Chengdu, China, October 23, 2000
—In one of the first deals done in China without a foreign sponsor, the International Finance Corporation agreed to provide financing for a new line of high-purity potassium hydroxide to Chengdu Huarong Chemical Company Limited (CHCCL) of Chengdu City, Sichuan Province. IFC agreed to invest US$3.2 million in equity, and provide a long-term loan for $16 million.
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. China, currently imports high purity KOH.
IFC's involvement was critical in obtaining long-term financing, which is not 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, the source for potash, which is required for KOH production. China's interior has lagged behind the coastal regions in economic development.
The agreements follow a joint venture contract that IFC signed in May 1999 with Chengdu Chemical Company Limited (CCCL) to establish CHCCL which would take over and expand CCCL's high-purity potassium hydroxide business. CHCCL was established in August 2000. The New Hope Group, CCCL, and IFC are shareholders of CHCCL.
New Hope Group is a large private company based in Chengdu, Sichuan. The group has diverse activities and this is its first investment of this type in the chemical sector. The group, which has strong management skills, is the main shareholder of CHCCL.
CCCL based in Chengdu, Sichuan, has been in operation for over 40 years and produces mainly 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, which was built by CCCL in Chengdu in 1998. CHCCL will use IFC's financing to build an additional 20,000 tons per year production line of high purity KOH in Pengzhou City, Sichuan.
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 will also be able to export part of its production.
IFC Vice President, Mr. Assaad Jabre 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 state-owned enterprise reform and other challenging issues. He added that IFC has a role to play in pioneering long-term finance for successful private enterprises and former state-owned enterprises.
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 IFC's financing 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 of 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. It fosters economic growth by financing private sector investments, mobilizing capital in the international financial markets, and providing technical assistance and advice to governments and businesses.
