Russia's AvtoVAZ says it can't rule out bankruptcy

ERJ staff report (AN)

Togliatti, Russia (Reuters) -- Russia's AvtoVAZ does not rule out bankruptcy if it is unable to reach a deal with banks on debt restructuring, a company official said today during a presentation at the carmaker's headquarters in Togliatti.

The company, in which France's Renault holds 25 percent, also said it currently has 22,000 extra staff on its payroll and it does not anticipate any work for them before 2012.

"If the other options don't succeed, then we have no other choice," Executive Vice President for Finance Oleg Lobanov told reporters, referring to the prospect of bankruptcy.

"Our production plan does not allow us to generate sufficient funds to service our existing debt and pay interest," Lobanov added.

As of June 30 the automaker's short term liabilities, which include debts, money owed to suppliers and taxes due, amounted to 105.5 billion rubles ($3.58 billion).

The automaker wants banks to lend it an additional 50 billion rubles by buying its bond issue.

Renault's Ghosn confident

Renault CEO Carlos Ghosn said today he was confident that AvtoVAZ would be able to overcome its troubles in the short to medium term.

"We are ready to support AvtoVAZ. We are supporting them with management and with technology," Ghosn told reporters at the Foreign Correspondents' Club in Japan in Tokyo.

"I am confident that AvtoVAZ will be able to overcome its troubles in the short term and the medium term."

Ghosn added: "We know that in Russia you cannot compete if you don't have a very competitive entry-level car. The only way you can do this is to have a common platform with AvtoVAZ, Renault and Nissan. This is something we are working on and this is part of the alliance work."

AvtoVAZ said last week it was prepared to invest 240 million euros ($358.5 million) alongside Renault and Nissan Motor Co. to build new models and break even in 2010.

Demand cut in half

AvtoVAZ has been left close to collapse by the impact of the recession, which has led to demand for new vehicles in Russia being cut in half.

The company employs around 100,000 workers in Togliatti, a single industry town on the banks of the Volga river, which is expected to suffer severe social unrest if there are major job losses.

The company sold 169,000 Lada cars in the six months to the end of June, compared with 378,000 in the same period the year before.

The carmaker lost 19.4 billion rubles ($655.4 million) in the first half. Revenue almost halved to 53.1 billion rubles in the first half from 98.5 billion the year before.

From Automotive News (A Crain publication)