Nature Flooring

Summary of Proposed Investment

This Summary of Proposed Investment is prepared and distributed to the public in advance of the IFC Board of Directors’ consideration of the proposed transaction. Its purpose is to enhance the transparency of IFC’s activities, and this document should not be construed as presuming the outcome of the Board decision. Board dates are estimates only.

Project number	25748
Company name	China Flooring Holding Company Limited
Country	China
Sector	Agriculture and Forestry
Environmental category	B
Department	Global Manufacturing & Services
Status	Active

Date SPI disclosed	March 20, 2008
Projected board date	April 30, 2008
Previous Events	Invested: May 29, 2008 Signed: May 21, 2008 Approved: May 16, 2008

View Environmental & Social Review Summary (ESRS), click here

Overview

Sponsor/Cost/Location

Development Impact

Contacts

Attachments

Project description

The Nature group of companies comprises China Flooring Holding Co., Ltd, (Nature or the company) an offshore holding company (being incorporated) and its operating companies located in China. Having established itself as the leading solid wood flooring maker in the Chinese domestic market Nature would like to consolidate its position by:

- expanding and modernizing its manufacturing capacity particularly in the laminate and engineered flooring segments;
- securing its fiber supply by investing in own plantations; and
- improving its overall competitiveness through additional investments in brand marketing and distribution.

The company’s investment program which is expected to be implemented over the 2007-2010 period includes expansion of production facilities; establishment of new production facilities for the production of engineered and laminate flooring; backward integration into the production of veneers and core; production of Medium Density Fiberboard, development of plantations in China and continued investment in its brands and distribution channels. By the end of 2008 Nature will own and operate eight plants located in the provinces of Guangdong, Heilongjiang, Jiangsu and Jiangxi in China.

Anticipated development impact of the project

As one of China’s leading manufacturers in the wood flooring segment this project will have the following development impacts.

- Encouraging shift to more environmentally friendly wood flooring products:

The strategy of the company is to grow into a world class flooring company with more diversified product portfolio and to move away from solid hard wood flooring to more environmentally friendly laminated and engineered flooring products.

- Improving the sustainability of forest and plantation management and supply chain practices:

Nature’s commitments to IFC and the China Forest Trade Network on wood sourcing will make Nature one of the first in China to adopt such strict standards and will establish it as a leader on sustainable management practices.

- Climate change challenge:

Adoption of sustainable forest management by Nature brings several benefits, including reduced climate change impact - but also biodiversity conservation, social inclusion, watershed protection, reduced erosion etc. The company’s FSC commitment for its plantation, plus sourcing targets for wood supply all contribute toward SFM and the range of sustainability benefits that it brings. In the plantations alone it is estimated that the project will have a positive impact of 350,000 tons/yr.

- Supporting the development of underdeveloped areas in China:

The project includes two sub-projects in frontier areas in China. One is in Heilongjiang province of North-East China, another is in ShangRao of Jiangxi Province of Central China. These two areas are considered underdeveloped regions and the employment that will be generated by the plantations and the manufacturing units is significant and contribute the fiscal revenues.

IFC's expected development contribution

IFC’s expected development contribution include:

- offering long-term financing (Access to Finance);
- upgrading the company’s governance practices in preparation for an IPO;
- providing strategic support and advice to the company in environmental and social area;
- sending a strong signal to the market of the private sector in raising finance to develop sustainable industries;
- sharing IFC’s experience with the company about making investment in underdeveloped areas in China.

Environmental and social issues - Category B

This is a category B project according to IFC’s Procedure for Environmental and Social Review of Projects. IFC’s appraisal consists of:

- a review with Nature management regarding the details of the new expansion, raw materials sourcing;
- discussions with Nature management about the environmental risk related to the wood certification;
- site visits by Social and Environmental Specialists to the new plants at Shunde, Kunshan and Hailin;
- discussion with Nature management about he action plan for the company.

The complete Environmental and Social Review Summary (ESRS), including specific environmental, social and community engagement commitments made by Nature can be located in the corresponding ESRS.

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