Russian Hotel Investments BV

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

29161

Company name

Russian Hotel Investments BV

Country

Russian Federation

(IDA)

Sector

Construction and Real Estate

Environmental category

Department

Reg Manufact, Agri & Services, EMENA

Status

Pending Disbursement

Date SPI disclosed	January 15, 2010
Projected board date	February 26, 2010
Previous Events	Signed: April 27, 2010 Approved: April 26, 2010

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

Overview

Sponsor/Cost/Location

Development Impact

Contacts

Attachments

Project description

Development of five mid-market greenfield hotel properties in the Russia Federation, at an estimated total cost of EUR98.5 million, to be operated by Accor, in the frontier regions of Kaliningrad and Yaroslavl, and in Samara and Krasnoyarsk (the “Project”).

Project sponsor and major shareholders of project company

The Project Sponsors are Akfen Holding (30% owner of Akfen REIT), the Kayi Group, and Messrs. Orhun Kartal, Coşkun Yilmaz, Tayfun Yurdaer and Uzi Sezer (all Turkish citizens). Messrs. Kartal and Yilmaz are the beneficial owners of the Kayi Group which owns 50% of Kasa Stroy (the General Contractor of the Project). Mesrrs. Yurdaer and Sezer own the balance 50% of Kasa Stroy.

The Borrowers are OOO Samstroykom, OOO YaroslavlHotelinvest, OOO KaliningradInvest, and OOO KrasnoyarskInvest, four onshore companies, owned by Russian Hotel Investments BV (“RHI” or the “Company”) a special purpose vehicle (“SPV”) incorporated in the Netherlands, and owned by Akfen REIT (42.5%) and Kasa Investments BV (42.5%). The balance 15% in the Company will be owned by EBRD and by IFC. Accor will lease the hotels on a long term basis (15+10 years).

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

The total project cost is estimated at Euro 98.5 million.
The proposed IFC financing package includes an A loan of up to Euro27.5 million and an equity investment of up to Euro2.5 million.

Location of project and description of site

The five greenfield hotel properties will be developed in Samara, Kaliningrad, Yaroslavl and Krasnoyarsk as follows:

Key Parameters	Samara	Kaliningrad	Yaroslavl	Krasnoyarsk	Total
Hotel IBIS	207	210	180	150	747
Hotel NOVOTEL				150	150
Total Area (sqm)	9,750	9,836	9,127	15,872	44,585

All four sites are centrally located and land lease agreements have been signed with the local municipalities in Kaliningrad, Yaroslavl and Krasnoyarsk. The land plot in Samara has been bought from a private seller and the construction has already started in 2008, financed by a short-term construction loan from Credit Europe Bank (“CEB”). The other three properties are currently at a design and permitting stage, with construction permits expected by first quarter 2010 for Yaroslavl, and by June 2010 for Kaliningrad and Krasnoyarsk.

Anticipated development impact of the project

The Project is expected to have the following development impacts:

(i) Improve the Supply of Hotel Services: The Project will help meet the growing demand for hotel accommodation in the presently under-served mid-market hotel sector in four regional cities (of which two are in frontier regions) in Russia. The Project is expected to improve the availability and the standard of hotel services to travelers and business communities, thereby contributing to the improvement of the business infrastructure of the country. While the international hotel chain involvement assures guests of an established product and service quality to customers, it will also encourage broad improvements in the standards of existing hotels and the transfer of hotel management expertise to the local staff.

(ii) Private Sector Development: The Project will support the development of a local enterprise by helping it meet its strategic objective. The presence of an Accor Ibis chain will send a positive signal to other foreign hotel investors who are considering investments in Russia, especially at a time when Russia is experiencing an economic crisis. The Project is also expected to have an impact on the upgrade and development of tourism and travel related infrastructure by the local administration, such as water supply and waste water treatment, power, roads, and airports.

(iii) Improved Environmental and Social Standards: IFC's requirement for the Company to implement and maintain high environmental, fire, life safety and social standards, including obtaining comprehensive insurance policies will have a demonstration effect on other firms in the industry.

(iv) Employment and Local Linkages: The Project will help create demand for locally sourced materials, service and labor, both during the construction and operation stages of the hotel properties. The hotel properties are expected to support small and medium sized enterprises, including a wide range of goods and service providers such as produce farmers, food processors, furniture companies, transportation agencies, restaurateurs, and art and crafts manufacturers.

(v) Increase in Domestic Revenue: The Project is expected to contribute to the domestic economy through increased tax revenues.

IFC's expected development contribution

Provision of Long-Term Financing:
IFC will provide and arrange for long term financing in a form that meets the Sponsor's and the Company's needs, and which are not readily available in Russia. The proposed long term loan and equity financing package will help the Company meet its financial needs while reducing its leverage and risk profile. Local and international banks are hesitant to provide term loans in an adverse economic situation which is more pronounced due to the crisis.

Global Business and Sectoral Knowledge:
IFC's global hotel sector expertise will help it advice the Company on development and adoption of formal risk mitigation measures and guidelines on the basis of industry benchmarks, which will be expected to improve the efficiency of the Company going forward.

Environmental & Social Standards and Corporate Governance:
IFC will conduct a thorough environmental and social review ensuring that the Company implements international standards in its environmental, fire and life safety and social practices. In addition, IFC will assist the Company in improving its corporate governance standards. This is expected to raise the Company's profile and make it operationally more efficient.

Stamp of Approval:
IFC's participation through debt and equity financing is expected to enhance the Company's and the Sponsor's profile and hence their ability to attract other strategic investor/s.

Environmental and social issues - Category B

The proposed project is being developed in accordance with internationally well recognized standards by companies committed to establish good environmental and social management systems, implement recognized life and fire safety management systems, follow international labor standards, and avoid any significant pollution. The hotels will also avoid resettlement as all sites are vacant lots and the land was obtained through willing buyer/seller/leaser situations. With only readily mitigated environmental issues the project is being processed as a Category B project.

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