SoktasTekstil Sanayi ve Ticaret Anonim Sirketi

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	26480
Company name	Soktas Tekstil Sanayi ve Ticaret Anonim Sirketi
Country	Turkey
Sector	Textiles, Apparel & Leather
Environmental category	B
Department	Global Manufacturing & Services
Status	Active

Date SPI disclosed	October 5, 2007
Projected board date	November 9, 2007
Previous Events	Invested: December 18, 2007 Signed: November 20, 2007 Approved: November 20, 2007

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

Overview

Sponsor/Cost/Location

Development Impact

Contacts

Attachments

Project description

Soktas Tekstil Sanayi ve Ticaret Anonim Sirketi (Soktas or the company), an existing and valued IFC client, and a leading Turkish manufacturer of high-end yarn-dyed and piece-dyed shirting fabric, has approached IFC requesting support for its first investment in India. The proposed project consists of a $83 million Greenfield investment to produce 14 million linear meters of shirting fabric annually in Kolhapur in the State of Maharashtra in Western India; the project is expected to be implemented in two phases and completed over a 5 years period. The company has requested IFC to consider providing a long-term loan of up to $18.25 million and an equity participation of up to $2.5 million equivalent (representing approximately 10% of the share capital) in the Greenfield investment in India. The company has also requested a long term corporate loan of up to $25 million to the existing operation in Turkey. The corporate loan will be used:

- for various strategic corporate investments initiatives,
- to provide working capital for its existing operations in Turkey, and
- to partially fund Soktas’ equity participation in India.

Project sponsor and major shareholders of project company

Soktas, a mid-sized Turkish company, was established in 1971 as a cotton yarn spinner and has evolved into an internationally respected textile mill. Its fabrics are 83 percent exported directly or as ready-made garments via Turkish manufacturers. At present, Soktas has a complete textile plant at a single site at Soke, in Western Turkey, located approximately 80 kilometers south of Izmir and 400 kilometers south-west of Istanbul. In 2006, Soktas embarked into a diversification scheme, which involved a dairy farm operation.

Soktas is publicly listed on the Istanbul Stock Exchange. The Kayhan family (the sponsors) own approximately 73 percent of the company’s shares, the remaining 27% are floated on the Istanbul Stock Exchange. The sponsors have been involved in the textile business for over 35 years, and have been successful in establishing Soktas as one of the leading fabric producers in Turkey. The Kayhan family has a long and respected presence in the country and is actively involved in Soktas’ leadership. Mr. Muzaffer Kayhan, Soktas’ founder, still acts as its chairman. He is one of Turkey’s most respected entrepreneurs, having received several ‘businessman of the year’ awards. Soktas’ day-to-day operation is followed by the two sons of Mr. Muzaffer Kayhan: Mr. Muharrem Kayhan, is one of Soktas’ Vice Chairmen and acts as CEO of its textiles division, whereas Mr. Hilmi Kayhan, also a Vice Chairman, acts as CEO of its agribusiness division.

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

The total Greenfield project cost is estimated at $83 million (including working capital, interest during construction and contingencies for escalations). The company has requested IFC to consider providing a long-term loan of up to $18.25 million equivalent and an equity participation of up to $2.5 million equivalent (representing approximately 10% of the share capital) in the Greenfield investment in India. The company has also requested a long term corporate loan of up to $25 million equivalent to the existing operation in Turkey.

Location of project and description of site

At present, Soktas has a complete textile plant at a single site at Soke (province of Aydin), in Western Turkey, located approximately 80 kilometers south of Izmir and 400 kilometers south-west of Istanbul. The dairy farm operation is located in the town of Incirliova (province of Aydin).

The Greenfield project will be located in Kolhapur in the State of Maharashtra in Western India, on a barren site in the ´Kagal Hatakanagale Five Star Industrial Area”, which was recently leased for 99 years by the company from the Maharashtra Industrial Development Corporation.

Anticipated development impact of the project

Improving Efficiency and Competitiveness:

The project will allow Soktas to upgrade its capital equipment and shift into higher value-added products, due to the increased competition in Soktas’ export markets, caused by the elimination of the quotas. The project is therefore expected to improve the overall competitiveness of the company and hence its financial sustainability. The expansion of its operation in India will also allow it serve a rapidly growing new market, which is especially important after the eliminations of the import quotas in its traditional markets.

South-to-South Expansion:

The project will allow Soktas to set up an operation in India, which is in line with IFC’s South-to-South strategy, and the sector strategy, which supports expansion of manufacturing capacities in cost competitive environments. The investment in India will reduce the overall manufacturing cost of the group and improve its access to its traditional markets.

Employment:

The project will create new jobs in Turkey and India, which will benefit the local economies of both countries. It will also provide additional direct employment with a multiplier effect along the supply chain.

Transfer of Technology and Know-How:

The company will use the latest state of the art technology in the Indian plant, which will require significant training of the Indian work-force.

IFC's expected development contribution

The company perceives IFC as a valuable long-term partner that will help it with the implementation of its growth and diversification strategy to become a key global player. IFC will play a key role in supporting Soktas to consolidate its competitive advantage by providing the long-term financing needed to upgrade its capital equipment and shift to higher value-added products as well as expand its production in a new market. IFC will also provide value-added inputs on the technical and environment and social aspects of the project, which, according to the company, it has benefited from in the past. The sponsor will have access to IFC’s expertise in India, which includes amongst other an introduction to the local financial institutions and assistance with the parallel loan structuring since Soktas has no existing relationships with Indian Banks.

Environmental and social issues - Category B

This is a Category B project according to IFC’s Environmental and Social Review procedures 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. The investment will be used largely to finance Soktas’s expansion into India. The new plant will be constructed on a site in an existing industrial park in Kolhapur, Maharashtra. As above, the site was acquired on a willing buyer-willing seller basis.

While all Performance Standards are applicable to this investment, IFC’s environmental and social due diligence indicates that the investment will have impacts which must be managed in a manner consistent with the following Performance Standards: PS1: Social and Environmental Assessment and Management Systems; PS2: Labor and Working Conditions; PS3: Pollution Prevention and Abatement; PS4: Community Health, Safety and Security; and PS5: Land Acquisition and Involuntary Resettlement. The project appraisal also assessed the applicability of PS6: Biodiversity Conservation and Sustainable Natural Resource Management, PS7: Indigenous Peoples and PS8: Cultural Heritage. In regard to PS5, the sites for the project components, in both India and Turkey, are on land purchased on a willing buyer-willing seller basis, resulting in no instances of physical or economic displacement. With respect to PS7 and PS8, no indigenous peoples or significant cultural heritage sites are expected to be impacted by the project.

Details of the E&S assessment may be found in the Environmental and Social Review Summary (ESRS) and Environmental and Social Action Plan (ESAP). These documents are available on IFC’s website at http://www.ifc.org/projects, and at the locations noted below.

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