City Moves to Bankrupt Beleaguered Moskvich

Itar-TassThe Moskvich plant has not produced a car since 2001 and badly needs investment.
City Hall has begun bankruptcy proceedings against the comatose Moskvich car factory in a push to attract investment that could breathe new life into the facility.

Moscow's head of science and industrial policy, Yevgeny Panteleyev, announced last week that a formal lawsuit had been filed with the Moscow Arbitration Court requesting that Moskvich be declared insolvent.

Since the Property Ministry owns a 60.36 percent stake in Moskvich, Moscow Mayor Yury Luzhkov on April 4 sought Prime Minister Mikhail Kasyanov's backing for the bankruptcy move. Kasyanov in turn asked the Finance and Economic Development and Trade ministries to look into the issue, as well as the Federal Service for Financial Restructuring and Bankruptcy, or FSFO, which reports to the Central Bank.

Officials at the Economic Development and Trade Ministry on Friday said they had yet to complete their investigation and were surprised to learn that bankruptcy proceedings had been filed.

Officials at the car factory also said they had not heard of the suit.

But a highly placed source in City Hall said the writing had long been on the wall, given that the factory had been idle for more than 15 months. Prior to that, in 2001, the plant produced 800 cars and reported losses of 9.6 billion rubles.

"It could not have dragged on any longer," the official said. "The main thing is that city authorities have finally started the process."

FSFO director Tatyana Trefilova said she agreed with City Hall that bankruptcy proceedings would be the most efficient way of spurring reinvigoration at Moskvich.

United Financial Group analyst Yelena Sakhnova said that City Hall and FSFO were right to see an urgent need to return the Moskvich site to productivity.

"Moskvich never proved itself after the 1998 financial meltdown and has not functioned normally for the past three years. It is high time to decide what to do with this factory and its land -- either produce cars or hand over the land for construction of houses or similar projects," she said.

FSFO, which represents the interests of state creditors, is due to manage the bankruptcy procedure. Moskvich figures show that the factory carries total debt of 33 billion rubles ($1.1 billion); the bulk of that is owed to the Finance Ministry for hard currency credits, while the remainder is tax arrears to the city and federal governments as well as unpaid Mosenergo bills.

Trefilova said she hoped the restructuring would make the company more attractive to investors who could reinvigorate the plant.

"We must not simply sell off Moskvich in pieces, but conduct the bankruptcy in such a way that we create the conditions for the emergence of a new auto enterprise in Moscow," she said. "We will liquidate this legal entity and create a new one. Then investors will come."

Trefilova declined to name potential investors, saying negotiations were still in an early stage.