Russia says a third of arms firms near bankruptcy

By Guy Faulconbridge

MOSCOW, Feb 25 (Reuters) - One third of Russia's weapons makers are on the verge of bankruptcy and the industry is seeking Western loans because domestic credit is impossibly expensive, a state corporation chief said on Wednesday.

"The financial and economic condition of only 36 percent of strategic organisations in the military industrial complex can be seen as stable," Sergei Chemezov, head of the influential Russian Technologies holding company, told lawmakers.

"About 30 percent of organisations (in the military industrial sector) have signs of bankruptcy," he said, adding that about half of the enterprises in the ammunition and explosives sector were "potentially bankrupt."

"Unfortunately over the past four months the situation has only become worse," he said.

Chemezov rose to become one of Russia's most powerful business figures under former President Vladimir Putin, building a state-owned empire that includes the world's biggest titanium maker, Russia's biggest carmaker and one of the world's biggest arms exporters.

But industrial production is tumbling and the economy is set to contract this year for the first time since 1998, when Russia defaulted on domestic debt and let the rouble tumble against the dollar. The crisis has underlined Russia's excessive reliance on the export of raw materials such as oil.

Russian arms exports hit a record $8.35 billion in 2008, though industry officials have long warned that major investment is needed in research and productive capacity.

Some major clients, such as India, have complained about late deliveries on major orders while Algeria last year returned 15 MIG fighters saying they contained some substandard parts.