PIKVrbovec&Belje

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	27135
Company name	PIK Vrbovec d.d.
Country	Croatia
Sector	Food & Beverages
Environmental category	B
Department	Agribusiness
Status	Active

Date SPI disclosed	April 21, 2008
Projected board date	May 30, 2008
Previous Events	Invested: July 31, 2008 Signed: June 5, 2008 Approved: June 4, 2008

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

Overview

Sponsor/Cost/Location

Development Impact

Contacts

Attachments

Project description

PIK Vrbovec, a fresh and processed meat product company in Croatia, and Belje, a farm with over 20,000ha of agricultural land, dairy, cattle and swine livestock in Eastern Croatia, had suffered from the war and lack of strategic investments in the past. The Agrokor group has heavily invested in their modernization since their acquisition in 2005. IFC, through a €40 million loan in 2006, partly financed the corporate restructuring, modernization and turnaround of those companies. The proposed project is a continuation of the post-privatization investments in PIK Vrbovec and Belje, to finance capital expenditures and expand PIK Vrbovec and Belje’s businesses, increase production capacity and improve efficiency.

Anticipated development impact of the project

The project is to modernize and expand the production capacity of Belje and PIK Vrbovec, respectively involved in farm production and meat processing. This will contribute to the efficiency of the sector, and improve the cost structure of crop, livestock and meat production in Croatia.

The project will also contribute to maintain and generate employment and SME development in Slavonia, a relatively depressed rural area in Croatia, which is distant from the more prosperous touristic coast and busy capital city area.

IFC's expected development contribution

- Long term, counter-cyclical financing:

Despite the Sponsor’s long standing good reputation on the market, securing financing with longer enough tenures to match the long term nature of the group’s agribusiness investments in PIK Vrbovec and Belje would be challenging under current financial market conditions. IFC can tailor a suitable loan repayment structure to allow durable investments necessary for the companies’ growth.

- Environmental and Social Standards:

IFC’s repeated involvement with the Project would help strengthen the Companies’ progress on sustainable environment practices during their current rapid growth phase.

- Long term partnership:

As Agrokor keeps growing through strategic acquisitions and internal capital investments both domestically and abroad, IFC welcomes the long term partnership, to support Agrokor’s regional expansion strategy.

Environmental and social issues - Category B

IFC's early review of this investment has identified the following environmental, social, health and safety issues:

- performance against requirements in the earlier IFC investment;
- development and implementation of integrated management systems encompassing quality, environmental and social affairs;
- animal husbandry and disease control;
- food safety;
- emissions to the environment (air, wastewater and solid waste, odors, and noise);
- clean production and eco-efficiency in processing operations including minimization of water use and wastewater production, recycling, and efficient use of energy;
- management of hazardous materials and hazardous wastes;
- occupational health, safety and emergency response;
- life and fire safety; and
- social issues along with community development.

While all Performance Standards (PS) are applicable to this investment, IFC’s environmental and social due diligence indicates that the investment will have impacts that 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

Based on this early review, it is anticipated that this investment will require 30 days disclosure by IFC prior to Board and has been provisionally categorized as B.

This is a repeat investment in this company. The company is under supervision for the existing IFC investment and has made excellent progress on inherited environment and social issues. The current Environmental and Social Risk Rating (ESRR) is B2-Average.

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