With a view to eliminating the cross holding between AvtoVAZ and its subsidiaries, Rosoboronexport and Troika Capital Partners bought a package of ordinary shares from AvtoVAZ and its subsidiaries that will account for 75% plus 1 voting share of their new number after AvtoVAZ's ordinary shares have been reduced, Rosobornexport said.
The elimination of the cross holding should be completed within the next 16 to 18 months, with the company's minority shareholders' rights intact.
A Rosoboronexport spokesman said Rosobornexport and Troika Capital Partners borrowed funds from independent sources, not affiliated with AvtoVAZ, a strategy called a leveraged buy-out (the acquisition of another company using a significant amount of borrowed money).
"I believe the company [AvtoVAZ] will be able to harmonize its authorized capital through a combination of ownership of AvtoVAZ shares by a state-owned company, Rosoboronexport, and a private investor, Troika Capital Partners," said Sergei Chemezov, the board chairman of AvtoVAZ and Rosobornexport director general.
AvtoVAZ president Vladimir Artyakov said, "The priority now is to establish a modern and effective management system for the implementation of the company's long-term strategy."
Artyakov said that after eliminating the cross holding system, which "hampered a breakthrough at the company," they would get access to brand new funding sources for an investment program, which could make the Russian automobile industry more competitive in the longer term.
On March 14, Troika Dialog purchased 17% of AvtoVAZ' stock in the interests of Rosoboronexport.
Rosoboronexport assumed the management of AvtoVAZ in 2005 and pledged to eliminate the plant's cross-holding structure in an effort to attract cheaper financing. Troika Dialog was assigned the task of drafting a relevant scheme to eliminate the cross ownership of shares.
Troika Dialog's main proposal is to convert 66.5% of AvtoVAZ voting shares, currently owned by its subsidiaries, into treasury stocks subject to redemption.
The elimination of the cross-ownership structure could fuel investors' interest in the undervalued automaker and enable Rosoboronexport to assume control of AvtoVAZ, experts believe.
