Leave Lada afloat: “AVTOVAZ” has suffered losses and expects support from shareholders

MOSCOW, 12 February. /Corr. Junius Polyakova/. The largest Russian producer of cars “AVTOVAZ” continues to record losses. By the end of 2015 the net loss of the group increased in comparison with the 2014 year almost in 3 times before 73,851 billion.

The producer’s revenue from sales in 2015 decreased by 8% to 176,482 billion rubles, which, however, is less the dynamics of the declining physical sales and the market. This effect was the result of higher prices of “AVTOVAZ”, despite the fact that imported auto parts are used it minimally.

Car sales in Russia fall for the second year in a row. In 2015, the decline was most significant in recent years – 35,7% compared to 2014, to 1.6 million units. “AvtoVAZ” in the physical sales dipped for the year is slightly less – at 30% to 269 thousand cars. Despite the market declining over the past year the manufacturer has invested in the launch of 2 new models – sedan Lada Vesta (submitted on 25 September 2015) and crossover Lada X-Ray (its official sales will begin on February 13). The launch of two new models was accompanied by the cost of advertising, presentations and test – drives. Thus, a new model of “AVTOVAZ” – Vesta – by the end of January already entered the top-10 best-selling cars in the Russian Federation.

The company notes that in the current situation there are risks for further operating activities. The situation was complicated by the fact that the company has violated a number of conditions for issued loans which increased its short-term debt. Owners rostec and Renault – were encouraged, stating that it is prepared to help your company.

How to pay the debts

The size of short-term debt has been increased, including, in connection with the transfer of part of long-term liabilities in the category of short term. “AvtoVAZ” for the period violated the covenants (restrictions) on the number of loans for a total amount of 36.6 billion rubles – banks have the right to declare the company a Margin Call (to demand from the company early repayment of debt).

Current assets “AVTOVAZ” by the end of 2015 amounted to $ 47.5 billion roubles (-13,6%), and the size of short-term debt – 115,3 billion.

With a number of banks – ROSBANK, Garanti Bank-Moscow and Societe Generale on total debt at 2,711 billion “AVTOVAZ” has already agreed about keeping credit conditions. But the remaining amount is 24,394 bn – recorded in short-term debt.

Meanwhile, it is not the only, negotiable debt obligations of the company “AVTOVAZ” should suppliers 47,3 billion (+45,6% compared to 2014).

Cash flows from operating activities before changes in working capital was a negative 9 billion rubles against loss 753 mln rubles in profit in 2014. Net cash flows are also negative 1,846 billion loss against a profit of 10.7 billion rubles a year ago.

“Without the support of our shareholders, aimed at refinancing the debt obligations of the group and provision of loans, financial and market conditions give rise to substantial uncertainty, which causes significant doubt about the group’s ability to continue its operations continuously, and, thus, the group may be unable to realize its assets and commitments in the ordinary course of business”, – the report says.

Loss of “AVTOVAZ” has led to losses and its shareholders. In particular, the French Renault, on Friday published their statements recorded a loss from participation in AVTOVAZ in the amount of €620 million (at the exchange rate at the end of 2014 – 42,563 billion). The share of Renault in net loss “AVTOVAZ” amounted to €395 million (27,116 billion), from revaluations of equity investments of €225 million (15,446 billion). At the end of 2015, the French automaker’s share is estimated at €91 million (6.2 billion rubles).

To support domestic producers

In spite of such difficulties, Renault announced its readiness to recapitalize “AVTOVAZ”. French automotive giant has entered into negotiations with other shareholders of the Russian company’s proposal to recapitalize the company, including due to the revaluation of debts of the company in the form of investment. According to the senior analyst IK TCS Partners Andrew Tretinnikov, can we talk about the issue, where the debt will become shares of the company as a result of the investment of shareholders. In this case, Renault may increase its stake in the company.

The largest shareholders of AVTOVAZ – Renault-Nissan Alliance and state Corporation “rostec”, which is in control of the company via a joint Dutch company Alliance Rostec Auto B. V. Through this structure that the Alliance controls the controlling package of “AVTOVAZ” and “rosteh” – a blocking stake. When foreign companies entered the capital of AVTOVAZ, they have committed themselves to investing in the company and received a share according to their investment in the carmaker.

In Worldwide announced that the company is discussing with shareholders the recapitalization. As a possible scenario – the additional funds in the company’s share capital and conversion of debt. While rostec intends to maintain its equity at 25%.

If Renault will increase its share due to the recapitalization of AVTOVAZ, and rostec will retain a blocking stake, reducing its share in the company may Nissan. Final decisions on the support of “AVTOVAZ” is still pending.