OREANDA-NEWS. September 15, 2010. AvtoVAZ shareholders approved a new share issue via a closed subscription placement of additional shares among Renault, Troika Dialog, and state-owned Russian Technologies. The additional share issue amounts of 435,173,411 ordinary shares of RUB5 at par value, each to be placed at RUB40.24/share, reported the press-centre of OTKRITIE Financial Corporation.

View: We take the news neutrally, as it simply confirms what was already known. During the additional issue, the state corporation's stake will increase to 36%, Renault will stay at 25%, and Troika Dialog's stake will drop to approximately 19.5%. The new shares will be purchased by non-monetary means: Renault will contribute technology and equipment, with Russian Technologies converting AvtoVAZ debt into equity. Even though Rostechnologies’ stake exceeded 30%, there will not be an offer to minorities because the increase will occur via making non-cash contributions. Such a transaction avoids the legislation requirements that necessitate a minority offer. The purpose of the additional issue is the development of the B0 platform project. At the end of 2011 and in early 2012, AvtoVAZ plans to produce five new models on the basis of this platform: 2 models of the brand Lada, 2 of Renault, and 1 of Nissan.

Valuation and Action: AvtoVAZ trades on a 2011 EV/EBITDA of 15.0x, which implies a premium to global peers of 130%. Although our model and forecasts for the automaker are now under review, we see its shares as expensive and unreflective of AvtoVAZ's fair value.