OREANDA-NEWS. August 10, 2010. The Ministry of Industry has prepared a proposal to change the regime of industrial assembly. The current regime requires the investor for 7 years to create capacity for welding, painting and car assembly, as well as reduce the import of components for assembly on the third. The new agreement includes an increase of the grace period of up to 8 years, but increases the level of localization to 60% and the volume of investments to USD750m. If the producers that already have production will re-sign agreements, the required level of the calculation of localization and volume of investments will be reduced, reported the press-centre of OTKRITIE Financial Corporation.

View: We believe that these proposals are negative for the investment climate, bringing about an element of instability and revision of earlier agreements. At the same time, if accepted, this proposal will have obvious positives for Sollers and AvtoVAZ, since from these two manufacturers have the deepest level of localization and the largest investment programs with their partners - EUR2bn and RUB180bn, respectively.

Valuation: Sollers trades on a 2010 EV/EBITDA of 7.1x, which implies a discount to emerging markets of about 25%.