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| Jiangsu Suhua Chemicals |
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| 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 | 26018 |
| Company name | Jiangsu Suhua Group Zhangjiagang Company Limited |
| Country | China |
| Sector | Chemicals |
| Environmental category | B |
| Department | Oil, Gas, Mining And Chemicals |
| Status | Pending Disbursement |
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| Date SPI disclosed | September 10, 2007 |
| Projected board date | October 16, 2007 |
| Previous Events | Signed: September 26, 2008
Approved: September 5, 2008 |
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| View Environmental & Social Review Summary (ESRS), click here |
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| Overview |
Sponsor/Cost/Location |
Development Impact |
Contacts |
Attachments |
| Project description |
The proposed project consists of:
- Closing the operational site located in Suzhou and constructing a new grass-root chemical complex in an industrial area at Zhangjiagang with plants that are modern/more efficient/larger than those at the old site at Suzhou, as well as additional new chemical plants; and
Expanding the capacities of the caustic soda and fine chemical facilities.
The project company, Jiangsu Suhua Zhangjiagang Company Ltd, will produce more than 10 kinds of chlor-alkali and fine chemical products with a total capacity of around 780,000 tons per year (tpy). The chlor-alkali products will be sold locally, while a small portion of the fine chemical products will be exported. |
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| Project sponsor and major shareholders of project company |
| The sponsor is the Jiangsu Suhua Group Co., Ltd (Suhua or the sponsor). Suhua was founded in 1956 as a state-owned enterprise, and became a key chemical company in the region in the late 1990s. In 2003, Suhua experienced a restructuring and privatization process, as per the local government’s privatization plans. This involved transferring its state-owned assets to private sector shareholders. Today Suhua is one of the leading chlor-alkali, fine chemicals and agrochemical producers in the Yangtze River Delta area. It is the seventh largest manufacturer in terms of caustic soda production in Jiangsu province, which has the second largest national output of this chemical after Shandong province. Suhua’s product portfolio includes caustic soda, chlorine, medicine intermediates, rubber and food additives, agrochemicals and intermediates, PVC, phosphorous trichloride, phosphorous acid, chlor-alkali and fine chemicals. |
| Total project cost and amount and nature of IFC's investment |
| Total project cost is estimated at $200 million. The proposed IFC investment consists of an A Loan of up to $25 million and an equity investment of up to $10 million in the company. |
| Location of project and description of site |
| The project involves relocating the sponsor’s existing chemical production facilities from Suzhou City in Jiangsu Province to the company’s site in an industrial park complex in Yule, city of Zhangjiagang, Jiangsu Province. The new site has good access to major highways and transport routes, as well as barge and ship access along the Yangtze River. |
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| Anticipated development impact of the project |
The anticipated development impacts of the project include the following:
- The capital expenditure program will create employment opportunities in the project area. The company is expected to add approximately 700-800 staff to its workforce by 2008.
- The proposed project will contribute to the development of the local economy. The company plans to rely almost exclusively on Chinese contractors and construction workers for the implementation of its Capital Expenditure Program (total contracts expected to be worth in excess of $150 million during the implementation period to be ended by 2008). The Group’s main raw material is salt, benzene, phenol and calcium carbide, which is sourced from companies located within China.
- Reduction in pollution levels: relocating the existing facilities from a densely populated urban area to an industrial park will help improve the living condition of the urban population. The closure of the old manufacturing facility will significantly reduce public health impacts to Suzhou city.
The key development indicators that are proposed to be monitored during the life of the IFC investment are:
- direct employment levels
- volume of contracts awarded to local firms
- reduction in pollution emission levels |
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| IFC's expected development contribution |
The sponsor and the company (collectively known as the Group) are among the leading chlor-alkali, fine chemical and agrochemical producers in the Yangtze River Delta area, but nonetheless is a second tier group. Given its limited access to long term debt and equity funding, it has financed substantial amount of its growth with short term debt. If IFC did not participate in this project, the Group would likely be able to raise additional debt from local banks. However, the shorter term nature of what it can access in the market would jeopardize the Group’s viability in the event that prices and margins come under pressure. Suhua views IFC’s involvement as crucial for its successful restructuring and relocation of the company, as well as its future growth. Suhua values IFC’s unique role in sustainability initiatives. Compared with other financial institutions, IFC would bring unique contributions to Suhua and the company by:
- Provide and mobilize long-term financing. IFC will mobilize long term debt financing in the form of parallel financing from DEG and FMO. DEG and FMO co-invested in a number of projects in China with IFC and have relied greatly on IFC’s due diligence process and expressed their strong interest in working with IFC. The tenor of IFC loans will be 5 years longer than any loans currently available to the company and the Sponsor. The proposed 3-year grace period will help the company utilize its earnings on its current phase of expansion and development.
