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| Summary of Project Information (SPI) |
| This Summary of Project Information 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. |
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| Project number | 21225 |
| Project name | Dewan SME Resource |
| Country | Pakistan |
| Sector | Collective Investment Vehicles |
| Department | Global Manufacturing & Services |
| Company name | Dewan Investment and Finance Company |
| Environmental category | FI-2 |
| Date SPI disclosed | October 29, 2003 |
| Projected board date | December 15, 2003 |
| Status | Pending Disbursement |
| Previous Events | Signed: June 28, 2004
Approved: March 31, 2004 |
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| Description of company and purpose of project |
The project consists of an IFC equity investment of up to $3.0 million to help establish the Dewan SME Resource (the Resource or the company) in Pakistan. The Resource will be established as a new Non Banking Finance Company (NBFC) with the purpose of providing loans, quasi-equity, equity financing, discounting of receivables and technical support to small and medium enterprises (SMEs), which are or have the potential of becoming suppliers to the Dewan Group of Companies. The Resource may also invest outside this focus by financing other SMEs in Pakistan.
The project has a two fold objective:
- to develop SMEs working with Dewan Group primarily by alleviating their financial constraints due to insufficient financing and lack of business expertise, and
- to maximize returns to its investors.
As the project sponsor, Dewan Group, will provide the market to most of the investee SMEs, the project risk is much less than for a conventional private equity or SME financing fund. |
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| Project sponsor and major shareholders of project company |
The project is sponsored by Dewan Mushtaq Group, which is one of Pakistan's biggest private industrial conglomerates with annual turnover of $417 million and assets of $480 million in FY 03. The Group is a major local textile producer making a full range of textiles, including cotton and man-made fibres from three listed companies, Dewan Textile Mills, Dewan Khalid Textile Mills and Dewan Mushtaq Textile Mills, all established in the 1970's. In 1982, the Group established Dewan Sugar Mills, one of the largest sugar refiners in Pakistan, with annual capacity of 3.0 million tons. In 2000, the Group started production at Dewan Farooque Motors, an auto assembly plant with capacity of 10,000 units/yr, producing passenger cars and light trucks under license from Hyundai Motors and Kia Motors. Together, Group companies employ more than 10,600 people. In addition to its business activities, the Group has a wide reaching program of community outreach including: 40 mobile dispensaries providing medical services to remote rural areas; coronary care, urology care and children’s orthopedic facilities provided through hospitals in Karachi, Hyderabad and Sindh province; funding of road construction, drinking water infrastructure and bio-gas energy facilities for rural villages; schools for both employees and local villagers at all Group facilities; public facilities for religious needs, social activities and sports events; support to rural education and charities; and operation of relief camps for those displaced by drought, floods and the Afghan war.
IFC in FY 2003 financed Dewan Textiles by providing an A Loan of $30 million, a Convertible Loan of $4 million and invested $1.0 million in company’s preferred shares.
The proposed Dewan SME Resource is expected to be established with a share capital of $10 million with the following shareholding structure:
Under the Common shares, the Dewan Group has $3 million at 30%.
Under the Preferred Shares, the IFC has $3 million at 30%,
Other financial institutions * have $4 million at 40%.
The total of all of these Preferred Shares are $7 million.
The grand total of all these shares is $10 million.
* Other Financial Institutions are expected to include Pak Saudi Investment Company and Asian Development Bank. Both institutions have expressed an interest to join the project. |
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| Total project cost and proposed IFC investment |
The total project cost is estimated at $10 million
The proposed IFC investment is $3 million. IFC is expected to participate in the project by subscribing to convertible preference shares. |
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| Location of project and description of site |
| The Dewan SME Resource is expected to be located in Karachi, Pakistan. Initially, only one main office is considered, but with business expansion, the Resource may consider opening operational offices in the Pakistan cities of Lahore and Islamabad. The Resources is expected to provide financing to SMEs operating all over Pakistan. |
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| Project Development Impact and IFC's Role |
SMEs constitute over 90% of businesses (by number) in Pakistan, all of which function within the private sector. SMEs, in particular, play a key role in the manufacturing sector; providing 80% of the total employment, contributing over 30% to GDP, and generating one-fourth of the sector’s export earnings. The proposed project is expected to have a substantial development impact. Main impediments to the development of the Pakistani SME sector include lack of access to equity capital, limited availability of long-term lending, and business managers’ insufficient business expertise and technical training. The project aims to alleviate these constraints by providing a circular relationship between a major corporate entity and SMEs associated with it. The proposed Resource will provide financing to SMEs supplemented by appropriate technical assistance. The project will also assist in the development of the private SME sector by supporting viable SME equity and quasi-equity investments. IFC is expected to play a monitoring and quality control role over the business decisions of the Resource.
IFC's primary role in this project is to promote corporate citizenship. IFC will have an important role in supporting the growth of the SMEs by providing the needed finance, while at the same time acting as a catalyst to ensure that a large corporate entity in the country remains committed to strengthening its linkages with the SME sector.
Amongst emerging economies, Pakistan has a relatively well-developed corporate sector and manufacturing base. IFC's role in this project is expected to have a strong demonstration effect in promoting corporate citizenship initiatives. If successful, this project could have considerable replication possibilities as many large organizations working in Pakistan and other developing environments, many of them IFC clients, have similar needs. |
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| Environmental and social issues - Category FI-2 |
This is a Category FI Type 2 project. Dewan must establish an environmental management system to ensure that sub-projects comply with host country environmental requirements and, if appropriate, IFC policies and guidelines.
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| To contact the project company, please write to: |
Mr. Ghazanfar Ali Khan, Chief Financial Officer
Dewan Mushtaq Group
Dewan House, 46, Nazim uddin Road F-7/4
Islamabad, Pakistan
Phone: 92-51-111-313-786
Fax: 92-51-227-6535 |
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