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| This Summary of Project Information 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. |
Summary of Project Information (SPI) |
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| Project number | 10336 |
| Project name | Linstow Varner Retail |
| Country | Latvia |
| Sector | Wholesale And Retail Trade |
| Department | Global Manufacturing & Services |
| Company name | Linstow SIA |
| Environmental category | B |
| Date SPI disclosed | May 1, 2001 |
| Projected board date | June 21, 2001 |
| Status | Completed |
| Previous Events | Invested: July 29, 2002
Signed: June 11, 2002
Approved: June 19, 2001 |
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| Project sponsor and major shareholders of project company |
| Linstow Varner SIA (the "Company") is a wholly owned subsidiary of Linstow Varner AS (Norway), which is in turn owned 50% by Linstow International AS (Norwegian real estate company), 25% by Varner-Gruppen AS (the largest textile retailer in Norway), and 25% by Hakon Gruppen AS (grocery chain owned by ICA/Royal Ahold). Linstow International in turn is owned by the Anders Wilhelmsen Group which, among others, is one of the largest shareholders in Royal Caribbean Cruise Lines.
Linstow Varner SIA owns and operates retail centers in Latvia, including "Mols", "Dole", "Minsk", and "Centrs". As part of the Project, the Company is developing the Riga Central Railway Station as well as an abandoned industrial site in Riga ("Alfa") into modern efficient retail parks. Linstow Varner SIA also holds a 10% ownership stake in Narvesen Baltija SIA that operates kiosks, perfumeries and restaurants in the centers as well as other locations in Latvia. Finally, the Company holds 40% of Securitas Latvia SIA that handles security operations in the malls.
Varner Gruppen (through through their retail outlets Derssmann, Cubus and Bik Bok) and Hakon Gruppen (through RIMI) occupy close to 25% of the retail space in the existing centers in addition to outlets outside the Linstow Varner centres. A shareholder agreement between the three Sponsors (Varner, Hakon and Linstow), give Varner and Hakon first right of refusal on competitive terms for retail space in new centers. Conversely, Linstow International AS has a first right of refusal on Hakon and Varner’s 25% stakes in Linstow Varner AS.
The paid in share capital of Linstow Varner SIA is LVL13 million (US$ 21.6 million). In addition, the Sponsors have provided subordinated loans for a total of about US$35 million as of year-end 2000.
The management team of Linstow Varner SIA is composed of Latvian and Norwegian executives. The aim is to maintain a strong management team in Riga, and to support it by the development and operational experience of Linstow Varner AS in Norway. Furthermore, the Board members have a varied and highly valuable experience within the real estate and retailing sectors. They also have extensive knowledge of the Baltic region, especially Latvia and Riga, gained through their long experience in the region. Mr. Petter Salmonsen is the General Director of the Company. Previously, he was a director in Linstow ASA, responsible for shopping mall development and operations in Norway. |
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| Total project cost and proposed IFC investment |
| The total Project cost is estimated at about US$148 million, including contingencies, as well as an estimated US$15 million and US$11 million of interest during construction on the external debt and subordinated shareholder loans, respectively. IFC has been invited by the Sponsors to be the lead financer. On a preliminary basis, it is proposed that IFC provide a US$12 million A Loan and a US$8 million C Loan for its own account. An additional US$70 million would be raised in the form of a B Loan (US$20 million) and parallel loans for the account of commercial banks and NIB. The remaining would be financed through a combination of cash flow from operations and equity/subordinated loans from the Sponsors. |
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| Location of project and description of site |
During the period 1997-2000, Linstow Varner SIA purchased, renovated and started operation of four modern shopping centres in Riga. The total retail area for these centres is about 29,000 m2. As of year end 2000, the total investment was about US$80 million, nearly all (about US$75 million) of which was financed through equity and subordinated loans from the Sponsors.
