GAZ Group signs debt restructuring agreement with creditor banks. Alfa-Bank thwarts completion of restructuring.
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 24.09.2009 |
GAZ Group has signed definitive agreements on debt restructuring with 21 creditor banks, including the syndicate of foreign banks. However, completion of the transaction that is unprecedented for the Russian market is hindered by Alfa-Bank which has been delaying signing of the agreement with GAZ Group since late July, when agreement in principle on the terms of restructuring was reached with the creditor banks.
GAZ Group's total debt to the banks amounts to RUR 38 billion, of which Alfa-Bank loans account for only 8%. Under the terms of the reached agreement the loans are restructured for 5 years with a 2-year grace period for principal repayment and 6-month grace period for interest payments. Agreement with the banks was made become possible by GAZ Group presenting a transparent financial model enabling it to service in good time the loan portfolio after the restructuring. The model has proved its viability with the results of the anti-crisis program for H1 2009.
The terms of the restructuring agreement provide for equal rights for all creditor organizations without exception. However, despite the previously reached agreements Alfa-Bank is demanding exclusive terms and conditions for itself, thus undermining the restructuring process. It should be noted that no other of the creditor banks ever made such demands.
Also, Alfa-Bank's actions are blocking provision of state guarantees, granting of which was approved in early July by the Commission on enhancing stability of Russian economy, chaired by First Vice-Premier of the Russian Federation Igor Shuvalov. The Government gave high appraisal to the results of GAZ Group's anti-crisis program implementation and made the decision to issue government guarantees to creditor banks for a total of RUR 20 billion. According to the approved arrangement the government guarantees repayment of 50% of GAZ Group's debt to the banks, whereas the outstanding amount is secured by company lien, including 15% of OAO 'GAZ' treasury shares. GAZ Group will be repaying all its financial obligations on its own, without any direct support from the state.
At present, despite the difficult situation in the engineering industry, GAZ Group is meeting in full its obligations to service the loan portfolio by continuing to pay approximately RUR 500 million to the banks on a monthly basis. In the environment, characterized by unprecedentedly low demand and lowered activity in the main consumer segments, GAZ Group is forced to allocate for the purpose substantial amounts from its working capital, which seriously hampers the company's ability to meet payments in dealing with its hey suppliers, causes knock-on non-payments in the supply chain and undermines the possibility of maintaining social stability at Group's enterprises.
Nevertheless, due to a timely and efficient anti-crisis program GAZ Group's key enterprises have reached a break-even production level since July 2009. In H1 2009 GAZ Group product cost was reduced by RUR 4.226 billion (including a reduction in variable costs of RUR 1.2 billion, fixed costs - RUR 3.26 billion, payroll reduced by RUR 2 billion, working capital - by RUR 9.732 billion). The company is implementing programs of training personnel not engaged in production in order to preserve jobs on the payroll of the enterprises with guaranteed long-term income.
GAZ Group calls upon Alfa-Bank to sign the restructuring agreement before long. Alfa-Bank's signature under the agreement is required for completion of the company's debt restructuring that has been approved by all the creditor banks and the Government of the Russian Federation and that will serve as a favorable factor in improving the stability of major automotive OEMs in Russia and the supply chain, as well as the social stability in the regions of the company's presence during the period of financial crisis.
About GAZ Group
GAZ Group is Russia's largest manufacturer of commercial vehicles and road construction equipment. The company was founded in 2005 as a result of restructuring production assets of OAO Ruspormauto that had existed since 2001. GAS Group includes OAO 'GAZ', 18 automobile manufacturing enterprises in Russia, distribution and service facilities. The company is headquartered in Nizhny Novgorod. GAZ Group's consolidated sales revenue in 2008 amounted to RUR 146 billion.
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