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. Last Updated: 07/27/2016

Sberbank, VTB Pass On AvtoVAZ Stakes

Sberbank and VTB said Thursday that they were not interested in taking stakes in AvtoVAZ in exchange for debt, depriving the loss-making carmaker of another channel for possible salvation.

The bad news came just a week after First Deputy Prime Minister Igor Shuvalov, the government’s point man on the AvtoVAZ rescue, flew to Tolyatti to tour the factory, which he said had “good and realistic prospects” for the future. Rescue plans for the plant have largely revolved around additional share issues, either to state banks or current stakeholders.

Despite the vote of confidence, state banks were treating AvtoVAZ’s debt like a hot potato, and the Industry and Trade Ministry began dampening expectations that the company would be salvageable in its present form.

By January 2010, AvtoVAZ will have run up a debt of 76.32 billion rubles ($2.6 billion), not including 9.76 billion rubles that it owes to suppliers, the ministry said in a statement posted late Wednesday on its web site.

Sberbank president German Gref said Thursday that the bank was “not considering converting AvtoVAZ debt into shares.” VTB does not plan to exchange debt either, Bloomberg reported, citing the bank’s press service.

Vneshekonombank chief Vladimir Dmitriyev said Oct. 8 that the state development bank was considering buying up to 40 billion rubles in AvtoVAZ shares, but chances of that also appeared to be fading.

“Sberbank and VTB gave them the loans in sound mind, so let them deal with [AvtoVAZ],” a source in VEB said, Vedomosti reported Thursday. “It’s not fair to give us all of the AvtoVAZ debt. Then there needs to be an agency for bad debts. … We are a state bank, not an agency,” the source said.

With state banks apparently looking for a way out of the AvtoVAZ fiasco, attention has turned back to the carmaker’s current shareholders.

On Oct. 2, Prime Minister Vladimir Putin publicly called on Renault, which owns a 25 percent stake, to help with the bailout or have its holding diluted. The state owns 25 percent through Russian Technologies, while brokerage Troika Dialog also has a blocking stake.

Renault has said it will help with technology but has avoided a direct pledge to contribute additional funds.

But the Industry and Trade Ministry statement — signed by Deputy Minister Andrei Dementyev — put additional pressure on the French automaker, suggesting talks on the terms of its participation in a bailout were still being negotiated.

“Despite their declared wish to stay a strategic partner and readiness to provide technology, [Renault] is not giving access to the car models that are necessary to keep production at efficient levels,” Dementyev said.

He also said the government would treat AvtoVAZ as a model for coming problems in other single-industry towns that have been hit hard during the economic crisis.

In particular, he proposed creating special economic zones in the Samara region to help resolve AvtoVAZ’s problems.

“It’s possible that some production facilities that have gone through their life cycle need to be closed,” the statement said. “Success of the special economic zone project in Tolyatti will give us an answer of how to do this most effectively from an economic and social point of view.”

The government’s immediate concern is that snowballing debt from inefficient operations will lead to layoffs in Tolyatti, where most residents are directly or indirectly dependent on the plant.

AvtoVAZ revealed plans last month to scale back its labor force by 27,600 people — more than 25 percent — to cut costs, but it recently denied that such plans existed. While Shuvalov was in Tolyatti last week he called the figure “a lie.” On Thursday, Deputy Health and Social Development Minister Maxim Topilin reiterated that the state had only been notified of 4,997 planned layoffs at AvtoVAZ.

“There have been no other official or unofficial requests,” he told reporters in Moscow.

But Kommersant reported Thursday that an internal Industry and Trade Ministry memo, signed by Dementyev and addressed to the Cabinet, said AvtoVAZ should keep only 55,000 of its roughly 100,000 employees to be profitable.

The letter also predicted that further financial support from the state may be ineffective and that money from the budget should instead be directed at stabilizing the region’s labor market.

The Industry and Trade Ministry issued a statement Thursday saying the Kommersant report did not reflect the current situation and that the letter was sent Oct. 1.

Despite the assurances, AvtoVAZ labor union Yedinstvo will hold a protest Saturday on the government’s response to the economic crisis. The rally was originally planned to focus on possible job cuts.