Talks on state aid for Avtovaz debt restructuring suspended in light of stronger financial results

MOSCOW. Aug 2 (Interfax) - Discussions at the government level on possible steps to ease Avtovaz's debt burden have been temporarily suspended in light of the growth of the Russian carmaker's sales and improvement in its financial performance, the company's government relations director, Alexander Vinogradov said.

Avtovaz president Maxim Sokolov has repeatedly mentioned the company's heavy debt burden since last year. At the beginning of 2023, he said the company's total debt to creditors grew to 120 billion rubles from about 100 billion rubles in 2022, and last November, he said Avtovaz expected its interest burden to almost double to 20 billion rubles in 2024.

In light of this, government officials began to discuss possible aid to reduce the automaker's debt, Deputy Prime Minister Denis Manturov said in February. Manturov, according to the latest available public information, still chairs Avtovaz's board of directors.

Sokolov said at the end of April that proposals for restructuring Avtovaz's debt were going through the approval process in the government and the company expected concrete decisions by summer. However, no such decisions were announced.

Vinogradov, speaking to reporters on the sidelines of the twelfth Taxi International Eurasian Forum on Thursday, said the debt discussions have been suspended because Avtovaz's financial position has improved.

"This subject was discussed, and a certain instruction was even formulated. But in the end all this has been put on pause for the time being, because our financial results have begun to recover, sales are strong. Furthermore, our finance experts thought that additional obligations will arise there [if the government helps ease the company's debt burden]. So we thought about it and put everything on pause for now, since our finance experts are happy with the current ratio of debt to financial indicators," Vinogradov said.

He said the government's decision to defer payment of the vehicle scrapping fee until the end of the year was an effective measure of support for the auto industry.

"Plus, additional aid was also provided. Accordingly, this kind of straightened out our financial indicators. The fact that they deferred payment of the scrapping fee for us until December this year meant saving operating income for us. Accordingly, we did not go and take this money from banks and got it essentially from our own resources. The fact that everything is alright for us in terms of the situation with the debt burden already became clear in March. In general, the size of the debt played less of a role than the ratio of this debt to generated earnings and the fact that, in future forecast indicators, our expectations for borrowing and for revenue add up," Vinogradov said.

He also said Avtovaz expects positive financial results for this year, although the "suspension of subsidized auto credit programs stung us a bit."

Sales of Avtovaz's Lada cars in Russia jumped 51.5% to 217,631 vehicles in the first half of 2024. The company announced plans at the start of 2024 to produce 500,000 vehicles this year and sell about 450,000 on the Russian market. Sokolov said in June that actual production of Lada cars might be 5-10% higher for the year.

Avtovaz does not publish its financial statements and did not report its 2023 financial results in detail.