Russian Technologies Corp. will sell its majority holding in AvtoVAZ to the Renault-Nissan Alliance. This means that joint venture will then be the largest shareholder in Russia's biggest automaker. When combined, Renault and Nissan will invest around $750 million to take a majority holding in the joint venture, which will own 74.5% of AvtoVaz in turn.
Renault will provide $300 million of the investment while Nissan will give the rest. In 2008, Renault has already bought 25% of AvtoVAZ for $1 billion. The companies are hoping to finalize the agreement by the middle of 2014.
Carlos Ghosn, who heads both Renault and Nissan, is hoping that AvtoVaz will help boost its growth in Russia where the market could reach 4 million annual sales in 2015, beating Germany to become Europe's biggest due to increasing incomes and a sudden improvement in consumer spending.
In 2011, there were about 2.65 million cars and light commercial vehicles sold in the country. The market is likely to reach 2.9 million in 2012. AvtoVAZ seeks to acquire 25% of the Russian auto market in five years, or when combined with Renault and Nissan, it hopes to get 40%.
The alliance has a combined share of almost 33% for now in Russia, making the country the No. 3 market after China and the U.S. In a note to clients, Xavier Caroen, an analyst at Kepler Capital Markets, said that this move is expected to be “very positive” for Renault, which will continue to heavily invest in this expanding market. It would then be official that this group (combined with AvtoVAZ and Nissan) would dominate in Russia."
Last month, AvtoVAZ CEO Igor Komarov said that he hopes to borrow up to 60 billion rubles ($2 billion) by 2015 to fund the company’s biggest overhaul "in decades" to overhaul its vehicle lineup and compete with international brands.
An inauguration took place last month for a $525 million assembly line for the Lada Largus, the automaker's first model based on a Renault platform at AvtoVAZ's Togliatti factory. Russian Prime Minister Vladimir Putin himself led the inaugural ceremony. This facility adds capacity of as many as 350,000 cars a year and puts the total annual capacity of the plant to nearly a million cars.