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. Last Updated: 07/27/2016

AvtoVAZ Asks State for More Support

government.ruPutin visiting the AvtoVAZ factory in March in Tolyatti, where he promised the company an $825 million loan.
AvtoVAZ is again asking the government to guarantee its debt and subsidize part of the interest that it pays, after securing support from the government earlier this year.

Prime Minister Vladimir Putin ordered the government to give the company a 25 billion ruble ($825 million) interest-free loan while on a trip to the factory in the spring. The money has already been spent: The company has settled its accounts with suppliers and workers and paid off several loans. Other than AvtoVAZ, no other enterprise has received this level of support. At the time, Putin decided that AvtoVAZ would not receive any more state support until 2013.

But now the company is preparing for mass layoffs: It sent a declaration to the Health and Social Development Ministry announcing that it would lay off 36,000 people by the end of December. The factory’s sales over the first eight months of the year fell 44 percent, while net losses according to Russian accounting standards stood at 16.9 billion rubles for the first half.

But now, officials are again gathering around the conference table with AvtoVAZ’s management. An interagency commission chaired by Deputy Economic Development Minister Oleg Savelyev on Wednesday reviewed the company’s anti-crisis plan and measures for additional support, sources close to AvtoVAZ told Vedomosti.

AvtoVAZ’s debt to banks now stands at 37 billion rubles, of which 14 billion is due to be repaid to Sberbank this month, one of the sources said.

One way to resolve this problem is to restructure the debt and extend the period of the loan by two to five years, he said. But banks are only prepared to do this with a government guarantee, and this is what was discussed at the meeting, he said.

The source didn’t say what size the guarantee would be. By law, it can only cover half of the debt, and in AvtoVAZ’s case that’s 18.5 billion rubles. And only 20 billion rubles remain from the government funds earmarked for guarantees on loans to carmakers.

Spokespeople for VTB, Sberbank, VEB and Gazprombank declined to comment.

AvtoVAZ is also asking the government to subsidize its interest rates to the tune of two-thirds of the refinancing rate, another source close to AvtoVAZ said.

The total amount of state assistance could reach 30 billion rubles, but only if the company presents a detailed business plan before Sept. 30, an official close to AvtoVAZ said.

Officials and the company are working out a detailed list of support measures that will be considered by First Deputy Prime Minister Igor Shuvalov, another source close to AvtoVAZ said.