Russia's AvtoVAZ to Sell 50% to Pay Tax Debt

12/06/96

The Associated Press has reported that AvtoVAZ, Russia's largest carmaker faces bankruptcy and has agreed to a government proposal to sell a 50% equity stake in order to pay off huge tax debts.

Vladimir Potanin, Russia's First Deputy Prime Minister, said the shares should be on the market in 3-4 months. He said that the sale is expected to raise "hundreds of millions of dollars," from a major international auto company or other foreign investors.

AvtoVAZ is one of Russia's largest companies, but is also the country's biggest debtor. It owes about $500 million in back taxes, most of which reportedly accumulated during the first half of 1996, when Avtovaz President Vladimir Kadannikov was Deputy Prime Minister and blocked the governments efforts to force Avtovaz to pay taxes.

Last week, Potanin threatened to initiate bankruptcy proceedings against AvtoVAZ unless its management agreed to his proposal. The deal he negotiated with the automaker on Tuesday provides that the government will restructure any tax obligations not covered by the money raised from selling the new shares.

Potanin said that no potential buyers have been consulted regarding the sale of AvtoVAZ, yet, but that Russian officials had discussed Germany's BMW AG, GM's Adam Opel AG, and Ford Motor Co. as likely candidates. Avtovaz has negotiated with several international car companies in recent years, but never reached a significant agreement. If no major investor for the firm can be found, the shares will be sold to portfolio investors in an international placement.

Potanin expressed hope about the prospect of selling AvtoVAZ to portfolio investors, despite its near-bankruptcy: "I think that an enterprise with significant potential like AvtoVAZ, assuming its financial activities are organized correctly and its debts rescheduled, would become a rather attractive object for portfolio investors."

Paul Dever -- The Auto Channel