IFC experience in financing and advising

cement companies in emerging markets

Michel Folliet, IFC Global Manufacturing
Cemtech Conference, Dubai
March 6, 2011
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CONTENTS

IFC AT A GLANCE

IFC IN THE CEMENT SECTOR

IFC PROJECT TRANSACTION CYCLE

Q&A

IFC: Our Reputation and Value

IFC is the worlds largest multilateral private sector investor in the
emerging markets.

Total Committed Portfolio: US$49 Billion at June 30, 2010

AAA rating
3,350 employees in 86 countries worldwide (55% in the field)
In-house syndications department working with over 200 banks
Strong advocate and brand on environmental and social issues
Climate Change mitigation is a key priority for IFC/World Bank
Political risk mitigation
Preferred creditor status

FY 2010 IFC Investments by Industry

Commitments for IFCs Account: US$12.7 Billion
Additional Resources Mobilized: US$5.4 Billion
Private Equity and
Investment Funds 3%

Subnational
Finance 1%

Oil, Gas, Mining

and Chemicals 8%

Agribusiness 4%
Global Financial
Markets 53%

Infrastructure 12%
Health and
Education 3%

Global Manufacturing
and Services 11%

Global Information and

Communication Technologies 4%

FY 2010 IFC Investments by Region

US$2.4 billion in Sub-Saharan Africa
US$1.5 billion in Middle East and North Africa
Middle East and North Africa 12%

Global 1%

Sub-Saharan Africa 19%

East Asia and the Pacific 12%

Latin America and the Caribbean 24%

Europe and Central Asia 23%

South Asia 8%

IFC ADVISORY SERVICE

Total Spending in FY 2010: $268 Million

Access to finance

Sustainable Business

IFC helps to increase the availability and

affordability of financial services, particularly to
micro, small, and medium enterprise clients.

Building on IFCs environmental and social

performance standards, we promote sustainable
business practices among firms in infrastructure,
extractive industries, manufacturing,
agribusiness, and services.

Portfolio of 238 projects in 68 countries, valued

at $290 million.

Portfolio of 263 projects in 70 countries, valued

at $255 million.

Investment Climate

Public-Private Partnerships

IFC helps governments implement reforms to

improve their business environment and
encourage and retain investment, thus fostering
competitive markets, growth, and job creation.

IFC advises governments on structuring public

Private partnership transactions in infrastructure
and other public services.

Portfolio of 144 projects in 67countries, valued

at $185 million.

Portfolio of 91 projects in 53 countries, valued at

$130 million.

IFC offices in Africa

Algiers
Mediterranean
Sea

Rabat

Beirut
Jerusalem

Cairo

Amman
Dubai

Sanaa

Dakar
Ouagadougou
Freetown
Monrovia

NDjamena
Addis Abala

Abidjan

Accra

Lagos
Douala

Nairobi

Kigali

INDIAN
OCEAN

Kinshasa
ATLANTIC
OCEAN
Lusaka
Antananarivo

Johannesburg

IFC Hubs
IFC Country Offices

Maputo

Cape Town

IFC IN THE CEMENT SECTOR

IFC Cement Sector Portfolio of Investments:

US$1.4 billion in 28 companies and 26 countries (30 October 2010)
Albania (2)
Kazakhstan (1+1)
Russia (1)
Armenia (1)

Turkey (1)
Algeria (1)
China (3)
Yemen (2)
Morocco (1)
Egypt (1)
Vietnam (1+1)
Libya (1)
India (2+1)
Indonesia (1)
Iraq (1)
Croatia (1) Bangladesh (1) Laos (1)

Senegal (1)
Ethiopia (1)
Angola (1)
Ghana (1)
Mexico (1)
Togo (1)
Trinidad & Tobago (1) Liberia (1)
Dominican Republic (1) Mozambique (1)
Paraguay (1)
Congo (1)
Brazil (1)
South Africa (1)
Haiti (1)

Blue: Committed Investments

Red: Under mandate or strong lead

IFC Cement Portfolio is Composed of Global and Local Clients

Over 4 billion US$ invested since inception

Global
Clients
53%

Local
Clients
47%

Recent Transactions (FY2007-FY2010)

