Project sponsors in Nova Liniya are its major shareholders: top management with 33.8% and Dragon Capital with 46.2%, including 12.7% held by Dragon Capital on behalf of individual and institutional investors. Dragon Capital is one of Ukraine’s largest investment houses providing the full range of brokerage and corporate finance services to foreign and domestic institutional and strategic investors, both in Ukraine and the Central and Eastern European region. Its premium position in the Ukrainian market is demonstrated by three Best Equity House in Ukraine awards received from Euromoney in 2002, 2004, and 2005. The rest of Nova Liniya’s shares (20%) are owned by East Capital, a leading independent asset manager specializing in Eastern European financial markets with around €1 billion in assets under management.

The total project cost is estimated at about $37.4 million. IFC is considering an A Loan in the amount of up to $10 million.

10.0 million (USD)

Product Line	IFC Investment (million USD)
Risk Management
Guarantee
Loan	10.0
Equity

* These investment figures are indicative

The five stores will be located in some of Ukraine’s largest cities. The sites are close to residential areas and major roads.

Project Development Impact - Providing consumers with a wide range of good quality home improvement products at an affordable price. By selling a wide range of products (over 30,000 products) and through economies of scale, NL has gained a good bargaining position with suppliers. This bargaining position is expected to strengthen further with the construction and operation of the five new stores and will enable the Company to pass on some discounts to the consumers. Management effort to track consumer preferences allows achieving better inventory management and lowering costs, while at the same time improving service quality. The convenience of one-stop shopping is expected to result in time savings and consumer satisfaction of previously under-served customers. - Upgrading business practices: The project will have a catalytic effect in developing and improving the quality of local suppliers and producers. Since part of the product range is expected to be sourced locally, the Company will have to work closely with local suppliers and producers to improve their quality in order to meet NL’s quality standards. Thus, NL would provide an outlet for local production and foster competitiveness of local industry. In addition, its establishment in the market will increase competition in the sector and affect positively the overall standards of retailing in the country. - Promoting SME and private sector development: The project would have a positive effect on the development of the home repair/improvement and construction services industry, which was underdeveloped during the years of state planning. This industry has emerged in the last decade and comprises mostly of SMEs. The Project would facilitate market entry and improve service quality through standardization, larger selection of products, and reliable supply. - Increased employment: The project will create new employment, both directly and indirectly. It will provide direct employment to nearly 1,200 employees (in addition to the existing 700 employees), with a significant multiple of that number expected to be added in the supply stream and in ancillary activities. In addition, temporary employment will be provided to local labor during the construction phase of the Project. IFC Role IFC’s role in the proposed project could be valuable on several grounds: - In view of the perceived macro-economic and political risks of investing in Ukraine, IFC’s presence in the company through this transaction will help increase investors’ confidence in the country’s improved business environment. IFC’s participation will provide a significant demonstration effect in support of foreign investment in the region; - IFC's proposed investment will enable the company to finance its medium-term investments by supplying long-term funds on reasonable terms otherwise not easily available to the company and by helping the company attract additional debt financing for Phase II; - IFC will play an important role in determining the project scope, structuring the financial plan, and evaluating the environmental issues, thus reducing the Project's risk profile; - IFC has secured trust funds and is working with the company on improving NL’s inventory management in view of the growing number of stores. Phase I of the technical assistance exercise, involving a needs assessment of the existing MIS and accounting system, has been completed. Phase II - implementing the recommendations in Phase I, is expected to be completed by April 2006.

This is a category B project according to IFC''s environmental and social review procedure. Environmental, occupational health and safety issues associated with this project include: site selection and planning, site environmental and social (including land rights and use) conditions, air emissions, liquid and solid waste treatment and disposal, hazardous materials handling, sale of materials on the IFC exclusion list, power and water supply, life and fire safety, emergency response, general worker health and safety, and environmental management systems. Opportunities for developing sustainability include promotion of recycling, certified wood products, environmentally friendly home improvement products, and proper handling by consumers of hazardous material.
Location of environmental documents in locally affected community
The environmental documents for the project will be displayed in Kiev, at the door of the second store (where Nova Liniya’s headquarters are located), situated at the intersection of Lyskivska and Balzaka streets.