The Company now plans to expand their retail operations in Riga with an additional 100,000 m2 of retail space. Two new sites have been purchased and one of the existing centers will be expanded. The Project involves the redevelopment of an old and abandoned industrial site ("Alfa Retail Park"), promotion of public/private partnership in renovating and improving the old Riga Central Railway Station, and solving traffic problems that congest the Railway station square, as well as developing further successful western retail concepts (Mols), promoting competition and setting industry standards for retailing in the Baltics. |
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| Description of company and purpose of project |
More specifically, the Project consists of the following investments:
- Alfa Retail Park – a US$44.6 million redevelopment of a former semiconductor factory into a big-box shopping mall, mainly for home appliances and home improvements retailers. The site is located 8 km from Riga centre on a heavily trafficked Brivibas street. It will comprise about 60,000 m2 of retail space through refurbishment of existing buildings and construction of new premises.
- Riga Central Railway Station – this US$50.1 million project consists of three parts: renovation of the existing station, development of a new shopping mall/department store building, and a new retail building on the station square. The potential for a parking garage underneath the Railway Station square is also being considered. In addition to having commercial merits, the project is expected to strengthen the public transport infrastructure in Riga by making the railway a more attractive means of transportation and helping to relieve traffic congestion. It is estimated that around 170,000 people pass through the Riga Railway Station every day.
- Mols Shopping Mall - a US$27.4 million extension of the first modern car-based shopping center in the Baltics. This regional shopping center will improve its competitive position through an addition of 10,000 m2 retail space as well as expansion of parking facilities.
IFC’s involvement in the Project is central to the Company’s ability to raise the financing necessary for its expansion as there is limited availability of long-term commercial bank financing in Latvia today. In addition to its own funds, IFC would provide a syndicated B loan and work with local financial institutions to raise financing for expansion of the Company’s traditional retail mall. Before IFC's involvement, a major Scandinavian commercial bank failed to raise financing for the Company on a project finance basis.
This Project fits well with IFC’s strategy as it would contribute to the modernization and restructuring of the retail sector in Latvia, including a large number of local SME’s. With IFC’s support, the Project will demonstrate that longer-term financing is available in Latvia on a project finance basis for non-export oriented projects and, perhaps more importantly, that transparent FDI can be successful despite a difficult business environment.
The Project will have strong direct and indirect development impact. It will act as a catalyst for private sector development by:
- establishing “Retail Parks” where local and international retailers are brought together in a symbiotic environment, which promote exchange of information and know-how, thereby contributing to the growth and efficiency of the private sector;
- providing much needed retail floor space, which currently is in short supply in Riga;
- delivering consumer benefits by providing wider choice of higher quality merchandise and service at lower prices to a broad cross-section of the Latvian population;
- improving transparency and good corporate governance, which contribute to the reduction of the size of the informal, unreported sector of the Latvian economy (currently estimated to represent 30-40% of the overall economy) and improve tax collection;
- restoring and rehabilitating landmark buildings in downtown Riga, cleaning up the environment around the buildings, creating additional parking space and resolving traffic congestion and public safety issues; and
- hiring and training of Latvian nationals, and job creation in the SME sector.
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| Environmental and social issues - Category B |
This is a category B project according to IFC’s environmental review procedure because specific impacts may result which can be avoided or mitigated by adhering to generally recognized performance standards, guidelines, or design criteria. IFC’s Technical and Environmental Department staff’s review of this project consisted of appraising technical, environmental, and social information submitted by Linstow Varner. The following potential environmental, safety and health impacts of the project were reviewed: Alfa Center and Riga Railway Station site contamination due to past practices; noise, dust, and traffic disturbance during construction; sewage and solid waste handling and disposal; hazardous materials management; and fire protection and life safety.
The Sponsor has presented plans to address these issues and to demonstrate that the proposed project will comply with applicable Latvian laws and regulations and IFC/World Bank requirements. Accordingly, IFC concludes that the proposed project will meet the applicable World Bank/IFC environmental and social policies and the environmental, health and safety guidelines.
To view the environmental documents for this project, click here
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| Location of environmental documents in locally affected community |
| All the environmental documents are located at the Company's administrative HQ in Riga (see contact address below). In addition, the ERS (translated to Latvian) will be posted at the gates of the three project sites as well as on the bulletin board of the central library in Riga. |
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| To contact the project company, please write to: |
Mr. Petter Salomonsen, General Director,
Linstow Varner, SIA
Audeju str. 16
LV-1050
Riga
Latvia
Phone 371 7018193
Fax 371 7018195
email: petter.salomonsen@linstow.lv |
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