In the early 90’s KuAz was privatized to its employees. Currently approximately 50% of the voting shares of the company are being controlled by its management. The remainder of the shares are distributed among current and former employees.

The proposed transaction is an equity investment of up to $15 million in an existing IFC client company.

20.0 million (USD)

Product Line	IFC Investment (million USD)
Risk Management
Guarantee
Loan
Equity	20.0

* These investment figures are indicative

The company is located in an industrial area in Togliatti, Samara region, Russian Federation. It is easily accessible by rail, road and river transportation.

The development impacts of the project include:

- Improving competitiveness:

IFC’s equity investment will facilitate company’s access to long-term capital needed for its future modernization and expansions, which in turn will improve operational efficiencies, enhance product quality, increase the share of higher value-added products and therefore strengthen the competitiveness of KuAz.

- Strengthening financial position:

Improved competitiveness and enhanced margins will strengthen KuAz’ financial position and resilience to unfavorable market developments.

- Benefiting employees:

The company currently employs more than 5,300 people. The project will facilitate additional employment as the company continues its growth and will allow KuAz to maintain its position as a major employer in the Samara region. The new employees will receive training, competitive wages and benefits.

- Furthering linkages to the local community:

KuAz takes an active part in municipal regional and social projects. The company’s charity and sponsorship efforts are aimed to support cultural projects, sport activities and low-income and disabled people. Moreover, the company provides support to kindergartens, schools and hospitals. KuAx actively cooperates with Togliatti charity funds. The project will facilitate further enhancement of KuAz community impact.

- Benefits to the environment:

The proposed project is expected to result in better use of production inputs thanks to continuous investment in modernization and better technology and improved environmental performance.

- Key impacts to monitor during supervision will include:

Share of higher value-added products, gross and EBITDA margins, number of employees and increase in average wage

IFC Role:

IFC’s relationship with KuAz was established in 2002-2003 through its participation in IFC''s Russia Corporate Governance Project followed by IFC’s long term debt financing for the company''s investment program. At that time, comparable Russian companies had limited access to the capital market. Since 2005, IFC''s contribution to the company’s growth has included IFC''s Russia Corporate Governance Project and advice on enhancements to KuAz’ environmental and social practices. The proposed equity investment will consolidate this broad-based relationship.

- IFC additionality and expected contributions

- Long-term funding:

IFC’s longer-term approach to investing contrasts with the traditional approach of the venture capital and private equity investors and provides comfort to the company’s management. IFC’s equity investment is expected to result in strengthening company’s balance sheet and improve access to long-term debt financing at reasonable terms critical for company’s future growth.

- Higher standards:

IFC’s equity investment in KuAz will improve the company’s credibility in the domestic and international markets due to IFC’s adherence to high standards of corporate governance, environmental safety and social consciousness and adequacy of insurance coverage.

- Improved environmental and social performance:

The company has expended considerable effort to upgrade its production processes and facilities to:

- minimize waste,
- reduce utilities consumption, and
- improve treatment of potentially harmful discharges.

The project will help further enhance the company’s environmental practices by benchmarking them against global standards and upgrading them where necessary.

This is a repeat investment with Kuibyshevazot Joint Stock Company. The environmental and social risk rating for the previous investment is B-2 Average based on the environmental and social performance review during the supervision visit in May 2007.

IFC''s early review of this investment has identified the following environmental, social, health and safety issues: air emission, wastewater treatment and discharge, solid and hazardous waste management, operation hazard and hazardous material management, employee health and safety, fire protection and emergency response, community health/safety, and community relationship and development. While all Performance Standards (PS) are applicable to this investment, IFC’s environmental and social due diligence indicates that the investment will have impacts that must be managed in a manner consistent with the following Performance Standards:

-PS1: Social and Environmental Assessment and Management Systems;
-PS2: Labor and Working Conditions;
-PS3: Pollution Prevention and Abatement; and
-PS4: Community Health, Safety and Security.

For detailed environmental and social information of this project, please refer to the Environmental and Social Review Summary