OREANDA-NEWS. June 22, 2010. Sergei Chemezov, head of Russian Technologies Holding, told that AvtoVAZ is likely to place an additional share issue among existing shareholders this summer. After the placement, Russian Technologies could increase its stake from 25%+1 to approximately 40%, while the stake of another large shareholder, Renault would remain unchanged at 25%+1. Mr. Chemezov declined to comment on possible changes in the stake of the third major shareholder, Troika Dialog, which also owns a 25%+1 share of AvtoVAZ, reported the press-centre of OTKRITIE Financial Corporation.

View: The main reason for an additional share issue would be to raise funds in order to reduce the company’s large debt (D/E ratio of 9.2x in 2009). AvtoVAZ is looking to raise USD867m. If it increases equity by 15% and places it at a current market price, it would garner only USD108m, while the company’s free float would drop to 10%.

Valuation and Action: It is difficult to compare AvtoVAZ to peers because of its negative EBITDA and net income. We view the news as negative for the stock.