France enticed by Russia's energy resources.
Today, Russian carmaker AvtoVAZ and Renault will sign a partnership agreement during Vladimir Putin's visit to France, which will also see the French company EDF sign an agreement to join the South Stream project. These are agreements of intent and their details are not disclosed. Kommersant has learned that the parties are discussing an increase in Renault's share in AvtoVAZ in exchange for an equity stake in the French company being transferred to the Russian carmaker. While Russia could only acquire up to 1.5% of Renault's stock on a competitive basis, the value of the deal may increase, however, through a promise to give France access to Russian energy resources.
Today, Vladimir Putin will take part in a meeting of the Russian-French Commission on Bilateral Cooperation in Paris. Before departing for Paris on Wednesday, he had a telephone conversation with President Nicolas Sarkozy to discuss "trade and economic cooperation issues on a bilateral agenda," the prime minister's press-service reported.
The conversation focused on Renault's role in keeping the struggling AvtoVAZ alive, according to our information. A source close to the negotiations between Renault and AvtoVAZ told Kommersant that the sides were discussing a possibility of exchanging stakes in each other's equity, following which Renault would acquire a controlling interest in AvtoVAZ, while the latter would receive an equity stake in Renault. Our source in the Government clarified, however, that under the deal currently discussed by the parties, Renault's stake in AvtoVAZ, albeit increasing, would still be less than a controlling interest. Instead, Russia is ready to make access to its energy resources significantly easier for the French companies.
The prime minister's spokesperson Dmitry Peskov confirmed that Putin "discussed the problems of AvtoVAZ during his conversation with the French President". They also talked about "cooperation in the energy resources and deposit development, as well as mutual investment in these areas."
The issue of helping AvtoVAZ stay afloat was first brought up in early October (see Kommersant of October 3), when Vladimir Putin suggested that Renault should provide financial assistance to the troubled company by increasing its share in AvtoVAZ's capital. At the time, Renault was offered to purchase additional shares that AvtoVAZ issued so that the French would maintain a blocking stake in the Russian company.
Renault rejected the offer, opting to provide technological assistance instead. Since then the issue of increasing Renault's stake in AvtoVAZ has been subject of numerous informal discussions. And last Saturday, Sergei Chemezov, head of the Russian Technologies State Corporation (owner of a 25% stake in AvtoVAZ, who effectively controls the company) said Renault might agree to increase its stake in 2013 or 2014. However, the possibility of Russia acquiring a stake in Renault has not been considered to date.
Renault owns Dacia (99%), Renault Samsung Motors (80%), Nissan (44%), and AB Volvo (20%). Among the company's shareholders are the French Government (15.01%), Nissan (15%), company employees (3.34%). Treasury stocks account for 3.08% of the shares, and stocks in free circulation make up 63.75% of the company's equity.
For 2008, the company posted revenue of 38 billion euros and a net profit of 571 million euros, while the number of cars sold was 2.4 million.
The agreement of intent the parties are expected to sign today will only provide for Renault's involvement in the modernisation of AvtoVAZ, official sources say. However, the Russian Ambassador to France Alexander Orlov said yesterday that it would be an "extended involvement." Deputy Head of the Government Executive Office Yury Ushakov further clarified to Reuters that the document would stipulate the "basic conditions for the restructuring of AvtoVAZ."
Our sources did not specify who might be purchasing Renault's shares. It may be the Government, Russian Technologies, or AvtoVAZ itself. The two companies' worth is incomparable, however. As of yesterday, the value of Renault's stock market capitalisation at the Euronext stock exchange in Paris was 8.99 billion euros, whereas the capitalisation of AvtoVAZ at the RTS Stock Exchange was $887 million (591 million euros).
Hence, based on market value, Moscow will be able to acquire approximately 1.5% of Renault's stock in exchange for a blocking stake in AvtoVAZ, says Yuly Matevosov from Aton brokerage firm. According to Kirill Chuiko from UBS, if a deal is finalised, Russia will hardly receive anything, but a symbolic equity stake in Renault, as it is unlikely that the company's two largest shareholders will agree to sell a substantial portion of their stock. The only other remaining shares are treasury stocks (3.08%), which, theoretically, could become part of the deal, Chuiko said.
He does not rule out, however, that the deal may include certain privileges for the Russian side, which will go beyond the small equity stake it will be acquiring. "AvtoVAZ has no need to jointly manage Renault, rather it needs its technologies", Chuiko says. "With this in mind, an equity exchange between the companies, which will provide Renault with a larger control over AvtoVAZ and demonstrate the Russian side's willingness to invest in joint business, may create an appropriate environment for the transfer of technologies to AvtoVAZ."
The increased share will arguably increase Renault's responsibility for AvtoVAZ's performance. The promise to allow access to Russian energy resources is expected to encourage the French to embark on a project they have been reluctant to embrace until now. French companies have had little success until recently in gaining access to Russian energy resources.
In 1995, Total joined the project for developing the Kharyaginskoye oil field (see yesterday's Kommersant,), which for many years became the company's only successful deal in Russia. It also tried to join the project for developing the Vankor oil and gas field, but the project was awarded to Rosneft. Total filed a lawsuit, trying to prove its option rights for the deposit, but was only offered financial compensation. The courts stood in the way of Total's participation in the Tuapse trough development project on the Black sea shelf. The company also failed to secure a stake in NOVATEK, Russia's largest independent gas producer, where Total wanted to buy a blocking share for $1 billion, but the deal was not approved by the government.
The situation improved somewhat only in 2007, when Total was able to purchase a 25% stake in the Shtokman field, which has reserves of 3.8 trillion cubic metres of gas. The deal received a green light following a telephone conversation between Vladimir Putin and Nicolas Sarkozy. Total also managed to reach agreement with NOVATEK, and in summer, the companies announced the creation of a joint venture to develop the small Termokarstovoye gas condensate field in the Yamal Peninsula. Total is interested in other projects in the region, as well.
GDF Suez is interested in joining the Nord Stream project. A memorandum to that effect was expected in October, but it has yet to be signed. Today, however, Electricité de France (EdF) will sign a memorandum of intent, according to which the company will join in the construction of the South Stream pipeline - Russia's other large energy and geopolitical project.
French companies also have business interests in Russian electric power industry. Two years ago, EdF wanted to buy a 25% stake in the state-owned INTER RAO UES (board chairman Igor Sechin), but the deal fell through.
Subsequently, in summer of 2008, it was announced that EdF, in partnership with INTER RAO UES, had sought to purchase OGK-1, but the deal never materialised.
Two months later, EdF and UES signed a protocol on strategic partnership. However, following the meeting with Vladimir Putin in September 2008, EdF's Europe Director Marc Boudier announced the company's intention to buy a minority stake in UES.
GDF Suez also had business plans in Russia's electric energy industry. In November 2007, it held talks on buying the TGK-10 (Territorial Generating Company) as part of UES restructuring reform, only to see it eventually purchased by the Finnish company Fortum. So far, the only energy asset that GDF Suez has bought in Russia is a 25% stake in Novogor-Prikamye, the Perm Territory's public services company.
Afanasy Sborov, Pyotr Netreba, Yelena Kiselyova