SEF Azel

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	25898
Company name	Azerbaijan Electronics CJSC
Country	Azerbaijan
Sector	Professional, Scientific and Technical Services
Environmental category	B
Department	Global Manufacturing & Services
Status	Active

Date SPI disclosed	May 8, 2007
Projected board date	June 15, 2007
Date revised SPI disclosed	May 11, 2007
Previous Events	Invested: November 8, 2007 Signed: August 13, 2007 Approved: June 29, 2007

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

Overview

Sponsor/Cost/Location

Development Impact

Contacts

Attachments

Project description

Azerbaijan Electronics (Azel or the company), a joint-stock company owned by two systems integration engineers, is one of the most successful computer and office equipment suppliers and systems integrators in Azerbaijan. The company’s main clientele is in the corporate sector and its main lines of business, all of which are related to the procurement, supply and maintenance of computers and office equipment, include:

- systems integration;
- retail;
- post-sale service;
- software development; and
- computer assembling.

The project is to secure the necessary basic physical infrastructure for the company to develop and grow in a conducive business environment by way of the following main project components:

- purchase of 1,300m2 of new office space, currently under development, in the center of Baku; and
- expansion of the company’s computer/office equipment retail network to four stores by purchasing two new locations of 150m2 each.

Total project cost is expected to be $5.1 million, and IFC has been requested to provide an A Loan of $2.5 million, with the balance to be financed by new equity and internal resources.

Project sponsor and major shareholders of project company

Azel has two shareholders: Igor Yakovenko (70%) and Emin Guliyev (30%) who have good reputation in the business community. The two sponsors collectively own 25% of Unibank, in which IFC has a $6.5 million investment (“A” Loan and trade facility). Unibank is one of the leading banks in Azerbaijan.

Other investors in Unibank include EBRD (15%), DEG (8%) and other local investors. In addition to the company and Unibank, the two sponsors jointly own several other businesses, including DiVi, a distributor of computer equipment, and a Dubai based company, Stell Technology, which supplies the Georgian and Central Asian markets.

Mr. Igor Yakovenko, 45, is the founder of Azel and the main driving force behind the company. He has a post graduate degree from Azerbaijan Oil Academy (AOA) in systems integration. Mr. Yakovenko has a lengthy track record as an entrepreneur in systems integration & equipment supply, as well as other IT-related activities. He won the “Best Businessman” award in the IT sector in 1999. Azel has also been the winner of various national awards.

Mr. Emin Guliyev, 38, is the Vice President and co-founder of Azel. He is actively engaged in the daily operations of Azel, as well as spearheading the business of the sister company DiVi, which is one of the main distributors through which Azel distributes its products and services to Central Asia and Caucasus. Mr. Guliyev graduated from Azerbaijan Oil Academy majoring in system integration in 1992. He has also completed various courses in HP Academy.

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

The proposed investment is a $2.5 million IFC Loan, which will account for 49% of the $5.1 million project cost, with the balance coming from the company’s own resources. The project cost, the initial estimate for which is provided immediately below, and financial plan will be reviewed more closely during appraisal, upon which IFC and the sponsor will determine whether part of the $2.5 million investment should be in the form of equity.

- Purchase of Office & Stores: $2,300,000 (45%)
- Renovation, Furniture & Equipment: $800,000 (16%)
- Long-Term Working Capital: $2,000,000 (39%)
- Total: $5,100,000 (100%)

Location of project and description of site

The main aspect of the project entails the purchase of the 1,300 m2 new office space of the company that makes up the second floor of a brand new building that is currently under construction near the center of Baku. The building will be one of the modern ones in the city, and will have convenient access to the main streets of the city. The company currently continues its headquarter operations from an old, run down, Soviet-era building that can no longer match the company’s needs. Both of the company’s two retail stores are located in the center of the City of Baku, near most of the economic activity. Specific sites for the purchase of additional two retail stores are also expected to center around heavier pedestrian traffic in urban areas.

Anticipated development impact of the project

The project will have the following key development impact for the following stakeholders:

- Consumers:

Through improved retail network, the project will bring closer and better service to the customers.

- Employees:

The project will significantly improve the working conditions of existing staff who are currently working in an old run-down leased Soviet-era building; and will help the company create about 40-50 new permanent jobs in the next several years.

- People:

The project will help a local company which supplies small businesses and home users with lower cost locally assembled computers. This will stimulate further computer penetration and lead to higher education, employment opportunities, economic growth and income generation.

- Demonstration effect:

Azeri enterprise sector is in its early stages of development and most companies have significant room to improve their corporate governance regimes. The project will help Azel upgrade its business practices, by, among other things, adopting international accounting standards. The adoption of more rigorous business standards will provide an example to other companies in the sector.

- Corporate Governance:

Azel was selected as a pilot of IFC’s corporate governance program. IFC will assist the company become more transparent and advise on improvements in corporate governance thereby assisting it with its goal of raising finance in international markets.

The project will help establish a secure foundation of basic infrastructure to permit the company to grow and develop, including in neighboring markets.

IFC's expected development contribution

IFC’s role is to:

- provide locally unavailable affordable long-term funding to a successful and growing company;
- stimulate improvement in corporate governance, overall management and accounting practices;
- introduce environmental and social and insurance standards.

These are expected to have a demonstration effect on other local enterprises. With the project, IFC will be supporting one of the most promising local entrepreneurial teams to have emerged so far in Azerbaijan.

Environmental and social issues - Category B

(This investment was initially categorized as C. However, following an on-site visit by IFC’s Environmental and Social Development Department specialist, the environmental category has been assigned environmental category B.)

This is a Category B project according to IFC’s Procedure for Environmental and Social Review of Projects 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. Environmental, social, health and safety issues associated with this project include:

- Storage and handling of products;
- Solid and hazardous waste management and disposal;
- Housekeeping and Occupational health and safety;
- Sustainable community relations and initiatives; and
- Labor and working conditions.

Azel’s existing assets are located in the city of Baku. No land acquisition is planned as space is being bought in existing buildings for new retail stores and in a building currently under construction for the Company’s new headquarters. The latter is being built following voluntary sale of existing old buildings, demolished as part of the development of the area into a new residential and office zone.

Environmental and social review of the project included evaluation of environmental and social information presented by Azel, visits to the retails stores in Baku, and meetings with HR and Sales managers. Please refer to the IFC Environmental and Social Review Summary available at the World Bank Infoshop for additional information. Project information will also be obtainable at Azel‘s web site (www.azel.net) and posted in each of the Azel Stores.

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