UPL 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	26536
Company name	United Phosphorus Limited
Country	India
Sector	Chemicals
Environmental category	B
Department	Oil, Gas, Mining And Chemicals
Status	Pending Approval

Date SPI disclosed	October 6, 2008
Projected board date	November 6, 2008

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

Overview

Sponsor/Cost/Location

Development Impact

Contacts

Attachments

Project description

An IFC financing of $50-$75 million to United Phosphorus Limited (“UPL” or “the Company”) a large Indian producer of off-patent generic agrochemical products. The company’s main business segments comprise agrochemicals (88% of sales – pesticides, fumigants and rodenticides) and industrial and specialty chemicals (12% of sales - chlor-alkali and industrial chemical products).

The IFC financing will help UPL meet its funding needs over the next three years, estimated at about $100 million, which include expanding its capacities and products portfolio through capital investments and acquisitions and achieving horizontal and vertical integration to increase margins and improve efficiency.

Anticipated development impact of the project

The IFC Financing is expected to have the following developmental impacts:

Impact on India’s Agricultural Sector:

Agriculture represents nearly 17% of India’s GDP and employs 60% of its labor workforce. Every year, however, nearly 30% of potential food production is lost due to (i) ineffective storage and (ii) insects, rodents, pests and plant pathogens. UPL’s focus in agrochemicals, and specifically crop protection, brings significant benefits to the large and relatively under-served farming population in India. UPL’s crop protection products help improve agricultural yields and reduce risks related to primary agriculture. The economies of scale provided by UPL’s global business and the associated cost savings result in cheaper and better products to farmers in India and in other countries. This helps enhance farmer income, which is an important aspect of poverty reduction efforts in developing countries.

Job Preservation / Creation:

UPL currently employs around 3,000 direct employees at its different plants, including some in lagging states. In addition it has more than 900 distributors spread across the country and abroad. UPL’s growth will support current employment levels and create new employment opportunities not only in India but in other emerging markets.

Contributions to Government Revenues:

Given the scope of company operations, a significant level of transfer payments is generated in export duties, income taxes and welfare payments.

Enhanced Support for Local Communities:

With additional expansion and growth, the company is expected to step up its social contributions in local states, concentrating on health and educational facilities, including a new chemical engineering school.

IFC's expected development contribution

Assistance in Development and Implementation of a Global ESHS Management System: Based on its past experiences with UPL, IFC is uniquely positioned to help the company develop a global, corporate ESHS management system covering its operations worldwide.

Loan Maturity and Grace Period: The chemicals industry is prone to cyclicality, and company revenues are also exposed to some degree to seasonality. The proposed IFC financing includes a loan with eleven year maturity and three year grace period which is longer than what is currently available to UPL in India and which will better accommodate the company’s expected cash outflows over one complete chemicals cycle.

Complete Product and Services Package: Through its previous investment in 2003 (IFC/R2003-0137), IFC partnered with UPL when the company was in a tight liquidity position and needed long term financing and strategic advice. IFC is now a strategic partner with UPL, and its key additionality is its ability to provide a full range of products and services to meet the company’s growth, sustainability, strategic and long-term financing requirements in its core agrochemicals business.

Environmental and social issues - Category B

IFC's review of this investment identified the following environmental, social, health and safety aspects: corporate EHS management system, solid and hazardous waste management, air emissions, wastewater treatment and discharge, operational hazard and hazardous material management, employee occupational health and safety, fire protection and emergency response, product stewardship, compliance with international agreements and conventions, community health/safety, and community relationship and development.

Even though, all Performance Standards are applicable to this investment, IFC’s environmental and social due diligence identified the impacts that must be managed in a manner consistent with specific Performance Standards.

As part of the first investment with IFC, UPL established an EHS management system to handle its operations in India and established controls to handle air emissions, liquid effluents and handling and disposal of hazardous materials and hazardous wastes as well as establishing monitoring systems to assess performance of working conditions and environment. For this new project, UPL will establish, as needed, and enhance their systems to assess the EHS performance of its operations and have dedicated personnel where necessary.

Based on the IFC review, this investment will require 30 days disclosure by IFC prior to Board and has been categorized as B.

IFC PROJECTS