Inv estment
Year

Country

Project Name

Amount
US$ million
50

2007

India

OCL

2007

Yemen

AYCC

125

2007

W orld Region

Italcementi

200

2007

Turkey

Sanko Cement

75

2007
2008

Angola

Secil Lobito

China

Tianrui Cement

27
85

2008

Senegal

Vicat-SOCOCIM

26

2008

Ethiopia

Midroc Derba

2008

China

Shanshui III

2009

Albania

Antea - Titan

2009

Algeria

ASEC Algeria

2009
2009

Kazakhstan
Vietnam

Jambyl Cement- Vicat

Nghi Son II - Taiheiyo

2009

Morocco

Ynna Asment

2010

Africa Region

Heidelberg Africa

180
120

55
110
41
50
175
67
27

2010

Egypt

Titan Egypt

2010

Mexico

Eurus-Cemex

55

2010

India

VicatSagarCement

75

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Selected Cement Sector Transactions

Ghana
Diamond Cement

Global
Italcementi

Ethiopia
Midroc

Kazakhstan
Vicat/Jambyl Cement

US$6 million
Loan, Equity

US$200 million
Loan, Equity

US$55 million
Loan

US$185 million
A/B Loan, Equity

Senegal
Vicat-SOCOCIM

Algeria
ACC Cement

Mauritania
BSA Cimint

Turkey
Sanko Cement

US$26 million, Loan

US$42 million, IFC Local
Currency Bond

US$45 million
Loan

US$11 million
Loan

US$175 million
A/B Loan

Yemen
AYCC

Bangladesh
Lafarge Surma

Albania
Fushe Kruje / Seament

Bosnia and Herzegovina

Lukavec / FCL

US$125 million
A/B Loan

US$60 million
A/B Loan, Equity

US$30 million
Loan

US$12 million
Loan

Philippines
Holcim

Trinidad and Tobago

TCL Group

Dominican Republic
Domicem

China
Anhui Conch

US$27 million
Loan, Equity

US$37 million
Loan, Risk Management

US$56 million
Loan

US$86 million
Loan

China
Shanshui Cement

China
Tianrui Cement

India
OCL India Ltd.

Vietnam
Nhi Son Cement (Taiheyo)

US$58 million
Loan, Equity

US$71 million
Loan, Equity

US$50 million

US$56 million
A/B Loan

11 Loan

CEMENT SECTOR STRATEGY / PRIORITIES

Reinforcing relationship with global players and supporting their efforts primarily in high-risk countries,
especially in current post-crisis environment
Partnering with emerging players developing regionally, promoting South-South investments
Focusing on frontier markets which are sufficiently large and are underserved: 50% of IFCs cement
portfolio is in frontier countries
Share IFCs experience and understanding of local business conditions
Promoting Environmental and Social high standards
Improving energy efficiency and reducing CO2 emission: technology, waste heat recovery, natural gas
usage, blended cement and energy efficiency
Deal selection is based on project competitiveness (lowest delivered cost producer), IFC sector regional
exposure and IFC additionality (developmental impact, energy efficiency and environmental/social
performance improvements)
Favoring equity and quasi-equity in cement which is appropriate in the current market environment,
especially in light of the solid track record of portfolio
Maintain consistency (approach and people) and confidentiality

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IFC VALUE ADD AND COMPETITIVE FACTORS

Willing to assume risks through equity/quasi-equity investments

Provide long term financing adapted to the capital intensity and cyclicality of the industry

Syndicate B Loans through extensive banking network, and under the IFC umbrella (preferred creditor
status); also leverage our experience to work with DFIs and mobilize DFI loans through new Master
Cooperation Agreement

Can play a role in supporting a clients sustainability objectives potentially a key differentiating factor in
the industry.

Help client improve environmental/social performance of its project compliance with IFC Performance
Standards is valued and well regarded by many project stakeholders and other financiers.

Identify and finance energy efficiency initiatives or energy related projects in the sector - e.g. waste heat
recovery based power, wind or alternative fuel projects etc.

Contribute to dissemination of international best practices.

Political risk mitigation e.g., contribute to stability of project agreements with local authorities

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HOW DO WE PROCESS A CEMENT TRANSACTION?

