Renault Is Said to Be Reluctant to Leave Russia Over Costs
Renault Is Said to Be Reluctant to Leave Russia Over Costs
(Bloomberg) -- Renault SA has kept longstanding ties with Russia intact despite the war in Ukraine because it’s worried about the high cost of pulling out from a venture with a local partner, according to people familiar with situation.
The French manufacturer wants to avoid the nationalization of its majority-owned carmaker AvtoVaz, which plays a key role in the company’s turnaround, said the people, who declined to be named because the information isn’t public. Renault’s position is backed by the French government, its most powerful shareholder, they said.
Renault continues to monitor the situation, according to a spokesman.
In past days, Renault has become the only major global automaker that hasn’t pulled back either on trade with Russia or from production at local factories. Rival Stellantis NV this week suspended import and export of cars from the country, part of a broad pullback including Volkswagen AG, Toyota Motor Corp. and Mercedes-Benz AG. Even Renault’s Japanese partner Nissan Motor Co. halted exports.
The risk of expropriation has grown more urgent this week after Russia moved closer to seizing or even nationalizing foreign-owned companies that are leaving the market over the invasion of Ukraine. Mercedes, which operates a plant near Moscow that’s now idled, said Friday it had about 2 billion euros ($2.2 billion) of assets in Russia that could be at risk.
Renault’s 68%-owned AvtoVaz, the maker of the Lada brand dating back to the Soviet era, and reliance on Russia for about 10% of its revenue have made the carmaker the most exposed among peers. Renault has about 30% of the Russian car market and a staff of roughly 40,000 in the country.
The shares have lost about a quarter of their value since Russian President Vladimir Putin’s invasion began and credit rating company Fitch has warned the company’s turnaround could be derailed.
Since the start of the war on Ukraine, the French government has made few public statements about Renault. Finance Minister Bruno Le Maire has said private companies are free to make their own decisions on whether to keep doing business with Russia as long as they “strictly and rigorously adhere to sanctions.”
The company could book a 1 billion-euro provision this year on AvtoVaz, which could post an operating loss in 2022, Alphavalue SAS analyst Jorge Velandia wrote in a note Thursday. The research firm downgraded its recommendation on shares, saying it saw a “low likelihood” of Renault exiting its stake in the venture as global investors shun Russian assets.
The value of the venture has fallen to zero “to account for the geopolitical risk regarding Russia’s invasion of Ukraine and the long-lasting implications that Western sanctions could have on the Russian economy, possibly drastically reducing car demand in the country for years to come,” Alphavalue said.
In the first explicit response to the exodus of foreign businesses from Ikea to McDonald’s Corp., the Russian Economy Ministry has outlined new policies to take temporary control of departing companies where foreign ownership exceeds 25%.
Renault has temporarily halted its assembly plant near Moscow until March 18 on difficulties getting supplies. Two other factories operated by AvtoVaz at Togliatti and Izhevsk also shut down for some days this week due to “the ongoing crisis in the supply of electric components,” the venture said in a statement.
AvtoVaz’s other partner, Rostec State Corp., a Russian government-owned defense conglomerate, is headed by Sergey Chemezov, a close Putin ally who is on the U.S. list of sanctioned individuals.
In a report published this week by Russian news agency Tass, he was quoted as saying Russia has already proven under past sanctions from the 2014 invasion of Crimea that it can develop its own production and will again emerge a winner.
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