WASHINGTON, D.C., Mar. 1 -- The International Finance Corporation (IFC) has arranged a US$150 million financing package for AO Volga, a recently privatized newsprint paper mill in the Russian province of Nizhny Novgorod. The package includes US$86 million in financing that IFC will mobilize directly. This is the largest direct investment in the Russian Federation's manufacturing sector and the sector's first major commercial loan syndication. The investment program is designed to establish AO Volga as a newsprint manufacturer of international standard while increasing production and improving the mill's environmental controls. With the completion of the investment program, AO Volga will meet the rising domestic demand for newsprint, driven by a growing free press, and compete internationally in the export market. "The long-term success of Russia's privatization program requires post-privatization assistance to companies in the industrial sector, particularly through well-focused direct investment that will in
troduce new management practices and restructure production and improve quality," said Wilfried Kaffenberger, Vice President of IFC. "The AO Volga investment program contains all of these elements and will make the company a success story." The project has a strong environmental component. A new pulp producing plant that is to be built will allow for the closure of an environmentally-damaging sulfite pulp mill. The closure of this plant will reduce sulfur emission to the atmosphere, chemical concentrations in wastewater emission to the Volga River, and exposure of workers to sulfur. Timber harvesting practices also will be improved. (More) Press Release No. 95/82, page 2 of 2 The US$86 million financing package approved by IFC's Board comprises a loan of up to US$35 million and an equity investment of up to US$11 million. IFC has raised US$45 million through a syndicated loan with German and Austrian financial institutions. The remaining US$64 million of the financing package is in the form of equity particip
ation of outside investors and funds generated by the improved performance of the company. The largest foreign investment partner, HIT Beteiligungsgesellschaft mbh (HIT), will manage the company and aims to produce 520,000 tons of newsprint per year, of which 337,000 tons will be exported. HIT management will work closely with its Russian counterparts to train and develop staff and managers in international business practices. AO Volga currently employs 4,800 people. HIT is wholly-owned subsidiary of Herlitz International Trading AG, which is a publicly traded international paper distributor 50 percent owned by Herlitz AG, a large diversified German company and one of the largest producers of school, office, and stationery supplies in Europe. IFC's investment in this newsprint manufacturer is a natural progression of the Corporation's pioneering work in Russia, beginning in 1992 with small-scale privatization. In close partnership with the reform-minded leadership of the Nizhny Novgorod province, IFC develope
d and implemented small-scale privatization models that were replicated across Russia. As of June 1994, 72 percent of all small business available for privatization were sold through this method. IFC subsequently assisted the Russian State Property Fund (GKI) in organizing the "first wave" of voucher auctions, selling off medium and large-scale enterprises, in five Russian regions. IFC's on-going privatization activity involves the design and implementation of agricultural land privatization. The IFC model was adopted by the Russian Government as a national program in April 1994 and the scheme is now being implemented in four regions directly by IFC with other regions replicating the IFC agricultural land model. In the capital markets area, IFC has been advising the Russian authorities on the establishment of a securities market and the introduction of a legal foundation and institution structure for share ownership and transfer and improved corporate governance. IFC has recently agreed to provide assistance
in establishing a central registry function for large issuers to establish an essential component for the stabilization of the Russian securities market. To date, IFC has approved 14 investments in Russia totalling US$261.5 million (including AO Volga). These investments have been in the capital markets, energy and telecommunications sectors. IFC is a member of the World Bank Group and is the largest multilateral source of equity and loan financing for private sector projects in developing countries.
