Oct. 15 (Bloomberg) -- Russia’s government increased pressure on Renault SA, France’s second-biggest carmaker, to help OAO AvtoVAZ restructure debt and stay in business.

Renault, which owns 25 percent of AvtoVAZ, needs to help Russia’s largest carmaker develop a broader range of cars to remain competitive, the Industry and Trade Ministry said in a statement. Plunging sales will push AvtoVAZ’s debt to creditors and component suppliers to about 86 billion rubles ($2.9 billion) in the next three months, the ministry said.

Prime Minister Vladimir Putin said on Oct. 2 that Renault would have to put more money into Togliatti-based AvtoVAZ or provide more of its technology if the French carmaker wants to avoid having its stake diluted. Renault paid about $1 billion for the holding, which has lost more than half of its value since last year.

AvtoVAZ will outline an “anti-crisis” strategy Oct. 19, the carmaker said in an e-mailed statement today. The company dismisses news reports that it faces bankruptcy, an AvtoVAZ official said today by phone. AvtoVAZ needs to cut about 50,000 jobs, almost half its workforce, to avoid insolvency, Kommersant reported today, citing an internal Industry Ministry document.

The carmaker’s managers have proposed issuing bonds for at least 60 billion rubles that will be purchased by VEB, Russia’s state development bank, to help the company raise fresh capital, the ministry said.

Bond Options

Russia’s government will review AvtoVAZ funding options in December, VEB said in an e-mailed response to questions. A group that includes Industry and Trade Minister Viktor Khristenko, Economy Minister Elvira Nabiullina and representatives of state- run lenders will submit a proposal to the Cabinet that may include VEB buying bonds, the bank said.

Renault declined 20 cents, or 0.5 percent, to 36.09 euros in Paris trading. That pared the stock’s gain in 2009 to 95 percent, valuing the carmaker at 10.3 billion euros ($15.4 billion). AvtoVAZ dropped 2.1 percent to 15.45 rubles in Moscow. The shares have more than doubled this year, giving the company a market value of 21.4 billion rubles.

The Russian manufacturer of Lada sedans may need to seek a partner other than Renault because of the Boulogne-Billancourt- based partner’s “unwillingness to share technologies,” Moscow- based Kommersant cited the document as saying. The carmaker remains committed to its ties to Renault and Nissan Motor Co., the French company’s Japanese affiliate, AvtoVAZ said today.

Jobs Priority

The ministry’s report was completed on Oct. 1, and several government meetings have been held since then to discuss the future of AvtoVAZ, the ministry said later in an e-mailed statement. The “key priority” is to retain jobs and create more, the ministry said.

The Renault-Nissan alliance, headed by Carlos Ghosn, plans to produce vehicles based on the no-frills Logan sedan on a shared AvtoVAZ assembly line, the Russian carmaker’s president, Igor Komarov, said Oct. 9.

“We’re still working with all partners to find the best solution for AvtoVAZ, including the possibility of sharing our technologies,” Renault spokeswoman Caroline De Gezelle said by telephone today.

Renault is “not aware of AvtoVAZ being on the verge of bankruptcy,” she added.

Industrywide sales of new cars and commercial vehicles in Russia fell 52 percent last month, according to the Association of European Businesses.

The Russian government has given AvtoVAZ 25 billion rubles in emergency loans, while the carmaker has slashed salaries and announced plans to eliminate at least 5,000 jobs. AvtoVAZ will owe 76.3 billion rubles to financial backers and 9.8 billion rubles to suppliers by the end of the year, the Industry Ministry said.

To contact the reporter on this story: Paul Abelsky in Moscow at pabelsky@bloomberg.net.

Last Updated: October 15, 2009 13:18 EDT