Meghmani Finechem Limited

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	25463
Company name	Meghmani Finechem Limited
Country	India
Sector	Chemicals
Environmental category	B
Department	Oil, Gas, Mining And Chemicals
Status	Active

Date SPI disclosed	December 4, 2007
Projected board date	January 8, 2008
Previous Events	Invested: March 31, 2008 Signed: March 13, 2008 Approved: February 28, 2008

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

Overview

Sponsor/Cost/Location

Development Impact

Contacts

Attachments

Project description

Meghmani Organics Limited (MOL or the sponsor), a manufacturer of specialty chemicals in Gujarat, India has set up a new company - Meghmani Finechem Limited (MFL or the company), which will construct and operate a 110,000 tons per annum (tpa) chlor-alkali plant together with a 40MW captive power plant, both at a greenfield site at Dahej, Gujarat. The proposed project supports the efforts of MOL to improve its competitiveness by partial backward integration of its operations while using environment-friendly membrane cell technology. The chlor-alkali plant is expected to become operational in CY2009.

MOL views MFL as the vehicle for the future investments and growth which will build on MOL’s technical expertise and existing operations. After the project, which represents Phase I, is complete, the shareholders hope to move into Phase II, which would focus on downstream chlorine derivatives such as PVC, ECH, mono-chloro acetic acid, cyanuric chloride, aluminum chloride, calcium chloride, methyl chloride, hydrogen peroxide and others.

Project sponsor and major shareholders of project company

MOL, the project sponsor (initially named Gujarat Industries Limited) was established in 1986 by Mr. Jayanti Patel, Mr. Ashish Soparkar, Mr. Natu Patel, Mr. Ramesh Patel and Mr. Anand Patel (known as the Promoters). MOL established its first manufacturing facility for pigments at Vatva in Gujarat. Subsequently, three other plants were also established in Gujarat: in 1995 an agrochemical plant in Chharodi, in 1998 a pigment plant in Panoli, and in 2003 an agrochemical plant in Ankleshwar. MOL’s products are divided into two segments, each accounting for about half of its sales:

- agro-chemicals and pesticides manufactured in the Ankleshwar and Chharodi plants and
- color pigments, manufactured in Vatva and Panoli plants. For the fiscal year ended March 31, 2007, MOL reported sales of $108 million and net income of about $9 million.

MOL is 48.8% owned by the controlling shareholders and their families. The rest is owned by the public and by private equity investors through Singapore Depositary Shares (30.1%) and through direct listing in Bombay Stock Exchange (21.1%). MOL first became a publicly listed company on the Singapore Stock Exchange in 2004 and was listed on the NSE/BSE in June 2007.

Total project cost and amount and nature of IFC's investment

The project, which is expected to cost about $125 million, will be financed with about $40-42 million in equity and $82-85 million in long-term debt. IFC is to provide financing of up to $30 million, including about $8-10 million in equity and up to $20 million in debt.

Location of project and description of site

MFL will construct a 110,000 tpa chlor-alkali plant and a 40 MWH captive power plant at a Greenfield site at Dahej, Gujarat. The success of the chlor-alkali plant will largely depend on the economic availability of salt and power. Dahej is one of the largest producers of salt in Gujarat. Coal, the key source of fuel for the captive power plant, can be easily imported through Dahej port.

Anticipated development impact of the project

The project will help establish international standards of environmental and social performance for MFL’s facilities using the environmentally friendly membrane cells technology. The benefits can be expected to have a positive demonstration effect on its competitors, thus encouraging other Indian chemical companies to improve competitiveness in the global markets and at the same time adopt the modern technology and environment-friendly operating standards. In addition, the project is expected to have the following measurable developmental benefits:

- Once operational, the project is expected to create about 500 new jobs on permanent basis which would be available for locals. Indicator: number of jobs at the plant starting at 2010.

- During construction period, the project is expected to create 200 to 1000 temporary construction jobs depending on the construction phase. Indicator: number of construction workers employed 2009.

- The project generate downstream economic impact in the local economy as the company will planning to source its main feedstock (raw salt) from local producers, primarily SMEs, in Dahej area. Indicator: value of raw materials sourced from local producers.

IFC's expected development contribution

Fit With World Bank Group Strategy:

The World Bank Group Country Assistance Strategy for India focuses on improving government effectiveness; investing in people and empowering communities; and promoting private sector-led growth through provision of adequate infrastructure, accelerating rural growth, and fostering a competitive economy. In its direct support to firms, IFC’s strategy it so invest in companies which are:

- developing new products and markets;
- restructuring and modernizing to become internationally competitive; and
- expanding and moving towards a regional or global presence.

In doing so IFC will focus on providing firms with long-term debt and equity which may not be available from domestic financial markets; and on adding value in the areas of global best practices, creating international partnerships, entering new markets, environmental and social sustainability and corporate governance. The proposed project is therefore consistent with the Bank Group’s strategy in India to support companies striving for establishing strong regional presence and moving towards environmentally friendly technologies.

IFC Role and Additionality:

IFC Role includes:

Supporting the growth of a local company: By investing in the project, IFC will be supporting a mid-tier Indian company to realize its growth potential and become more competitive in the global and regional markets, especially in the context of greater economic liberalization being pursued by the government of India.

Support strengthening the Environment, Health, Social and Safety practices: Based on its experience from several chlor-alkali related transactions, IFC is uniquely positioned to help MFL to develop the environment, health, social and safety management systems and practices at the new plant.

Long-term funding: IFC will be providing longer term financing (about 10 years) to MFL, which is not readily available locally for the project in order to match the debt profile and MFL’s capitalization with the company’s growth plans. Long tenor debt is also important for the company to be competitive in this capital intensive and cyclical industry.

IFC Additionality:

The project with a significant investment of $125 million will double the size of the sponsor’s assets. The project will be financed on a stand alone basis and therefore the amount and maturity of the financing as well as IFC’s equity contribution and stamp of approval will be crucial in helping the company to raise the required financing package. Going forward, implementation of Phase II will require further investments and credibility for MFL. IFC’s global presence and its extensive experience in the chemicals industry worldwide, including participation in several chlor-alkali projects, will guide the company through challenges and opportunities as it grows and expands in this competitive sector.

Environmental and social issues - Category B

This is a Category B project according to IFC’s Environmental and Social Review procedures because a limited number of specific environmental and social impacts may result which can be avoided or mitigated by adhering to generally recognized performance standards, guidelines or design criteria. Mitigation measures for the potential environmental and social impacts are identified and incorporated in the Environmental and Social Action Plan (ESAP).

IFC PROJECTS