DSCL Bharuch Expansion

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	27161
Company name	DCM Shriram Consolidated Limited
Country	India
Sector	Chemicals
Environmental category	B
Department	Oil, Gas, Mining And Chemicals
Status	Pending Signing

Date SPI disclosed	June 20, 2008
Projected board date	July 31, 2008
Previous Events	Approved: November 4, 2008

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

Overview

Sponsor/Cost/Location

Development Impact

Contacts

Attachments

Project description

DSCL is a mid-tier Indian company with an annual FY07 turnover of about $620 million. For 9mFY08, its four major businesses (chlor-alkali, PVC, urea and sugar) collectively represented 73% of sales and nearly 100% of pre-tax earnings. DSCL also has smaller businesses to complement its main products, which include marketing of agri-inputs, value-added PVC products and hybrid seeds. DSCL’s chemicals facilities include a large integrated unit in Kota, Rajasthan and a stand alone chlor-alkali plant in Bharuch, Gujarat.

The proposed transaction is for an IFC exposure of up to $54 million, primarily for DSCL’s ongoing expansion of its chlor-alkali capacity at Bharuch from 200 tonnes per day (tpd) to 435 tpd, modernization projects at its Kota facility and towards financing other normal capital expenditure.

Anticipated development impact of the project

The key development impacts will be:

- Increased Rural Inclusion: With IFC’s support the company intends to develop a systematic community development approach to:

- improve the overall effectiveness of its programs;
- ensure that its rural outreach is efficiently leveraged; and
- provide benefits for the economically underdeveloped areas around DSCL’s sugar mills so far not covered under any programs.

- Increased Competitiveness: Through implementing this project, DSCL’s Bharuch facility would achieve increased output and significantly lower energy costs, making it one of the low cost domestic facilities.

IFC's expected development contribution

With the prior IFC project, DSCL has already achieved a number of important development milestones, such as a complete phasing-out of mercury cell based chlor-alkali production, creation of more than 100 jobs and enhancing its EHS practices. The Company also uses IFC as a sounding board for getting advice on developing new business lines and overseas markets. With the proposed investment, IFC’s key additionalities are expected to be:

- Swaps For Hedging Long Maturity Exposures:

The proposed cross currency swaps to convert IFC’s existing loans and the proposed new loan to DSCL into Indian rupees involve long term exposures and are not available to second-tier companies, such as DSCL, from the domestic market on commercially reasonable terms.

- Customized Long Term Debt Financing:

IFC’s proposed long term debt to DSCL is with a ten year maturity and four years of grace, customized to even out the company’s expected cash flow profile across the years and expected to span one complete chemicals cycle and at least one complete sugar cycle. IFC’s first loan to DSCL was the company’s first loan with a long maturity of ten years, which prompted two other banks to also offer similar maturities to DSCL. However, in the current scenario of tightening in the credit markets and DSCL’s recent profitability, long term debt of this grace period and maturity is not readily available to DSCL from the domestic market.

- Strengthening Community Development Efforts:

DSCL’s facilities are in multiple locations and each facility carries out its own efforts towards development of communities in its vicinity. DSCL now intends to develop a more organized approach to community development, along the lines of what IFC recently helped Cairn Energy develop in India. DSCL has sought IFC’s help firstly, in developing a systematic corporate wide community development effort to maximize its reach and resource utilization and, secondly in developing specific programs for the economically underdeveloped areas where DSCL’s two new sugar mills are located.

IFC’s other key roles are expected to be:
- providing help to DSCL in developing social responsibility reports as a more systematic means of providing information on
DSCL’s initiatives;
- providing technical assistance to DSCL’s rural retail chain in developing commercial opportunities from rural linkages.

Environmental and social issues - Category B

IFC's early review of this investment has identified the following environmental, social, health and safety issues: air emission, wastewater treatment and discharge, solid and hazardous waste management, operation hazard and hazardous material management, employee health and safety, fire protection and emergency response, community health/safety, and community relationship and development.

While all Performance Standards are applicable to this investment, IFC’s environmental and social due diligence indicates that the investment will have impacts that must be managed in a manner consistent with the following Performance Standards:

- PS1: Social and Environmental Assessment and Management Systems
- PS2: Labor and Working Conditions
- PS3: Pollution Prevention and Abatement
- PS4: Community Health, Safety and Security

Based on this early review, it is anticipated that this project will require 30 days disclosure by IFC prior to Board and has been provisionally categorized as B.

For IFC’s existing loan to DSCL’s chemical facility in Kota, the latest environmental and social risk rating (ESRR) is B1-Good.

Further details are provided in the Environmental Review Summary available separately with this document.

IFC PROJECTS