WASHINGTON, D.C., May 24, 1999 – The International Finance Corporation signed a joint venture contract with Chengdu Chemical Company Limited (CCCL), China, to establish a new company that will take over and expand CCCL's high-purity potassium hydroxide business. The deal -- IFC's third in China without a foreign sponsor -- was signed by IFC Executive Vice President Peter Woicke who is on a 10-day visit to Asia.
High purity potassium hydroxide (KOH) is a chemical product used in industries such as food preparation, cosmetics, batteries, ink, and dye products. As these sectors in China expand and upgrade, their need for KOH is steadily increasing. Currently, China imports high purity KOH.
The new company, Chengdu Huarong Chemical Company Limited (CHCCL) will sign agreements with IFC to receive $19.2 million in equity and debt financing after registration procedures are completed.
IFC's involvement was critical for the company to obtain long-term financing, which is not generally available in China for this kind of project. The project will set an example for the industry through the use of modern, efficient, less-polluting technology. It will also promote development in two interior provinces -- Sichuan, where the project is located, and Qinghai, where there is potash (required for KOH production). China's interior has lagged behind the coastal regions in economic development.
CCCL, located mainly in Chengdu, Sichuan, is one of the largest chemical companies in the province. It has been in operation for more than 40 years and principally produces potassium products. In 1993, this former state-owned enterprise was successfully converted into a limited liability joint stock company with a diversified shareholding structure.
CHCCL will operate a new production line of high purity KOH with an annual capacity of 10,000 tons. It will use IFC's financing to build an additional 20,000 tons per year production line of high purity KOH in Pengzhou City, Sichuan.
This investment will build on CCCL's competitive advantages, which include an abundant domestic supply of raw material, excellent knowledge of an up-to-date and environmentally friendly technology, and a well-developed marketing network in China. CHCCL will be the only producer of high purity potassium hydroxide in China, and, through its expanded capacity, will contribute to the substitution of imports by domestic production. In the future, CHCCL plans to export part of its production.
Mr. Woicke noted at the signing that one of IFC's major objectives in China is to support "home grown" businesses. Domestic industry has contributed enormously to economic growth in China and will help to stabilize the economy as the country grapples with the reform of state-owned enterprises and other challenges. IFC has a role in pioneering long-term finance for former state-owned enterprises and promoting good corporate governance in local firms.
IFC's financing to CHCCL will consist of an equity investment of $3.2 million, or 25 percent of the company's registered capital, and a loan of $16 million. Part of it will be a syndicated loan for the account of participating financial institutions.
In addition to raising capital, IFC arranged substantial technical assistance funded by the governments of Switzerland and Italy to improve CCCL's accounting system, management organization, and cost control practices.
The mission of IFC, part of the World Bank Group, is to promote private sector investment in developing countries, which will reduce poverty and improve people's lives. IFC finances private sector investments in the developing world, mobilizes capital in the international financial markets, and provides technical assistance and advise to governments and businesses.
