Russia pledged to inject 50 billion rubles ($1.7 billion) into OAO AvtoVAZ in return for technology from 25 percent shareholder Renault SA.
Prime Minister Vladimir Putin promised the cash during a visit to Paris and Renault agreed to contribute engineering know-how worth at least 240 million euros ($358 million).
"Renault remains our strategic partner," Putin said after the accord was signed outside Paris. The French carmaker's stake "will not decrease" with the recapitalization, he said, rescinding a warning that the holding could be diluted if Renault didn't give enough.
The cash will help AvtoVAZ restructure its debt, defend a one-quarter share of its home market and raise annual output to 900,000 autos, Renault said in a statement. The non-binding deal with state-owned Russian Technologies and investment bank Troika Dialog, which each hold 25 percent stakes in AvtoVAZ, will be formalized in an agreement to be signed next March.
"It's good news for Renault that they won't invest cash or see a dilution," Jens Schattner, a Frankfurt-based analyst at Sal. Oppenheim with a "neutral" rating on the stock, said in a telephone interview. "But this is really just a short-term fix."
The Russian market may stage "only a mild recovery that won't return AvtoVAZ to profit," Schattner said. "The question is whether the government will be ready to plow in more support or whether it will then be left to Renault."
Renault's $1 Billion
AvtoVAZ, whose plants dominate the Volga river town of Togliatti, is struggling as demand for new cars plummets amid the country's worst economic crisis in a decade. Renault paid $1 billion for its AvtoVAZ stake in 2007.
The holding owned by Russian Technologies may increase as a result of the recapitalization, its Chief Executive Officer Sergei Chemezov said today, while Troika's may be diluted.
Russian federal and local government agencies agreed to take responsibility for funding social programs for AvtoVAZ, with the Samara regional authorities also footing the wage bill for 14,600 workers to be transferred into two subsidiaries.
While Renault and Japanese affiliate Nissan Motor Co. will use AvtoVAZ production capacity to assemble their own models, as announced by the Russian carmaker last month, its own Lada brand will account for at least 70 percent of output.
Renault's contribution may be increased to 300 million euros through additional direct investment as it increases its stake in AvtoVAZ, Putin said today, adding that no change had yet been agreed. The French carmaker has no plans to take a bigger stake, spokeswoman Axelle de Ladonchamps said by phone.
