Yaohua Glass

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	26632
Company name	Yaohua Group
Country	China
Sector	Nonmetallic Mineral Product Manufacturing
Environmental category	B
Department	Global Manufacturing & Services
Status	Pending Signing

Date SPI disclosed	April 10, 2008
Projected board date	May 15, 2008
Previous Events	Approved: November 19, 2008

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

Overview

Sponsor/Cost/Location

Development Impact

Contacts

Attachments

Project description

The project is to privatize and re-establish the financial viability of Ching Yaohua Glass Group Corporation (Yaohua) headquartered in QinhuangDao (QHD), Hebei province, North-East of China - and Qinhuangdao Beifang Glass Group Co.,Ltd. (Beifang), Yaohua's sister glass company located in the same city. Yaohua has also operations in Shenyang, capital city of Liaoning province. This privatization involves:

- the closing down, due to environment concerns, of six old and polluting float glass lines located in an urban area of the city of QHD and rebuilding in an industrial zone located in the city suburbs, 8 modern and more energy efficient lines; and
- a spin-off of non-glass activities and the consolidation of all the float glass operations of the two companies;
- a staff retrenchment program accompanied by an adequate compensation package; and
- strengthening the balance sheets of Yaohua and Beifang.

NOTE: Yaohua refers to the China Yaohua Glass Group Corporation that has fulfilled the strategic withdrawal from the domestic listed vehicle.

Anticipated development impact of the project

The project’s significant development impact includes:

- Promoting the privatization of non-performing SOEs, in line with China Government policy:

In addition, the government is encouraging non-strategic SOEs (such as Yaohua and Beifang) to be transformed into viable private companies so that they become industry leaders and more efficient in their operations. Because of the increased capacity of the combined operations of the two privatized companies, a labor requirement of 6,800 employees is anticipated, which is slightly more than are currently employed in the existing glass lines.

- Supporting the modernization of the sector and the upgrading of environmental standards:

The project will upgrade and modernize the company’s production facilities with an increased focus on higher value-added products and energy efficiency production process.
- Improving the environment by closing down old plants in urban areas:

The project is consistent with the China Government’s efforts to relocate polluting industrial companies from densely populated urban areas.

IFC's expected development contribution

IFC role would include supporting the government’s efforts to privatize and turn around Yaohua and Beifang and, as a result, assist Hony in transforming the merged company into one of the industry leaders in China. Also, IFC will provide not readily available long-term financing and support the company’s efforts to strengthen its balance sheet and better weather any cyclical downturns in the future. Additionally, IFC will be able to leverage its experience and policies to ensure that the staff retrenchment plan and associated compensation package is designed and implemented in a fair and transparent manner. IFC will also work with Hony to introduce international standards and practices in areas such as corporate governance, energy efficiency and environmental management. By closing down old plants in urban areas, the Project will have an immediate positive impact on the environment.

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 of this proposed investment included:

- a review of technical documentation and discussions with management regarding the environmental, health, safety and social performance of the Yaohua and Beifang Groups;
- a physical inspection of existing float glass production lines operated by the two groups in the cities of Qinhuangdao and Shenyang;
- a review of the designs of the proposed new float glass production lines in Qinhuangdao;
- discussions with the management of the Qinhuangdao Northern Industrial Area regarding the acquisition of land on which the project’s new float glass production lines will be constructed; and
- the engagement of a third party consultant to review the retrenchment and re-deployment of both Group’s employees as a result of the proposed privatization.

IFC has determined that the project company will, subject to the fulfillment of commitments made by the company in its Action Plan, manage environmental, health, safety and social risk in a manner consistent with the requirements of IFC's Social and Environmental Performance Standards. A complete review of IFC's environmental and social due diligence of the project, inclusive of the Action Plan to which the company has committed, can be found in the Environmental and Social Review Summary.

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