Assan Aluminum

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	26648
Company name	Kibar Holding A.S.
Country	Turkey
Sector	Primary Metals
Environmental category	B
Department	Global Manufacturing & Services
Status	Pending Approval

Date SPI disclosed	August 11, 2008
Projected board date	September 25, 2008

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

Overview

Sponsor/Cost/Location

Development Impact

Contacts

Attachments

Project description

Assan Aluminyum A.S. (Assan Aluminum or the company), the former state-owned aluminum sheet, coil and foil manufacturer, was acquired in 2005 by the family-owned Kibar Group (Kibar or the Group) through a tendering process from the State Deposit and Insurance Fund of Turkey.

The project is a $150 million investment program to modernize, upgrade and expand Assan Aluminum’s existing 30,000 tonnes per annum (tpa) capacity by 79,000 tpa and to improve productivity and efficiency of the plant. As a result, together with Kibar’s flagship company Assan Demir, the largest aluminum manufacturer in Turkey, the Group’s consolidated aluminum production capacity will reach about 240,000 tpa. As part of the project, the sponsor also intends to improve the corporate governance of the Group.

Anticipated development impact of the project

The project gives IFC an opportunity to support an existing client that is striving to emerge as a stronger and more competitive player in the global setting. This project will help to build scale and make it a relevant player regionally and even internationally. Through modernization and introduction of state of the art technology and operating processes, Assan Aluminum will join Assan Demir and help Kibar to solidify the market position. Continuous thin-slab casting technology will reduce operating cost through energy saving.

The project will allow the company to improve technology to move up the value chain by producing higher quality and higher margin alloys. The proposed project will increase Assan Aluminum’s total production capacity to 109,000 tpa, doubling Kibar’s aluminum production capacity to about 240,000 tpa. Additional supply could be vital for the construction sector, especially housing construction, considering a housing gap in the country. Availability of high quality aluminum products for infrastructure development will also boost this core sector of the economy. The revitalization and expansion of Assan Aluminum will create and enhance the security of employment for over 500 people. Training and on the job experience will allow workers to strengthen their skills and improve their earning potential. Finally, IFC’s analysis and recommendations to improve Kibar’s corporate governance would help ensure quality decision-making, encourage effective succession planning and improve its access to the capital markets, all important for the long term sustainability of the group.

IFC's expected development contribution

IFC will provide long term loan financing with maturities not easily available given the global credit crisis. Through a proposed B loan, IFC’s support is particularly important to help the company tap into international sources of funding. The long-term financing will provide stability to meet the company’s needs in an industry that is highly cyclical.

Kibar has expressed strong interest in working with IFC on this project as it values the relationship established through the previous transactions. Given the long term nature of their investment plans, the relatively large scale of borrowing, the cyclicality of the aluminum industry and the volatility of the Turkish economy, the sponsors have sought to continue the relationship with IFC. The sponsor is also seeking to benefit from IFC’s expertise in the industry.

Kibar’s overall corporate governance needs improvement, especially considering the Group’s intention to go public. In this respect, IFC will be looking to work with Kibar’s shareholders to develop a program to address the issues related to the IPO as well as overall corporate governance improvement.

Environmental and social issues - Category B

This is a Category B Project according to IFC’s Procedure for Environmental and Social Review of Projects because, as a result of its due diligence, IFC has concluded that the potential adverse environmental and social impacts presented by the project are few in number, site-specific and have been or can be readily mitigated by adhering to generally recognized performance standards, guidelines or design criteria.

Key issues reviewed during appraisal include:

- environmental, health and safety management, air emissions treatment and quality;
- energy efficiency, wastewater treatment and disposal;
- materials storage and handling;
- solid and hazardous waste management and disposal;
- resource conservation;
- labor relations;
- occupational health and safety (including workplace quality and conditions, life and fire safety, and training);
- community health, safety and security.

While all Performance Standards (PS) are applicable to this investment, IFC’s environmental and social due diligence indicates that the investment may 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; and
- PS4: Community Health, Safety and Security.

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