Tough Times at UVZ

Maybe Russia’s economy is muddling through its downturn.  But for some major enterprises, the situation seems somewhat worse.  Tank and railcar maker Uralvagonzavod (UVZ) is a case in point.

Uralvagonzavod

Uralvagonzavod

In early August, RBK reported that Gazprombank is prepared to refinance UVZ’s 200-billion-ruble ($3 billion) debt.  The Russian government may kick in nearly 15 billion rubles ($230 million) of loan guarantees.

The 100-percent state-owned UVZ would use state guarantees to refinance part (most, all?) of 21 billion rubles ($325 million) in bank credits due this year.  Alfa-Bank, Sberbank, Gazprombank, and Svyaz-Bank are its primary creditors.

In June, Alfa-Bank went to court to have the tank producer declared bankrupt over 9 billion ($140 million) of a 16-billion-ruble debt.  The case was to be heard on 8 August, but UVZ needed to stop the bankruptcy case – by reaching agreement with Alfa-Bank – to receive the state loan guarantees.  With the guarantees, Gazprombank decided to refinance UVZ’s debts on 9 June.

Now Alfa-Bank denies it ever filed a bankruptcy suit against UVZ.  But a Minpromtorg official told RBK that the bank and tank maker reached “certain agreements,” and the former will soon lift its case against the latter.

According to RBK, UVZ reported record losses in 2015, mainly due to reduced sales of railcars and higher interest rates.  The corporation indicated that 58 percent of earnings came from military sales and 15 percent from civilian sales, with the balance from freight handling operations.

UVZ Deputy General Director Aleksey Zharich said the state cut the advance payment for its GOZ deliveries, forcing the company to turn to the banks.  It also needed to import equipment which doubled in price thanks to the weak ruble.

Overall, the Minpromtorg official said, “Indicators like these [for UVZ] haven’t been seen since the 1990s, the economic crisis has brought a fall in the volume of rail transport.”  But UVZ is hopeful for improved results in 2016.

The New York Times covered UVZ’s situation in February when it reported that the plant’s railcar workers had their wages cut by one-third while its military side was still “humming” on full pay.  One employee said then that workers on the civilian side had been showing up, getting paid, but actually doing little work for a year.  In June, RBK reported that UVZ furloughed 3,000 workers from railcar production.

What does UVZ’s situation mean for Russian defense?

In the short run, it means the T-14 Armata tank is likely to come out of UVZ slowly.  UVZ sent 20 tanks to the army for “troop testing” in the spring.  General Director Oleg Siyenko said in June that UVZ will deliver 100 tanks to the MOD in 2017 and 2018.  That’s a far cry from the 2,300 Armata tanks expected under GPV 2011-2020.

T-14 Armata

T-14 Armata

Meanwhile, Siyenko has been asking the Russian government for much larger loan guarantees – 60 billion rubles ($940 million) – to repay bank credits coming due in 2017 and 2018, according to RBK.  Some portion of this may be needed to retool the lines for serial Armata production.

It’s entirely possible UVZ might require a full-scale Kremlin-ordered bailout to be in position to produce Armata tanks by the hundreds.

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