Renault hands Lada maker to Russia with option to take back

Renault sold its 68 per cent stake in carmaker Avtovaz to the Russian government, but retains an option to buy it back. PHOTO: REUTERS

PARIS (BLOOMBERG) - Renault has agreed to transfer its €2.2 billion (S$3.2 billion) Russian business to state entities for a symbolic sum in what amounts to a nationalisation triggered by the war in Ukraine.

The French carmaker’s majority stake in carmaker Avtovaz - maker of the top-selling Lada brand - will go to a state-run automobile research institute known as the Central Research and Development Automobile and Engine Institute, or Nami, while the Moscow city government will take over an assembly plant near the Russian capital, according to a statement on Monday (May 16). 

The automaker has the option to buy back its stake in Avtovaz for the next six years. While a spokesman declined to give the sale price for the assets - previously reported as one rouble - the sum was confirmed as symbolic.

The agreement marks the end of an era for Renault in Russia, where the automaker owned 68 per cent of Avtovaz, which runs a car plant on the banks of the Volga River dating back to Soviet times. Renault’s roots in the country, which grew to become its second-biggest market, stem from a US$1 billion deal sealed in 2007 between former leader Carlos Ghosn and a top ally of Russian President Vladimir Putin.

Renault shares fell as much 1.6 per cent in early trading in Paris on Monday. 

Withdrawal will carry financial pain. Renault cut its outlook in March for this year both for profit margin and free cash flow due to the risks posed by the war on its Russian operations. On Monday, the company confirmed the lowered outlook and a write-down in the first half-year for the value of the Russian business, which was €2.2 billion at the end of last year.

“We are making a responsible choice towards our 45,000 employees in Russia, while preserving the group’s performance and our ability to return to the country in the future,” Renault chief executive officer Luca de Meo said in a statement.

Moscow Mayor Sergei Sobyanin said Renault’s plant near the city will start to produce Moskvitch cars, a Soviet-era model, according to his blog. 

Avtovaz’s Togliatti plant will continue to make Ladas, Russia’s Industry and Trade Ministry said in its Telegram account. Nami reports to the ministry.

The Russia debacle comes at a bad time for the French carmaker, which is still struggling to turn around following the crisis stemming from Ghosn’s 2018 arrest in Japan and the pandemic. 

Renault came under strong pressure from investors during the first weeks of the war in Ukraine as the most exposed vehicle manufacturer to Russia. It was also called out by Ukrainian President Volodymyr Zelenskiy for supporting Mr Putin’s “war machine” by delaying a pull-out. 

Renault had 45,000 employees in Russia so the transfer will leave a big hole in the automaker’s operations. The Lada was part of Mr de Meo’s strategy for affordable passenger cars along with the Dacia brand.

The CEO is now considering a structural overhaul of Renault by hiving off electric vehicle and combustion engine entities.

The other partner in the Avtovaz venture is Rostec, a Russian government-owned defence conglomerate headed by Mr Sergei Chemezov, a close Putin ally who is under sanctions.

In the months since the start of the war, Renault and other foreign manufacturers have halted plants, blaming their inability to get crucial imported parts needed for production.

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