Eurasia Hotel Ltd - (IBIS Hotel Chain in Kazakhstan)

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	27217
Company name	Eurasia Hotel Ltd
Country	Kazakhstan
Sector	Accommodation & Tourism Services
Environmental category	B
Department	Global Manufacturing & Services
Status	Pending Approval

Date SPI disclosed	August 22, 2008
Projected board date	September 29, 2008

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

Overview

Sponsor/Cost/Location

Development Impact

Contacts

Attachments

Project description

Kazakhstan’s economy has been improving steadily in recent years, and as a result Kazakhstan is now seeing significant increase in the volume of international and domestic business travelers. Within the different hotel sectors, budget and economy hotels are generally preferred by the domestic and regional business traveler, given the price/value proposition. This sector is largely underserved, characterized by excess of demand over supply, and high occupancy rates despite inadequate services and poor facilities due to lack of alternatives.

The proposed project aims to address the need for additional capacity in this underserved sector by developing a nationwide chain of economy class hotels in the major cities across Kazakhstan. As the first phase, four three-star hotels will be developed simultaneously in Kazakhstan’s four major industrial and commercial cities, namely Karaganda, Astana, Aktau and Atyrau.

The project will be undertaken by Eurasia Hotel Ltd. (the company or Eurasia Hotel), a 95% subsidiary of JSC KazKommerts Invest. Accor Group, the internationally well known hotel operator, will be responsible for operating the hotels under the Ibis brand.

Project sponsor and major shareholders of project company

The project sponsor is JSC KazKommerts Invest (KKI). Founded in 2003 and headquartered in Almaty, KKI is currently one of Kazakhstan’s leading investment banks and private equity firm. Its principal activities include securities and assets management, project development, projects and corporate financing, investment funds management and advisory services. As of December 31, 2007 KKI managed thirteen mutual investment funds, it total assets exceeded $188 million, equity capital was approximately $124 million and net profit was around $20 million.

KKI is 100% owned by Zangar Finance Group LLP, ultimately owned by Mr. Aibar Dautov, a successful local businessman.

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

Total project cost is estimated to be around $50 million.

The proposed IFC financing will include a senior loan of up to $7 million and an income-participating loan of up to $10 million. IFC will also arrange additional syndicated financing for up to $15 million through relationship banks.

Location of project and description of site

Eurasia Hotel is domiciled in Almaty, Kazakhstan. The four proposed hotel properties will be located in Astana, Karaganda, Aktau and Atyrau, all in Kazakhstan. Location of the individual hotel sites, which have all been bought from private owners with clean titles:

Astana: The site for the Astana hotel is located on the West side of the river in an area dominated by administrative and business buildings. The land plot is currently empty excepting a small caretaker’s temporary hut, which will be demolished once construction starts.

Karaganda: The site for the Karaganda hotel is located on Voinov Internationalistov Street in the park zone of the city. The land plot is currently empty

Aktau: The site for the Aktau hotel is an empty prime lot next to an existing shopping center and only 80 meters from the sea in the 14th micro district.

Atyrau: The site for the Atyrau hotel is an empty prime lot located at the corner of Erniyazova street and Kulmanova Street, in the center of the city and adjacent to the Marriott Hotel, business facilities, and a smaller three star hotel.

Anticipated development impact of the project

The project is expected to have significant development impacts, which includes the following:

- Improve the Supply of Hotel Services:

The project will help meet the growing demand for hotel accommodation in the presently under-served mid-market hotel sector in four major business cities of Kazakhstan. It is expected to improve the availability and the standard of hotel services to travelers and business communities, thereby contributing to the improvement of the business infrastructure of the country. It will also encourage broad improvements in the standards of existing hotels and the transfer of hotel management expertise to the local staff.

Private Sector Development and Demonstration Effect:

The project will support the development of a local company by helping it meet its strategic objective. The presence of an Accor Ibis chain will send a positive signal to other foreign hotel investors who are considering investments in Kazakhstan, especially at a time when Kazakhstan is experiencing a banking sector crisis. The project will help create demand for locally sourced materials, service and labor, both during the construction and operation stages of the hotel properties. IFC’s requirement for the Company to implement and maintain high environmental, fire, life safety and social standards, including obtaining comprehensive insurance policies will have a demonstration effect on other firms in the industry. Finally, the project is also expected to have an impact on the upgrade and development of tourism and travel related infrastructure by the local administration, such as water supply and waste water treatment, power, roads, and airports.

Employment and Local Linkages:

The project will also create significant job opportunities for the local people and linkages with other sectors of the local economy, which will in turn enhance their income.

Increase in Domestic Revenue:

The project is expected to contribute to the domestic economy through increased tax revenues.

IFC's expected development contribution

IFC’s unique contribution to this project will be as follows:

- IFC will play an important role in supporting a local company pursue its strategic objective of development of an international standard economy hotel chain, by providing and arranging for the necessary long-term financing which is not readily available in Kazakhstan.

- IFC’s global hotel sector expertise will help it advice the Company on development and adoption of formal risk mitigation measures and guidelines on the basis of industry benchmarks, which will be expected to improve the efficiency of the company going forward.

- IFC’s participation is expected to enhance the company’s profile and improve their abilities to access funds from the global capital markets for future phases of the hotel chain development plan.

- IFC will also play an important role in enhancing the company’s corporate governance and EHS standards. Given the company’s lack of experience in the hotel sector, IFC will also provide inputs on various other aspects, including the management agreement with Accor.

Environmental and social issues - Category B

Eurasia Hotel is a category B project according to IFC's environmental and social review procedure. A summary of IFC’s environmental and social review findings for the project including the rationale for the B categorization is available in the Environmental and Social Review Summary (ESRS) available by using this link:

The Environmental and Social Action Plan (ESAP), which is attached to the ESRS, contains specific tasks that the client will undertake to mitigate perceived risks and impacts from the project, and to ensure compliance with IFC’s Performance Standards.

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