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. Last Updated: 07/27/2016

End in Sight in KamAZ Dispute

Tatarstan and U.S. investment company Kohlberg, Kravis, Roberts & Co. laid to rest a bitter dispute Friday by agreeing amicably to methods of either terminating their relationship with regard to truck maker KamAZ or organizing it on a new level.


A joint statement issued by the two sides said Tatarstan, KamAZ's largest shareholder, could opt either to buy out KKR's 16 percent share in Tatarstan-based KamAZ or to allot the U.S. firm a seat on the board of directors and use its financial expertise for KamAZ's future development.


Under the second option, KKR would work with the republic to draw up a business plan to restructure KamAZ.


The current agreement virtually nullifies a 1994 accord under which KKR was to raise $3.5 billion for KamAZ over a 10-year period. In return, KKR was to receive a controlling stake in the company.


But earlier this year, shareholders voted to transfer 43 percent of KamAZ to the local government in return for assuming its staggering $700 million in debts. Since then, Tatarstan has been cool to the prospect of transferring a stake to KKR and has accused the firm of failing to fulfill its obligations.


A source close to KKR said Tuesday that the investment house had sought last week's dialogue with Tatar officials with the hope of clarifying its position.


If Tatarstan accepts the second option, as appears likely, KamAZ will be entrusted to a Western-educated CEO and KKR will help conduct an equity offering to raise working capital during the company's restructuring period.


"The agreement is an important step toward defining our future relationship with KamAZ," KKR partner Michael Tokarz said in a joint statement issued with Tatar officials.


Tokarz added that KKR would either forge a new partnership to save KamAZ, or "accept the government's wishes and move on. ... We are prepared to continue our efforts in conjunction with Tatarstan on terms that permit the possibility of success."


KamAZ officials could not be reached for comment but, judging from the statement, Tatarstan is inclined to exercise the second option.


"We have reached mutual understanding with KKR and hope that our direct joint cooperation on the KamAZ board of directors will be more fruitful than the practice of external management," Tatar Deputy Prime Minister and KamAZ President Ravil Muratov said.


Alexei Labovsky, an automobile industry analyst with the CentreInvest Group, said Tatarstan is likely to continue its relationship with KKR but without having to part with equity control.


"Tatarstan understands that KKR is better equipped to raise money for KamAZ, but at the same time it does not wish to hand over a large stake in the company," Labovsky said. He noted that the republic has already invested heavily in the truck maker by agreeing to take over its debts.


In recent months, KamAZ has suffered from a shortage of working capital that has halted production at its factory at Naberezhniye Chelny. Despite previously high expectations, output is far below target this year, indicating that the company is unlikely to emerge from the red in 1997.


Another analyst, who asked not to be identified, said even the first option would not be bad for KamAZ because it would allow it to try its luck with other investors.