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. Last Updated: 07/27/2016

KamAZ Nearing Split With U.S. Firm

Russia's largest truck maker, KamAZ, is considering tearing up a contract signed in 1994 with U.S. investment firm Kohlberg, Kravis, Roberts & Co. out of dissatisfaction with the latter's progress in attracting investment for its Tatarstan-based production facility.

KamAZ spokesman Nail Galiulin said Monday the KamAZ board of directors had decided last week to halt relations with Kohlberg, Kravis, Roberts & Co., or KKR, and ordered deputy director Igor Kostin to submit a report to the company after talking with KKR by the next shareholders' meeting in September.

"Since we signed the agreement with KKR, KamAZ has not seen a single kopek, ruble or dollar of their money," Galiulin said in a telephone interview from the Tatarstan city of Naberezhniye Chelny, where KamAZ is headquartered.

Galiulin said that while KamAZ received some commercial credits, notably $100 million from the European Bank for Reconstruction and Development, "KKR had nothing to do with them."

But a source close to KKR said the investment company has attracted $300 million to KamAZ and, under the contract, is owed more than 20 percent of the company's stock, in addition to $10 million a year in uncollected consulting fees.

"If KamAZ says KKR has not raised money for them ... this is a point KKR will dispute," said the source, who spoke on condition of anonymity.

He said the EBRD loan as well as an additional $150 million from Vneshtorgbank last year were obtained for KamAZ by KKR.

He said KKR had also secured the refinancing of more than $500 million in bank debt, saving Kamaz millions of dollars in interest payments.

"If they terminate today, they would still owe KKR consulting fees and an ownership position in the company," said the official, speaking from New York.

Under the 1994 agreement between KamAZ and KKR, the latter was to receive 51 percent of the truck maker in return for $3.5 billion in investments by the year 2000. KKR would have the right to buy 32 percent of the 51 percent in 1998 at reduced prices.

Maxim Matveyev, an automotive industry analyst with Rinaco Plus brokerage said the KamAZ announcement does not come as a surprise.

Apart from what he called KKR's dismal record with regard to fulfilling the contract, the deal was jeopardized when shareholders voted earlier this year to transfer a 43 percent stake in the plant to the Tatarstan government in return for help in restructuring its staggering $630 million debt. Tatarstan officials are not likely to want to surrender control to outsiders.

To entrench the region's influence at the company, a number of Tatarstan officials occupied places on the board, including Tatarstan Vice Prime Minister Ravil Muratov, who was appointed president of KamAZ.

"Without KKR, KamAZ might be better off," Matveyev said. "It may be better to break off a deal on which there has been no progress."

He said KKR had probably found it difficult to promote KamAZ on financial markets as the truck maker, which lost $88 million last year, is perceived as a poor investment bet.

The source close to KKR said fund-raising would be easier if KamAZ made more progress in restructuring and improving productivity. "It is unfair to judge KKR's performance at this stage as it's a 10-year agreement," he said.

KamAZ, once the world's largest truck maker, produced 85,000 vehicles in 1992, but was devastated by a fire in 1993. Since then, demand for its trucks has dropped and the plant produced just 20,000 trucks last year.

Galiulin said Tatarstan, led by Muratov, has been scouting for partners and investments, and some projects are under discussion. He would not elaborate.

"KamAZ obviously wants to link its future with Tatarstan," Matveyev said. "While this is not the best way for a company to develop, the local government appears to be making some efforts to reorganize KamAZ."