Renault to invest €1bn in capitalisation of Russian carmaker Avtovaz

By bne IntelliNews December 2, 2016

French car major Renault will recapitalise Russia's largest carmaker Avtovaz for an additional €1bn, TASS news agency reported on December 1, citing France's  ambassador to Russia Jean-Maurice Ripert. The company is expected to receive an initial €350mn capital injection that will be increased to €1bn.

In September, Avtovaz said it was counting on a RUB85bn ($1.3bn) capital injection from shareholders by the end of 2016. The carmaker planned to issue additional shares in the favour of existing shareholders Russian Rostec technology corporation and Renault, Rostec's deputy director Sergei Skvortsov told Vedomosti daily.

Skvortsov now says Renault will become the majority shareholder of Avtovaz after the company restructures its debt, while Rostec will still hold the blocking stake in the company.

Estimates by Vedomosti showed that charter capital of Avtovaz could more than double after the issue, with new shares accounting for over 60% of the capital and Renault effectively consolidating its stake to controlling 70% from the current 37%.

Another 13% in Avtovaz is held by Japanese carmaker Nissan, 25% by Rostec, while 25% is in free float. Nissan is not planning to participate in the recapitalisation of troubled Russian carmaker, unnamed company officials told the newspaper.

Renault in June gave Avtovaz a lifeline in the form of a RUB20bn bridge credit until the Russian company could obtain shareholders' support in the fall of 2016.

Renault suffered a €620mn loss on Avtovaz in 2015, soaring from a €182mn loss in 2014, which was attributed to "exceptionally difficult unanticipated operating conditions in Russia (market decline of 35%, average ruble rate decline of 33%, and the growing interest rate)".

Nevertheless, Renault CEO Carlos Ghosn told Bloomberg Television in February that the French carmaker will "do whatever it takes to sustain Avtovaz and to allow Avtovaz to compete when the recovery comes".

Ghosn added that Renault has made the "decision to prepare ourselves for the recovery of the Russian market because we believe in its potential".

The carmaker's troubles began in 2014 as the country entered a recession period and car sales plummeted dramatically, resulting in losses soaring three-fold to RUB73.9bn in 2015.

Ernst & Young commented that the 2015 balance sheet of the company showed a "material uncertainty which may cast significant doubt upon the ability of Avtovaz and its subsidiaries to continue as a going concern".

The company saw its IFRS net loss soar eight-fold y/y in January-June to RUB27bn ($405mn). In quarter-on-quarter terms its net loss tripled from RUB8.6bn seen in the first quarter of 2016.


Avtovaz 2015 IFRS financial highlights

RUB mn 2014 2015 Chng, YoY  2015F, VTBC Diff
Revenues    190,734    176,482 -7%   195,711 -10%
COGS   (169,030)   (172,844) 2%  (178,397) -3%
Gross profit      21,704        3,638 -83%     17,315 -79%
Gross margin 11% 2% -9.3pp 9% -6.8pp
SG&A     (18,559)     (14,965) -19%    (16,111) -7%
EBITDA        2,712     (12,556) n/m          397 n/m
EBITDA margin 1% -7% n/m 0% n/m
Net profit     (25,111)     (73,940) 194%    (11,623) n/m
Net margin n/m n/m   n/m  

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