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IFC: A DEVELOPMENT BANK WITH THE FLEXIBILITY OF

A COMMERCIAL BANK
Industry and
local knowledge
& contacts

Commercial and
technical expertise
in emerging
markets

Sensitivity
to government
priorities

IFCs Products and Services

Senior Debt
On-lending
Liquidity management
Acquisition financing
Warehousing facilities

Structured Finance

Mezzanine
Finance

Partial
credit guarantees

Convertible debt

Common shares

Subordinated
debt

Preferred shares

Securitization

Private Equity

Other Tier II
instruments

Bond underwriting

Syndicated loans

Global Trade
Finance Program

Advisory Services

Sustainable Finance

$2 billion program

Corporate governance

Carbon finance

Guarantees to issuing banks

Risk management

Sustainable energy

46 issuing banks in 24
countries

Small and medium business

banking

Supply chain financing

Housing finance

Corporate governance financing

Energy efficiency finance

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Applying
IFC Experience:
Success Factors
Key Success
Factors inKey
theLessons
Cementand
Sector
Market/Industry Competitiveness Factors
Markets are regional or local in nature with clear regional price differentials, high entry
barriers due to capital intensity and expensive transportation/logistical costs.
Careful analysis of import price parity .
Location of facility in relation to the market and raw materials, infrastructure for
transportation and assessment of existing or upcoming cement capacity
Energy efficiency (40% of production cash cost); best technology
low capital investment cost (in Africa US$125-175/ton cement)

Sponsor Commitment and Values

Due to capital intensive and cyclical nature of the industry, Sponsors strong commitment
and financial strength are critical to a clients ability to survive adverse conditions.
Conservative gearing and financial structure for greenfield projects (40-50% equity)
Good governance principles and reputation, and environmental and social commitment
sustain economic success.

Sponsor Management and Experience

Experienced management team with good industry and technical knowledge

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A key objective is to minimize the carbon intensity of cement

Dealbreakers

Best Practice Technology

Vertical shaft kiln (VSK)

5-stage or 6-stage pre-heaters (unless high raw

materials moisture)

Wet kiln or long-dry kiln

Exceptions to the above only if the client commits to
close kilns upon commissioning of replacement best
practice technology

Vertical roller mill, Horomill, roller press

Waste-heat recovery power generation
Efficient fans and motors, variable speed drives
Dry-cooled condensers in captive power plants

Benchmarks to limit CO2 emissions to maximum of 650-750 kg/ton cement

1. Maximize Use of Blended Cement
Target: Clinker/cement factor between 0.68 to 0.89 (following local regulations)
2. Minimize Fuel Use in Clinker Production
Target: Fuel use of 2,900 -3,300 MJ/ton of clinker
3. Minimize Use of Electricity in Cement Production
Target: 80 105 kWh/ton of cement
4. Encourage Use of Renewable Energy and Alternative Fuels and Raw Materials
Biomass(Jatropha plantations); wind farm; solar

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IFC: Project Transaction Cycle

Early Review

Due Diligence

Negotiation

Disclosure

Client needs
determined

Assessment of
business
potential,
risks, and
opportunities

Conditions of
disbursement
and
covenants,
performance
and
monitoring
requirements,
and action
plan agreed

Environmenta
l and social
information
disclosed

Contribution
of project to
development
assessed
Project
screened for
potential
problems
Site visit
Mandate
letter

Evaluation of
financial and
economic
soundness

Opportunity
for public
comment

Internal
Approvals and
Commitment

Board
consideration
Board
approval
Legal review

Disbursement

Loan
disbursed on
agreed
schedule
according to
negotiated
terms and
conditions

Signing of
legal
documents

Compliance
with IFCs
social and
environmental
performance
standards
reviewed

IFC Customer Profile: Multinationals, Regional and Local

What is important about IFC to a client company?

What IFC brings to an investment

Multinational

Regional

Local

Quality stamp of approval

Country risk mitigation
Exposure to country risk volatility
Good contacts/knowledge
Competitive cost

Always

Long tenors

Often
Sometimes

Access to local currency funding

Complementary funding source

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THANK YOU
QUESTIONS

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Contact Information
International Finance Corporation
Global Manufacturing, Agribusiness & Services
2121 Pennsylvania Avenue, NW
Washington, DC 20433 USA
Eric Siew
Chief Investment Officer
Phone: 1.202.458.9625
E-mail: esiew@ifc.org
Michel Folliet
Chief Industry Specialist
Phone: 1.202.473.4614
E-mail: mfolliet@ifc.org

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