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Fitch Affirms AvtoVAZ on Renault/Nissan Acquiring Indirect Majority Stake

May 4, 2012 Fitch Ratings

Fitch Ratings-London/Barcelona-04 May 2012: Fitch Ratings has affirmed JSC AvtoVAZ's Long-term foreign and local currency Issuer Default Ratings (IDR) at 'B-'. The agency has also affirmed AvtoVAZ's Short-term foreign and local currency IDRs at 'B', National Long-term rating at 'BB(rus)', foreign and local currency senior unsecured rating at 'B-' and Recovery Rating at 'RR4'. The Outlooks on the Long-term ratings are Stable.

The affirmation follows AvtoVAZ's announcement that Renault SA ('BB+'/Stable), Nissan Motor Co ('BBB'/Stable) and state corporation Russian Technologies (RT) will form a joint venture (JV) which will result in Renault and Nissan to hold a combined majority stake in AvtoVAZ.

Renault and RT will initially contribute their current respective 25% stakes to the JV. Then, by 2014, Renault and Nissan will invest a further USD750m (Renault, USD300m and Nissan, USD450m) in the JV while the JV will acquire the Russian investment company Troika Dialog's current 25% stake in AvtoVAZ. By 2014, Renault and Nissan will hold a 67.13% stake in the JV, which will itself hold 74.5% of AvtoVAZ. Therefore, Renault and Nissan will indirectly control a majority stake of AvtoVAZ.

In addition, RT will restructure its outstanding loans to AvtoVAZ to further strengthen the group's balance sheet. Part of RT's loans will be repaid from the USD238m proceeds coming from the planned disposal of AvtoVAZ's non core assets. RT will also extend the remainder of its interest-free debt (approximately USD1.56bn) well beyond its current maturity date.

Fitch expects further benefit from increased cooperation with Renault and Nissan and believes that the group's liquidity profile has gained further flexibility. However, Fitch has previously stated that it believes that the acquisition of a controlling stake in the company by Renault and/or Nissan could have a positive effect on AvtoVAZ's credit profile, but that it may not lead to an immediate positive rating action, as benefits could take time to accrue (see "Fitch Affirms JSC AvtoVAZ at 'B-'/Stable; Upgrades Senior Unsecured Rating to 'B-'" dated 2 March 2012 at www.fitchratings.com). Nonetheless, Fitch will closely monitor AvtoVAZ's investment plans and the industrial cooperation with Renault and Nissan in the short- to medium-term and assess their impact on the group's product development, capacity utilisation and, ultimately, profitability and cash generation.

A positive rating action could be driven by a sustained improvement in profitability and free-cash flow generation. Conversely, negative pressure may return on the ratings if there is evidence of a lower level of direct and/or indirect support from either the Russian government or Renault and Nissan. The ratings are underpinned by direct governmental support, which remains crucial for AvtoVAZ, whose standalone credit profile is weak.

Company — AvtoVAZ
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