Thursday 10 March 2016

Avtovaz: incompetence sitting at the steering wheel

Russia, one of the natural resource richest countries in the world

No, I am not talking about the CEO Bo Inge Andersson because he has a proven track record but instead I would like to point at the complications of having majority shareholders that are controlled by incompetent individuals.

A lot of bad things can probably be said about Russia, Mr. Putin and Mr. Medvedev. One thing is however very clear. Russia is a great nation with extreme quantities of natural resources. No one has ever managed to fully conquer Russia and yet countries have tried. Mr. Putin and Mr. Medvedev... well... one do not have to like their politics or how they gained and remained in power but one thing is very, very clear. They are extremely intelligent people.

Due to the past of Russia there is and have been a lot of corruption. Like in every other country in the world corruption must be brought down and eliminated when ever the chance and possibility is given. Due to the corruption in Russia people have ended up in positions that they most likely do not have neither the skills nor the intelligence to hold. It is, of course, the same story in every nation but the more corrupt the country the more incompetence in the wrong places because you simply can not get rid of them fast enough.

Bo Inge Andersson once said in a Swedish interview that he thought that he understood the construction of the shareholding of Avtovaz. Russia, via Rostec, owned a smaller share but had a strong vote and held the debt. Renault and Nissan held the majority share but no debt.

Due to the impairment costs that Bo Inge Andersson arrived with for the full year 2015 (please see Avtovaz annual report 2015) it became a necessity to bring in more money / decrease the debt in Avtovaz.

Economy 101: If a company is on the verge of going bankrupt / insolvent? Do you want to hold the shares OR do you want to hold the debt? To make it easy for everyone... You want to hold the debt. Sure even better would be to stay completely away but that was not the option here.

Why is that? Because by holding shares in a bankrupt / insolvent company means that A) you have to bring in more money via a rights offering or B) you loose your shares and the persons sitting on the debt take over the shares in the company.

What Bo Inge Andersson did with his manoeuvre was to offer Avtovaz on a silver plate to Russia. Russia will need to bring in nothing and can easily convert the Avtovaz debt into a substantial shareholder holding. Renault and Nissan will be forced to bring in a lot of nice fresh money to guarantee that they will remain as majority shareholders and if they are not prepared to do so then via the debt Russia and Rostec would be able to bring back the ownership of Avtovaz to the Russian soil.

That the Russian shareholder Rostec and NOT Renault or Nissan started crying in media concerning the move by Bo Inge Andersson can only mean one thing and that is clearly explained by the title of this article. It could be that Renault and Nissan were crying in the background but why should Rostec care about that?

My hope now is that the very intelligent Mr. Putin and Mr. Medvedev stops this nonsense that was created by Rostec and that they allow Bo Inge Andersson to remain as the CEO. It will work out, he will manage to bring back the glory to Avtovaz and Lada but he needs his full-term five years + a little luck because we all need that.

The refusal of the silver plate that were given by Bo Inge Andersson to Rostec and Russia is pure stupidity. Please do not forget that I as a shareholder in Avtovaz are sitting on the loosing side of this and yet I am offended by the stupidity of all of this. How long can a nation allow incompetent people at the steering wheel of their companies?

Am I completely wrong in my thoughts concerning this matter?

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