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Renault to buy 25 percent of Avtovaz

Russia's struggling carmaker Avtovaz has chosen Renault SA as a strategic partner and will sell the French company a 25 percent stake, the state-run concern that controls Avtovaz said on Friday.

Rosoboronexport said a deal on the sale was to be signed yesterday in the Volga River city of Togliatti, where Avtovaz is based. Renault spokeswoman Rochelle Chimenes confirmed the choice and said Avtovaz chairman Sergei Chemezov would present the project to Renault CEO Carlos Ghosn yesterday.

Losing ground to foreign rivals in a domestic market growing fast, Avtovaz has been seeking a major foreign partner. It had been considering various foreign companies, including General Motors Corp, Fiat SpA and reportedly Canadian auto-parts giant Magna International.

The iconic maker of the boxy little Lada sedans that were a staple among the relatively small number of car owners during the Soviet era, Avtovaz has found it difficult to keep pace with higher-quality foreign-made and foreign-designed cars.

Russia is one of the world's fastest-growing auto markets and is being increasingly targeted by the giant global manufacturers looking to offset stagnant markets in the US and Europe.

Ghosn said in September that Renault was in talks with Avtovaz about a joint venture and said the Russian market was "exploding."

According to the European Bank for Reconstruction and Development, Russia has about 157 cars per 1,000 people.

Renault already has a Russian presence through its 93.4 percent-owned subsidiary Avtoframos, whose plant near Moscow has an annual capacity of 60,000 low-budget sedans developed by Renault's Romanian subsidiary Dacia.

GM confirmed earlier this week that it had submitted a formal bid for a stake in Avtovaz.

GM has been operating a joint venture with Avtovaz at a plant in Togliatti since 2001, but the companies' relationship has been rocky since the Russian government effectively took control of Avtovaz in 2005, when it was handed to Rosoboronexport, the state arms sales concern.

Last year, the joint venture temporarily halted production after a parts contract came under review. The two sides also were unable to agree on the joint construction of an engine plant in the central city of Samara, with AvtoVaz saying it feared it wouldn't be able to recoup its investment.

Rosoboronexport owns 75 percent plus one share in Avtovaz. In a statement after an Avtovaz board meeting, Rosoboronexport said the 25 percent stake sold to Renault would be shares owned by Rosoboronexport together with Troika Capital Partners.

Earlier on Friday, Rosoboronexport said it plans to eventually sell 50 percent of the total shares in Avtovaz, including 25 percent to a foreign carmaker chosen as a strategic partner, while retaining a share "sufficient for the effective management of the company."

Chemezov, a close ally of Russian President Vladimir Putin, headed Rosoboronexport until recently. Last month, Putin placed Rosoboronexport under the umbrella of Rostekhnologia, a new state giant with broad control over technological production, and appointed Chemezov as its director.
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