Renault with Nissan, its Japanese division, announced on 3rd May 2012 that the company will play a big bet in the auto market of Russia. It has eyed upon overtaking the Lada brand, and thus come-up as the third largest auto manufacturer globally. The plan of Renault-Nissan to hold control over Avtovaz, the Russian auto manufacturer, will cost around 750 million dollars, which shows the glance of Russian market’s importance. This market is the third biggest platform, after China and US, for all the mentioned three auto giants.
Renault, which presently reins Nissan, will head over Avtovaz in phases; however the deal will be subjected upon the review of Avtovaz and its Lada manoeuvre. Right from 2008, Renault has grabbed a share of 25 per cent in Avtovaz. The contract which was arranged by a joint holding business will cost around 300 million dollars ($227.3 million) to Renault. Although Nissan will not be benefited with any resources, it will offer a sum of 450 million dollars.
Carlos Ghosn, Chief Executive, Renault-Nissan, quoted “The agreement reached today marks an extra step in a process of increasing broad collaboration, which is contributing to the modernisation of the leading firm in the Russian automobile industry. 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 deal which was beneath negotiations for few months will now transform Renault-Nissan-Avtovaz into the world’s third largest auto manufacturer. Reportedly in 2011, the overall sales of Commercial Vehicles (CV) and cars amid all brands in Russian market stood at 2.65 million units in 2011 and were anticipated to reach 2.9 million by the end of 2012. In these figures, the sales accounted for Renault Nissan and Avtovaz stood at 878,990 units, and of their 578,387 vehicles manufactured bore the title of Lada brand.
Avtovaz has established a state-of-the-art production plant in Togliatti, situated on the bank of Volga River, which is around 1,000 km away from Moscow, where the company has based its headquarters. This manufacturing facility of Avtovaz is counted among the largest car factories of the world.
The company aims to expand its production to around 1.4 million units annually by the end of 2015. In an agreement with Russian Technologies, Russian state group, and Troika Dialog, an investment bank, Renault Nissan will own 67.13 per cent stake of the holding company. The remaining share will be headed over by Russia Technologies. Holding company will consecutively have a stake of 74.5 per cent in Avtovaz and the remaining part will be shifted in the stock market.
Reportedly the holding company will purchase 20 per cent share of Avtovaz, which is owned by Troika Dialog till 2014. However, the statement did not mention the exact sum, which will be required by the company to purchase this stake. However, the liabilities possessed by Avtovaz will be reconstructed by Russian Technologies, which will then obtain capital hosted from the anticipated sales of Avtovaz’s non-strategic assets. At that time, the interest-free loans, outstanding, with long maturities, will amount 1.56 billion euros. With these practices, Avtovaz would come-up with a well-built balance sheet and no financial crisis.
