Renault Takes Big Step in Russian Market

Renault ( IW1000/73) and its Japanese subsidiary Nissan announced a major move in the Russian market on May 3, heading for control of the Lada brand to become the third-biggest auto force in the world. The move by Renault Nissan to control Russian auto group Avtovaz, costing $750 million, highlights the importance of the Russian market, the third biggest for the three manufacturers, after China and the United States.

Since 2008 Renault has owned 25% of Avtovaz.

The chief executive of Renault Nissan Carlos Ghosn said: "The agreement reached today marks an extra step in a process of increasing broad collaboration, which is contributing to the modernization of the leading firm in the Russian automobile industry."

He said that "Renault and Nissan are going to pursue transfers of technology towards Russian factories, while our Russian colleagues will be increasingly present in the multi-cultural management of the alliance."

The statement said that the total sales of cars and commercial vehicles in Russia, across all brands, amounted to 2.65 million vehicles in 2011 and was expected to rise to 2.9 million in 2012. Renault Nissan and Avtovaz accounted for 878,990 of this total, and of their production 578,387 vehicles bore the Lada brand. This means that for the alliance, Russian was the third-biggest market after China and the United States.

Avtovaz owns one of the biggest car factories in the world at Togliatti, a town on the banks of the Volga River about 1,000 kilometers from Moscow where the company has its headquarters.It wants to raise production to nearly 1.4 million vehicles per year by 2015.

Under an agreement with Russian state group Russian Technologies and investment bank Troika Dialog, Renault Nissan will end up owning 67.13% of a holding company. The rest of this holding venture will be owned by Russia Technologies. The holding company will in turn own 74.5% of Avtovaz and the rest will be quoted on the stock market. The holding venture will buy 20%t of Avtovaz owned by Troika Dialog by 2014, the statement said but did not say how much would be paid for this stake. Debt owed by Avtovaz will be restructured by Russian Technologies which will then receive money raised from the expected sale of non-strategic assets owned by Avtovaz. Outstanding, interest-free loans, with long maturities, would then amount to about 1.56 billion euros. As a result of these measures, Avtovaz would emerge with a strong balance sheet and without any financing problems.