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. Last Updated: 07/27/2016

AvtoVAZ Postpones $1.5 Billion Factory Plans

AvtoVAZ, Russia's largest car manufacturer, has postponed ambitious plans to build a $1.5 billion car factory in its hometown of Tolyatti, citing a lack of funds.

Vladimir Kadannikov, general director of AvtoVAZ, was quoted by Interfax on Thursday as saying that the project -- scaled down to $800 million -- would not begin until 1997. Company officials had earlier said it would be launched in 1996.

Kadannikov said the All-Russian Automobile Alliance, or AVVA -- a consortium set up to raise money for the project -- had so far managed to raise only $50 million through a public share offer that began in December 1993.

While insisting that money for the factory project could still be raised, Kadannikov said the $50 million would go toward launching serial production of AvtoVAZ' new model, the VAZ-2110.

Production of the car, first presented at an auto show in Moscow more than a year ago, has long been delayed due to lack of funds. Plans to produce 5,000 VAZ-2110 cars by the end of 1994 never materialized.

AvtoVAZ's overall production, hit by declining sales, interenterprise debt and strikes, has fallen to 535,000 cars in 1994 from 660,000 in 1993. The carmaker's main production line was closed for repairs for the whole of last January. In October, the company lost over $15 million due to an assembly workers' strike. AvtoVAZ announced the $1.5 billion factory project in October 1993, saying it would allow the company to produce a new generation of Russian-made cars that would meet European standards.

AvtoVAZ officials have said the new car would resemble General Motors' Opel Corsa model, but that the engine would be produced in Russia by a converted defense enterprise. GM had reportedly agreed to conduct a feasibility study for the project, but GM officials in Moscow declined to comment on the project Thursday.

AVVA, which was set up by AvtoVAZ, its largest dealer LogoVAZ and a number of Russian banks, launched the first 200-billion-ruble share offering in December 1993 along with a lottery that gave every buyer the chance to win a new AvtoVAZ car.

The offer, initially scheduled to expire by July 1, was later extended until Jan. 1, according to Alexander Voloshin, executive director of AKM, a stock consultancy. By the end of 1994, AVVA had sold about 95 percent, he said.

Neither AVVA nor AvtoVAZ officials could be reached for comment Thursday.

Voloshin said the price of AVVA shares had stayed at around 10,000 ($2.70) rubles for several months after hitting 20,000 rubles in the middle of 1994 He said trading volume in the shares was very small because investors were discouraged by rumors that the project had been delayed.

However, Voloshin said, the shares remain attractive to investors who know that the security is backed by AvtoVAZ, in which AVVA holds a controlling block of shares.

Voloshin said AVVA is now registering its shareholders in response to the Securities and Exchange Commission's drive against bearers' shares.

Holders of AVVA securities who register as legitimate shareholders automatically lose the right to take part in the AVVA-run car lottery, he said.

Bearers' shares -- certificates whose holders are not registered with the issuing company -- were technically outlawed in 1991.

But many companies, including AVVA, have sold shares that carry the company's name as the registered owner, which allows buyers to freely trade the shares without going through burdensome re-registration procedures.

In December, First Deputy Prime Minister Anatoly Chubais threatened "tough measures" against any companies that failed to register shareholders.