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. Last Updated: 07/27/2016

Paper: State Tightens Its Grip on AvtoVAZ

The number of state officials on AvtoVAZ's board is set to increase in the coming weeks, signaling increased state interest in the carmaker, Vedomosti reported Friday.

The report comes on the heels of last month's resignation of the company's long-serving chief, Vladimir Kadannikov.

The carmaker's board is expected Monday to confirm who will be up for election to the board at an extraordinary shareholders' meeting on Dec. 22.

Since Kadannikov's resignation, the market has been abuzz with speculation on the future of the struggling carmaker, with talk circulating that state-owned banks may be buying up stock, potentially giving the state more clout in appointing a successor of its choice.

Vedomosti said the majority of AvtoVAZ's new board members would come from state-controlled enterprises, including Vneshtorgbank and arms exporter Rosoboronexport.

The head of Rosoboronexport, Sergei Chemezov is a possible for either a board seat or the position of chairman, the report said.

Currently, six members of AvtoVAZ's 12-member board of directors are employees, while another two work at state-controlled Vneshekonombank.

Citing a high-placed government official, Vedomosti said the carmaker's fate would be discussed in the Kremlin on Monday.

"A final decision will be confirmed in a presidential administration meeting Monday morning before the AvtoVAZ board of directors meeting," he said.

The presidential administration and Rosoboronexport declined to comment on the report Friday. AvtoVAZ spokesman Alexander Gromkov declined to comment on board candidates.

Automotive experts said that now that the state had the money, it might try to come up with a rescue plan for the carmaker, which has been increasingly losing out to foreign competition.

At stake are some 3 million to 4 million jobs at hundreds of companies linked to AvtoVAZ, said Vladislav Tsvetkov, automotive analyst at the Russian Marketing Association, a nongovernmental market research center sponsored by some of the country's biggest companies. Turning the company around would likely fall to the state, with the chances of finding either a domestic or foreign investor unlikely, he said.

In a research note, brokerage United Financial Group said it would welcome a greater state presence, estimating the state could increase its stake to between 25 percent and 51 percent in the future.

AvtoVAZ, which makes Ladas, is believed to be owned mainly by company management.

But the choice of Rosoboronexport, was the "least attractive" option, said the brokerage. "Not only is Rosoboronexport an extremely closed and highly bureaucratic organization with no experience in the automotive industry, but also ... it has never run a production plant."

Warren Browne, executive director for General Motors in Russia and the CIS, said state involvement in automotive industry was not uncommon, citing the example of the German state of Lower Saxony owning 18 percent of Volkswagen, but "ultimately, you need people who know how to make cars."