ABH Miratorg

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	27326
Company name	Agri Business Holding Miratorg LLC
Country	Russian Federation
Sector	Agriculture and Forestry
Environmental category	B
Department	Agribusiness
Status	Hold

Date SPI disclosed	May 22, 2009
Projected board date	June 30, 2009

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

Overview

Sponsor/Cost/Location

Development Impact

Contacts

Attachments

Project description

The Miratorg Group (“Miratorg” or the “Group”) is Russia’s leading importer and trader of meat and food products and a major producer of pork and further processed meats. The Group also operates a transport company and three ambient warehouses. The Group is undertaking the last phase of its production expansion program that includes: (i) pork farms and a feed mill in Belgorod; and (ii) a new grain production are in Bryansk region (the “Project”).

Project sponsor and major shareholders of project company

Miratorg was founded and is solely owned by Victor and Alexander Linnik ( the “Sponsors”), who are actively involved in the management of the Group.

ABH Miratorg LLC, is a newly-created holding company that incorporates Miratorg’s grain, feed, pork and cold storage and logistics companies as well as the trading and finance companies currently under Troyen Ltd., another Group holding company. Agromir Ltd., a Cyprus-based company, is 100% owner of ABH Miratorg LLC and directly owns several projects under development and joint ventures. The Group’s organizational strategy is to separate trading from production companies and keep projects in development under Agromir Ltd until they become fully operational before transferring them to ABH Miratorg LLC.

This would be IFC’s third investment in the Group. In 2006, IFC provided a loan of $20 million to Trio Invest LLC to build and operate a deep freeze warehouse and logistics facility in the outskirts of Moscow (IFC/R2006-0029). In 2007 and 2008, IFC approved a ruble-linked loan of $75.8 million, comprising of an A loan of $40 million and a B loan of $35.8 million to Concordia Ltd., a joint venture located in Kaliningrad, Russia, in which Miratorg holds a 40% with Sadia S.A. of Brazil (a long-standing IFC client) holding the remaining 60%. Concordia will initially produce 53,000 mt p.a. of further processed meat products (IFC/R2007-0002 and IFC/R2008-0034/1). Current total outstanding balance on the IFC loans is $28.8 million, comprising of $18.3 million in Trio and $10.5 million in Concordia.

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

Project Cost is estimated at $150 million equivalent. The proposed IFC investment is a $30 million A loan for IFC’s own account with one-year term, renewable for up to two years. Funds will be used to: (i) finance working capital for pork farms in Belgorod and the new grain company in the Bryansk region; and (ii) refinance part of the 5 year, $60 million ruble bond. The beneficiaries of the IFC’s Loan are subsidiaries of ABH Miratorg.

Location of project and description of site

The Miratorg Group is headquartered in Moscow. The Project will be in the rural area of Belgorod and Bryansk in the south of Russia.

Anticipated development impact of the project

The Group's growth and development of the Project will achieve the following impacts:

(i) Employment. Mirator's expansion creates stable work positions in rural areas where a significant portion of the population is unemployed or underemployed following the demise of the FSU's collective farms;
(ii) Farmers linkages. About 3,000 local crop and pig farmers depend on their commercial relationships with Miratorg;
(iii) SME development. Miratorg's operations result in significant opportunities to supply goods and services from a large number of small and medium sized enterprises;
(iv) Food safety and quality management systems. Miratorg is aware of the need to improve its food safety and quality management systems in view of an increasingly demanding retail sector;
(v) Climate change/Renewable & Cleaner energy. Although currently pig manure is used entirely as fertilizer in the Group’s farms, with IFC's assistance, Miratorg will explore the possibility of capturing methane emissions from pig manure to produce biogas.
(vi) Financial transparency/Corporate governance. The Group will continue to benefit from IFC’s involvement to improve transparency through independently audited financial statements and streamline organization and management systems.

IFC's expected development contribution

1. IFC will assist a medium-sized strategic client in implementing a sustainable expansion program; diversifying from a meat trader and importer into an integrated meat producer by complementing available long-term fixed-asset financing with long-term working capital financing for its growing investment program;
2. Share IFC’s industry and technical expertise in farm management and integrated pork production, advising on livestock management and disease control to improve efficiencies and reduce costs thereby achieving international competitive standards. 3. Reach about 1,000 grain and pork farmers who otherwise have no access to IFC or local financing;
4. Implement IFC’s environmental and social standards and explore opportunities for biogas and cleaner production;
5. Spread best practice corporate governance including IFRS reporting across the Group’s other operations.

Environmental and social issues - Category B

This is a category B project according to IFC’s environmental and social review procedure. The Project’s limited environmental and social adverse impacts can be avoided or mitigated by adhering to national laws and regulations, generally recognized performance standards and guidelines. Key environment, health and safety and social impacts/issues of the project include:

- Environmental and social assessment of construction and operation of new grain production;
- Land acquisition procedure for construction of the grain elevator and associated facilities;
- Environmental, health and safety and food hygiene management systems;
- Labor and working conditions;
- Occupational health and safety of employees during operation of existing facilities and contractors during construction of a new grain elevator and associated facilities;
- Energy and water consumption;
- Greenhouse gas emissions;
- Wastewater treatment; and
- Waste management.

IFC PROJECTS

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