2009, but now the Kremlin is coming good on its plan to find international owners to improve operations and introduce new technology.

According to Sergei Chemezov, head of Russian Technologies and the personification of "state capitalist" thinking, the corporation is ready to sell its 49.9% stake in Kamaz to Daimler, which already holds 11%, to give it control.

"We now have 49.9% and there's no point in us holding such a stake. Daimler is basically ready to increase their stake to control, and where else will they take it? Only from us," Chemezov said, although he admitted that there have not yet been any specific talks on the matter. Daimler has been silent on the statement thus far, but last June Executive Vice President Hubertus Troska confirmed rumours that the company is interested in increasing its stake.

"Although it is too early to speak about the possible value of a deal," write Metropol analysts, "when the 11% stake currently owned by Daimler was bought the price was based on a company value of $2.5bn, and we believe the 49% could be sold to Daimler at a price close to this."

Chemezov's statement on Kamaz followed fresh reports in Russian media on January 30 that the Renault-Nissan alliance is on the threshold of increasing its stake in Avtovaz from the current 25% to over 50% in February, or mid-March at the latest.

Carlos Ghosn, CEO of the alliance told AFP earlier in January that the company would "very likely" sign on for a controlling stake in the first quarter of 2012. Renault-Nissan paid $1bn for its current 25% stake in 2008, and could be expected to pay well over that for a controlling stake, according to analysts.

In an article published on January 30, Prime Minister and presidential candidate Vladimir Putin defended himself against claims that he has held back the economy by introducing state capitalism to Russia. Rather than exerting control for the sake of it, Putin claimed, industrial policy is aimed at restructuring Soviet-era industries before privatizing them.

The share prices of Kamaz and Avtovaz surged on the news of the potential deals, and analysts were upbeat on the potential expanded role of foreign investors, which, according to the government's professed strategy, should improve operations and introduce new technologies. "Renault-Nissan is likely to restructure Avtovaz's operations, and the change in ownership would be an improvement, in our view, although we believe the automaker would continue to receive substantial government support," suggest analysts at Renaissance Capital.

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