Andrade G. SA II

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	26162
Company name	Andrade Gutierrez S.A.
Country	Brazil
Sector	Collective Investment Vehicles
Environmental category	B
Department	Infrastructure
Status	Pending Disbursement

Date SPI disclosed	November 19, 2007
Projected board date	December 20, 2007
Previous Events	Signed: February 20, 2008 Approved: February 11, 2008

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

Overview

Sponsor/Cost/Location

Development Impact

Contacts

Attachments

Project description

The proposed IFC financing involves a $50 million corporate loan to Andrade Gutierrez S.A. (the company), the holding company of the Andrade Gutierrez Group (the AG Group), a major player in Brazil’s infrastructure sector and an emerging regional player in Latin America and the Caribbean.

IFC’s financing is expected to:

- provide the company with a corporate public-private partnership (PPP) development facility to enable the AG Group to evaluate, pursue and invest in more complex, resource-consuming projects under PPP and traditional concession structures, and
- help improve the liquidity of the company’s construction subsidiary and extend the maturity profile of its existing financial debt.

Project sponsor and major shareholders of project company

The AG Group was founded in 1948, and today, it is one of the largest private groups in Latin America and is comprised of direct and indirect sub holding companies that operate in:

- heavy construction and engineering services (Construtora Andrade Gutierrez S.A., or CAG);
- infrastructure service concessions (Andrade Gutierrez Concessões S.A., or AGC); and
- telecommunications (AG Telecom).

Construction and Engineering Services:

CAG carries out the AG Group’s construction activities in Brazil as well as in other markets in LAC with offices in Argentina, Chile, Peru, Ecuador, Venezuela, Colombia, Mexico and the Dominican Republic. CAG also owns and controls Zagope Construções e Engenharia, a Portuguese construction and engineering company with operations in Europe, Africa and the Middle East.

Infrastructure Service Concessions:

AGC’s existing portfolio includes investments in:

- Companhia de Concessões Rodoviárias (CCR) which operates six private toll road concessions in southeast Brazil and has been awarded the concession to operate Line 4 of the São Paulo metro system;
- Companhia de Saneamento do Paraná (Sanepar), the partially privatized water and sanitation concessionaire in the State of Parana in Brazil;
- Light S.A., the power distribution utility for the municipal area of Rio de Janeiro;
- Water Port S.A., an entity which provides water and sanitation services to Companhia Docas do Estado de São Paulo (CODESP) in the Port of Santos;
- Corporación Quiport S.A. which holds a 35-year concession to manage the existing Quito airport and to build, operate and transfer the new Quito international airport in Ecuador; and
- Companhia Operadora de Rodovias, a consortium which provides engineering and other technical services to certain toll roads owned and operated by CCR.

Telecommunications:

AG Telecom holds a minority interest stake in Telemar Participações S.A. which indirectly controls Telemar, the largest telecommunications operator in Brazil, which in turn owns Oi, a major Brazilian cellular service provider and Contax, the largest call center in Brazil.

The company’s shareholders include the Andrade and Gutierrez families which hold the shares through the following investment vehicles, each of whom holds an equal one-third stake of the company: Administradora Sant’ana Ltda., Administradora São Miguel Ltda., and Administradora Santo Estevão S.A. A small number of shares, representing less than 1% of the company’s share capital, are also held by members of the company’s Board of Directors.

IFC extended a $60 million financing package to the company in 2003 (project 11489) and has also held an equity investment in AGC since 2002 (project 10491).

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

IFC’s proposed $50 million will be comprised of a $25 million “A” Loan and a $25 million standby facility to:

- provide the company with a corporate PPP development facility to enable the Group to evaluate, pursue and invest in more complex, resource-consuming projects under PPP and traditional concession structures, most probably through AGC, and
- help improve the liquidity of CAG and extend the maturity profile of its existing financial debt. IFC’s loan proceeds will not be used to support AG Telecom’s investments.

Location of project and description of site

The company is headquartered in Belo Horizonte, Brazil. IFC’s proposed investment will support future, but as yet, undefined infrastructure investment activities by the company and its subsidiaries and affiliates. The majority of the AG Group’s PPP and infrastructure concession investments are expected to be in Brazil and in other markets in Latin America and the Caribbean.

Anticipated development impact of the project

As noted above, the AG Group has equity shareholding in several concession companies which generate high developmental impact and economic benefit to local populations, including:

- CCR which operates approximately 1,452 km of highways in Brazil located in key transportation corridors in the southeast region of the country;
- Light which serves 75% of the electricity distribution market in Rio de Janeiro by supplying 18.2 GWh to 3.8 million consumers;
- Sanepar which serves 8.3 million people with treated water and 4.1 million people with sewage facilities in the state of Parana; and
- Quiport in Ecuador that transports approximately 3.8 million passengers and handles 139,000 ton cargo per year.

The AG Group intends to expand its operations through the acquisition of existing infrastructure service concessions from other private sector investors as well as through the awarding of new infrastructure concessions and PPP contracts tendered by government authorities. The AG Group is currently considering investments across various infrastructure sectors, including airport operations, power generation and distribution, water and sanitation, port operations and transportation and logistics, and such investments would be expected to generate similarly high developmental benefits to the populations served.

Future infrastructure investments of the AG Group are expected to generate additional development impacts including:

- Higher economic growth stemming from the removal of critical infrastructure bottlenecks;
- Increased employment and job growth attributable to additional jobs for construction laborers and subcontractors; additional employment by equipment and construction material suppliers; and new jobs created by other businesses linked to and/or located near each of the project sites;
- Greater private sector investment and risk sharing under PPP structures; and
- Higher fiscal transfers to government authorities through taxes and concession payments.

IFC's expected development contribution

IFC’s repeat investment will help the AG Group to pursue more complex PPP projects which have extended development periods and can take a number of years to reach financial and operational maturity. IFC’s financing will provide the company with competitive, very long-term corporate financing, not available in the corporate lending market in Brazil, to support the Group’s strategy to develop long-gestation infrastructure projects that require large upfront investments, prolonged market development periods, and extended payback periods through tariffs.

Environmental and social issues - Category B

The proposed corporate investment in the company is a Category B project 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. Issues for this repeat investment are essentially the same as those identified for IFC’s initial investment with the company (project 11489) and IFC’s equity investment in AGC (project 10491), and include:

- environmental and social management systems;
- employee health and safety performance and programs; and
- community relations and development programs.

IFC’s ongoing review and supervision of the existing investment in the company since 2003 has shown that the company carries out its infrastructure activities in substantial compliance with its environmental, health and safety, and social obligations under Brazilian and other relevant national laws, as well as the applicable IFC policies and guidelines. IFC’s current Environmental and Social Risk Rating (ESRR) for the company (project 11489) is B – 2 – Average, and for AGC (project 10491) the current Environmental and Social Risk Rating (ESRR) is B – 1– Good.

In its capacity as contractor or concessionaire, the Group may become involved in specific sub-investments which are Category A projects. In such cases, the Group will provide evidence to the IFC that such projects are executed and operated in accordance with IFC’s Performance Standards and World Bank/IFC environmental, health and safety guidelines as applicable to Category A projects.

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