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. Last Updated: 07/27/2016

Moscow Buys Control Of Ailing ZiL Factory

Moscow's city government Wednesday took a controlling stake in ailing truck-maker ZiL, an unusual reversal in a privatization drive that in recent years has put Russia's leading industrial companies into private hands.


Mayor Yury Luzhkov signed an agreement under which the city purchases the ZiL stake from Uneximbank, the backer of ZiL's main private shareholder, Mikrodin, for an undisclosed sum.


Various subsidiaries of Mikrodin controlled at least 30 percent of ZiL stock between them, while the city authorities held about 23 percent.


Following the signing, Luzhkov lashed out at the way in which authorities had privatized ZiL, once one of the Soviet Union's premier makers of trucks. It also made sleek, black limousines favored by the Soviet elite.


The crisis at ZiL was an example of "ill-conceived privatization, as a result of which the controlling block of shares got into Mikrodin's hands for $5 million," Interfax quoted him as saying.


Mikrodin took control over ZiL management in early 1995, but was ousted in January this year by a meeting of the company's shareholders council.


Mikrodin failed to regain effective control in an extraordinary shareholders meeting in April.


Since mass privatization commenced in 1993, Luzhkov often has criticized the sell-offs and advocated a slower approach with more leeway for state intervention.


The ZiL transaction came on the heels of a decree by President Boris Yeltsin granting extensive tax breaks to Norilsk Nickel and earlier decisions to give state support to the Moskvich and Yelabuga car plants.


Analysts said the purchase marks the first time municipal authorities have actually taken over a major vehicle manufacturer.


Luzhkov pledged "to restore ZiL's efficiency and assume the responsibility for running the enterprise and making it profitable."


Analysts, however, noted huge problems facing the plant, which has a maximum capacity of some 200,000 trucks a year, but has produced fewer than 5,000 units so far this year.


"Even with new money and support from the city administration, it is impossible to revive the plant as it was," said Patricia Isayeva, an auto analyst with United City Bank.


Isayeva said the company would have to cut capacity and restructure its product line to compete in the market.


Luzhkov criticized ZiL management for failing to match the success of the Gazelle light truck produced by the GAZ manufacturer in Nizhny Novgorod.


Last year GAZ produced 56,000 Gazelles, while ZiL's total output was some 10,000 trucks.


The plant could still play a role in the Russian truck market, however, with its new range of three-ton trucks, Isayeva said.


"It is twice as light as the Gazelle and could fill a different niche," she said.


While analysts suggested that the "mutual goodwill" between Luzhkov and Uneximbank may have played a role in the deal signed Wednesday, signs are that Mikrodin also pulled back because of the losses it has incurred from extensive investments in Russian industry.


Earlier this year one of Mikrodin's main banks, Resurs Bank, which was bogged down by bad debts to ZiL, had its license revoked by the Russian Central Bank.