- Provide ‘signaling effect’ to equity investors. IFC’s participation as an investor will provide an important signaling effect to other potential private investors, and hence, will stimulate interest in the private placement and public offering processes. The formation of the FIE will allow the company to take advantage of the favorable legal and regulatory treatment in taxation, exports, foreign exchange conversion, and profit repatriation.
- Advice on group restructuring. Based on IFC’s advice, the sponsor will simplify its structure. The reduction in business units and increase in transparency (including the introduction of international accounting standards) should position the Suhua and Zhangjiagang for greater access to long term capital, and for its eventual public listing.
- Introduce the Group to international standards and best practices in environment, health, and safety practices. Given that the company’s products comprise significant amounts of hazardous materials, IFC will require Zhangjiagang to undertake a comprehensive operation safety audit. Zhangjiagang will also ensure that all emissions and ambient air qualities meet WBG guidelines, and will coordinate with local hospitals and other responsible agencies to prepare emergency response plans for potential chemical leaks.
Within the framework of the Country Partnership Strategy, the World Bank Group’s private sector strategy emphasizes the following areas of involvement:
- improving the business environment and strengthening regulatory capacity;
- expanding access to markets;
- upgrading corporate practices;
- expanding access to finance and financial sector development;
- enhancing environmental sustainability and energy efficiency; and
- promoting private participation in infrastructure and addressing regional imbalances.
The focus is on model transactions that are setting standards for private sector investments in corporate governance, international accounting, environmental technologies and practices, and efficiency of operations, with the aim of creating demonstration effects and helping Chinese companies become global and internationally competitive players. |
| Environmental and social issues - Category B |
This is a Category B project according to IFC’s Environmental and Social Review procedures. The investment mainly involves relocation of an old chemical industry complex to a new site. The key environmental and social issues for this project include: potential retrenchment for the employees at the old plant site; occupational health and safety for the hazardous manufacturing process; potential for release of hazardous chemicals outside the project boundary; wastewater effluents and air emissions; potential remediation and brownfield redevelopment of the old plant site; operation hazard and emergency response; and land acquisition process and resettlement.
The Group has presented plans to address these impacts to ensure that the proposed project will, upon implementation of the specific agreed measures, comply with the environmental and social requirements - the host country laws and regulations and the IFC Environment and Social Performance Standards and the World Bank Group (WBG) environmental, health and safety guidelines. Please refer to the Environmental and Social Review Summary (ESRS) for details of these impacts and mitigation methods.
Performance Standards applicable to this project include the following.
- PS1: Social and Environmental Assessment and Management Systems
- PS2: Labor and Working Conditions
- PS3: Pollution Prevention and Abatement
- PS4: Community Health, Safety and Security
- PS5: Land Acquisition and Involuntary Resettlement. |
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| For inquiries about the project, contact: |
Mr. Yang Zhenhua
President and General Manager,
Jiangsu Suhua Group Co., Ltd.
Fax: +86 512 6525 1980
Environmental Documents will be made available:
Dongsha Community Center
15 Renmin Road
Dongsha District, Leyu
City of Zhangjiagang, Jiangsu Province
China
Post Code: 215619
The company website: http://www.jsgc.com |
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| For inquiries and comments about IFC, contact: |
General IFC Inquiries
IFC Corporate Relations
2121 Pennsylvania Avenue, NW
Washington DC 20433
Telephone: 202-473-3800
Fax: 202-974-4384
E Mail: Webmaster |
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