Butec

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	26683
Company name	Butec Holdings
Country	Lebanon
Sector	Construction and Real Estate
Environmental category	B
Department	Global Manufacturing & Services
Status	Pending Disbursement

Date SPI disclosed	April 18, 2008
Projected board date	May 19, 2008
Previous Events	Signed: June 25, 2008 Approved: June 23, 2008

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

Overview

Sponsor/Cost/Location

Development Impact

Contacts

Attachments

Project description

Butec Group Holding S.A.L. (Butec or the company), founded in 1964, is a mid-size family owned Engineering Procurement and Construction (EPC) company based in Beirut, Lebanon, with operations in Lebanon, Algeria, Qatar and Abu Dhabi. Butec focuses primarily on oil & gas, utilities, waste-water management and infrastructure projects, which account for around 90% of its revenues. In its projects, Butec partners with international contractors, such as Vinci, Suez-Degremont and Siemens, where Butec provides general contracting services within the contract structure.

The construction sector is experiencing a significant growth in the Maghreb and GCC countries, driven by high oil prices and public expenditure on infrastructure projects. Butec is taking advantage of these opportunities to expand into Algeria, Qatar and Abu Dhabi, which combined account for more than 65% of Butec’s consolidated revenues. In order to strengthen its balance sheet and support its expansion plan, Butec has requested up to $20 million in IFC quasi-equity financing.

Anticipated development impact of the project

The project will enable a Lebanese construction company with regional expertise to expand to surrounding countries, and will support the development of institutional infrastructure, such as bridges, power and water management facilities in Butec’s target countries. Moreover, through its planned expansion of overseas operations, Butec will earn valuable foreign exchange, and will contribute to tax revenues. The project will allow Butec to continually improve its technical expertise through its international exposure and by working with international partners to the benefit of its clients and markets. The success of this project will encourage other companies to pursue investment opportunities in Algeria as the country’s perceived risk continues to diminish. The project is also expected to create new permanent and temporary jobs in Lebanon, as well as in the target countries where Butec establishes branches and hires local staff. Finally, the project is expected to help improve the company’s corporate governance.

IFC's expected development contribution

IFC’s unique contributions to this project are as follows:

- Sector Advice and Assistance:
Drawing on its global knowledge and experience, IFC has already assisted and advised Butec in updating its management systems and strategic priorities.

- Support Butec in its Expansion Strategy:
IFC will provide long-term equity financing at the holding level to strengthen the company’s balance sheet and help it pursue its expansion strategy. IFC’s financing will complement the short-term project-specific debt funding that Butec’s subsidiaries obtain from local bankers.

- Corporate Governance:
IFC will help the company establish good corporate government principles and practices, which in turn will improve Butec’s operational efficiency and prepare it for a future IPO.

- Political Risk Mitigation:
IFC’s participation will provide additional comfort to Butec to continue expanding into newer territories such as Algeria and other untested North African and Middle Eastern countries.

- Stamp of Approval:

Butec values IFC as an equity partner and believes that IFC’s presence in the company will make it more attractive for investors to participate in a future IPO.

Environmental and social issues - Category B

The key issues associated with this investment are environmental and social assessment and management of project design, execution and control according to the international standards. Labor and working conditions, primarily provisions for occupational health and safety as well as for community, health, safety and security are of major importance. The Environmental and Social Review Summary and the relevant Action Plan describe how these issues will be addressed. Butec has in place certified quality and environmental management systems and is actually able to demonstrate compliance with the highest standards on social, environmental, health and safety management as required and recognized by its certain project partners, clients as well as by IFC. The company is in process of expanding the implementation of similar standards throughout all the projects and countries of activity.

The potential social and environmental impacts are relatively limited in scope and may be readily addressed through mitigation measures. This is therefore a Category B Project.

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