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. Last Updated: 07/27/2016

AvtoVAZ Gets Extra $2Bln in State Aid

Prime Minister Vladimir Putin said Tuesday that the government would provide another 55 billion rubles ($2 billion) to support near-bankrupt carmaker AvtoVAZ and to settle its debts.

The government plans to pay off the company’s 38 billion ruble debt, most of which is owed to state-owned banks such as Sberbank VTB and Vneshekonombank, Putin said at a meeting on economic issues at his residence in Novo-Ogaryovo.

In addition to its debts, AvtoVAZ needed another 12 billion rubles “to make new cars that could be competitive at the market” and 4.8 billion rubles to create new jobs, Putin said.

Putin did not reveal details of the plan, but a source told Reuters that the government planned to give AvtoVAZ the cash directly from the budget and raise the money by issuing sovereign bonds later.

Putin said the government had already held talks with the Finance Ministry on raising the money on the open market.

The decision comes before a meeting on Nov. 10 in which the government and stakeholders will discuss a plan for AvtoVAZ’s development.

Putin said he expected all AvtoVAZ shareholders to propose a plan for the carmaker’s further development. Investment bank Troika Dialog and state holding Russian Technologies each own an additional 25 percent of AvtoVAZ.

The government could allow Renault, which currently holds 25 percent in AvtoVAZ, to take control of the company as part of a broader plan to save the carmaker, the source told Reuters.

Putin said the government would seek creditors’ understanding while settling the ailing carmaker’s debt. “I assume that creditors also take into account our economic climate and the state of the company to which they have lent money,” he said. The government will likely buy the debt at a discount, he added.

“There will be a symbolic discount — 3, 5, 10, 20 percent — whatever they agree on,” the Reuters source said.

“At the end of the day, the government will search for a strategic investor — and it will likely be Renault,” the source said, adding that the French carmaker was interested in the possibility of gaining a controlling stake.

Renault said it would support Putin’s decision to provide more financial help to AvtoVAZ.

“We are happy with Putin’s decision, as it will be good for AvtoVAZ,” Renault spokeswoman Sylvie Blanchet said Wednesday.

She also reiterated that Renault was not ready to invest more money to support AvtoVAZ and that the French carmaker could only provide new technology, as it didn’t have enough cash.

Earlier this month, Christian Esteve, leader of Renault’s Eurasia management committee, told a news conference that the group aimed to keep its AvtoVAZ stake at 25 percent.

Russian car sales have slumped this year as recession-hit consumers have cut their spending. As a result, AvtoVAZ posted a net loss of 19.4 billion rubles in the first half of 2009.

The automaker is planning to cut thousands of jobs in an attempt to rein in excess capacity. The government, trying to avoid possible unrest that massive layoffs could cause, and AvtoVAZ have rolled out programs to help place fired workers in new jobs. First Deputy Prime Minister Igor Shuvalov was quoted as saying last month that the firm needed to shed 21,000 jobs in order to operate efficiently.

The group has repeatedly warned that it might have to enter bankruptcy after experiencing a collapse in demand. “Seeking protection from creditors is one of the options that our company is considering,” Alexander Shmygov, an AvtoVAZ spokesman, said in October.