TVS Motor-ASEAN

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	24476
Company name	PT TVS Motor Indonesia
Country	Indonesia
Sector	Industrial & Consumer Products
Environmental category	B
Department	Global Manufacturing & Services
Status	Active

Date SPI disclosed	July 5, 2007
Projected board date	August 7, 2007
Previous Events	Invested: September 28, 2007 Signed: September 21, 2007 Approved: September 13, 2007

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Overview

Sponsor/Cost/Location

Development Impact

Contacts

Attachments

Project description

The proposed project consists of establishment and start-up of operations of a green-field, two-wheeler manufacturing plant in Karawang, about 55 km east of Jakarta, Indonesia, by PT TVS Motor Company Indonesia (PT TVS, or the company). The plant will have an initial manufacturing capacity of 300,000 vehicles per annum.

The project will cater mainly to the Indonesian market, which is the world’s third largest after China and India with a demand of 4.5 million units in 2006. Although the current two-wheeler market in Indonesia is highly competitive, low per capita ownership in the country (of only 80 motorcycles per 1000 people, in 2005) compared to its neighbors (of 545 in Taiwan, 286 in Thailand, 258 in Malaysia, and 125 in Vietnam) reinforces a strong market growth potential for the future. In addition to its large domestic market, Indonesia is also a strategic exports base given low labor cost, and availability of competitive sourcing of components.

Anticipated development impact of the project

The project will support the sponsor’s ongoing efforts to expand internationally and enter the increasingly competitive two-wheeler industry in Indonesia. The sponsor will invest significantly in personnel development and training, and the project is expected to create an estimated 500 new jobs at the end of third year of its operations. In addition, the project is expected to result in significant knowledge sharing and transfer of know-how to the Indonesian subsidiary, not just in terms of manufacturing and quality processes, but also the establishment and management of a sales and service network, dealer channel etc., knowledge which has been built up over the years in the highly competitive Indian market. Furthermore, given the sponsor’s focus on product innovation and its ability to meet stringent quality standards, the project is expected to lead to technology transfer not only at the project company but also at the supplier level as well. Some of the sponsor’s key suppliers in India are exploring the possibility of establishing Indonesian operations in future to support the company. Non-quantifiable development impacts will include benefits to the consumers through improvement in the quality of products and increased competition in Indonesia, the creation of 500 new, trained employment, benefits to the local economy as a result of localization of production and development of the local supply chain, and attraction of foreign direct investment.

IFC's expected development contribution

IFC will provide long-term debt in line with the project funding requirements, that is not easily available in the local market, particularly to a new entrant like PT TVS. In addition, the project is in line with IFC’s strategy of supporting South to South investments. The project is the first major expansion for the TVS Motor Company outside India, and TVS Motor derives a high degree of comfort from IFC’s strong local presence in the market and relationships with the government, financial institutions and other corporates. Apart from being a provider of long-term finance, IFC is an informed partner that can also contribute to the project with knowledge of the global automotive industry. Moreover, assisting a sponsor that is known for its good corporate governance and social responsibility practices will help IFC promote good business practices in the region.

Environmental and social issues - 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 that can be avoided or mitigated by adhering to generally recognized performance standards and guidelines.

Environmental and social impacts with this project are typical of those associated with light manufacturing projects including; management of air emissions and liquid discharges; solid and hazardous waste minimization and management, workplace health and safety standards including managing exposure of the workforce to hazardous chemicals, community health, safety, security and engagement; and corporate social responsibility and community development.

PT TVS has demonstrated the capacity, and has committed the resources, to implement comprehensive environmental, health, safety and quality management systems consistent with international standards (ISO) as well as IFC environmental and social performance standards throughout its entire operation.

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