Makro-Habib

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	27899
Company name	Makro-Habib Pakistan Limited
Country	Pakistan
Sector	Wholesale and Retail Trade
Environmental category	B
Department	Global Manufacturing & Services
Status	Pending Approval

Date SPI disclosed	May 29, 2009
Projected board date	June 29, 2009

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

Overview

Sponsor/Cost/Location

Development Impact

Contacts

Attachments

Project description

Makro-Habib Pakistan Limited (MPHL or the company) is one of the first organized retailers to start operations in Pakistan, where most of the retail operations are in the unorganized sector. It is a pioneer in starting modern retail in Pakistan, establishing its first store in 2006. The proposed project entails providing equity in the company to finance its capital expenditure program for the expansion of its retail business in Pakistan. IFC will provide equity of up to $13 million to support the expansion.

Project sponsor and major shareholders of project company

HoH comprises the business activities of the Mohammedali Habib family and, essentially, is a large unincorporated consortium of companies in the automotive, chemical, construction, multimedia, packaging and financial industries. The prominent HoH companies include:

(i) Indus Motor Co., a JV between HoH and Toyota;
(ii) DYNEA, Pakistan’s leading producer of quality industrial resin;
(iii) Agriauto Industries, automotive components manufacturers and
(v) Thal Limited, another automotive components manufacturers, jute, paper sacks and building materials (55% of MHPL is owned by Thal Limited).

As of June 30, 2008 (audited accounts) Thal Limited has total assets and equity of $114 million and $ 91 million, respectively, compared to $70 million and $59 million in 2007 in assets and equity, respectively. Thal Limited recorded sales and net margin of $141 million and 8.4%, respectively, compared to sales and net margin in 2007 at $114 million and 12.7%, respectively.

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

The company will use the IFC financing to fund part of its corporate investment program, it consists of a an investment program to be implemented between 2009 and 2014, which include the development and construction of additional stores in major urban cities of Pakistan and maintenance Capex for the existing stores (the “project”). The company as already undertaken activities in line with its expansion plan through; (i) acquiring the land for the 3rd store in Lahore; (ii) ongoing discussions for procurement of land for a store in northern Punjab; and (iii) road map being developed for other locations in large urban centers of Pakistan. IFC will provide equity to support the expansion program.

Location of project and description of site

Makro-Habib Pakistan Limited is headquartered in Lahore, Pakistan, and currently operates 5 modern retail stores. The existing stores of the company are located in Lahore and Karachi, the key urban centers of Pakistan. The capital expenditure program will include maintenance of the existing stores, and opening new stores in other urban center of Pakistan, at locations yet to be determined.

Anticipated development impact of the project

- the development of the formalized, modern wholesale services market in an IDA country which will help lower costs for both suppliers and retailers in Pakistan;
- the improvement in the flow of goods to the end consumers, thus ultimately improving availability, quality, quantity and price;
- the upgrade of business practices in the Pakistan’s retail business by improving food handling and standardization;
- the adoption of IFC’s social and environmental standards and guidelines by a large and visible corporate leader in;
- the establishment of strong linkages with the local economy through supply chain, employment and the use of local contractors during the construction period;
- develop linkages with SME’s and the agriculture sector; and
- increase in direct and indirect employment.

IFC's expected development contribution

In the proposed investment, IFC will provide the local sponsor with the necessary equity financing to promote its investment in an IDA country. IFC will share its global retail sector experience and expertise, in particular in nascent markets. Such knowledge will be critical to improve its operations but also help sustain its business in such difficult market situation. In addition, IFC’s participation in the project will provide some comfort both to the sponsor and other potential investors.

Environmental and social issues - Category B

This corporate-level investment is a Category B project according to IFC’s Procedure for Environmental and Social Review of Projects. The project has limited potential adverse environmental or social impacts, with those that do exist are site-specific and easily mitigated. The company is ready to implement an Environmental, Social, Health and Safety Action Plan (“ESAP”) in order to comply with the IFC Policy and Performance Standards on Social and Environmental Sustainability.

The key environmental, social and occupational health & safety and community aspects and issues associated with this project include:

- implementation of social and environmental management systems;
- labor and working conditions;
- the availability of proper and safe connection to the utilities;
- the disposal of effluents and solid waste;
- the sustainability of wooden products to be sold; and,
- interaction with the surrounding communities relating to traffic and emergency preparedness and response.

IFC’s review of this investment consisted of appraising technical, environmental and social information provided by the company related to each of the above issues, as well as visits to both existing Makro facilities and proposed sites for new facilities. The information about how potential impacts will be addressed is summarized in the Environmental and Social Review Summary (ESRS) and in the Action Plan agreed with the company, which is also available on IFC’s website.

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