CMCS’s parent company is Commercial Metals Company (CMC, or the Parent), a Dallas, Texas based manufacturer of commodity steel. It manufactures, recycles, markets and distributes steel and metal products. CMC is listed on the NYSE. CMC owns four steel mini-mills which use ferrous scrap metal in the production process. The company’s other domestic manufacturing operations include the production of downstream steel products, and copper tubing, the recycling of scrap metal, and the dismantling and salvaging of abandoned railroads.

Commercial Metals International AG (CMI or the sponsor) is a wholly owned subsidiary of CMC. It is a holding based in Baar Switzerland through which CMC owns all of its non-American assets. These include 17 marketing and distribution offices in 10 countries and three steel mills, two in Poland (CMC Zawiercie S.A –CMCZ -) and one in Croatia CMCS. CMI’s activities include metal scrap collection, recycling and processing. CMI acquired all of the outstanding shares of CMCS from the Croatian Privatization Fund and the Croatian Government in September, 2007.

The total project cost is estimated at EUR 160 million. The proposed IFC investment consists of:

-an A loan of up to EUR 40 million for IFC’s own account and
- a syndicated B loan of up to EUR 50 million.

56.41 million (USD)

Product Line	IFC Investment (million USD)
Risk Management
Guarantee
Loan	56.41
Equity

* These investment figures are indicative

The project is located at:

Bozidara Adzjie 19
44010 Sisak / Republika Hrvatska
Croatia

The proposed project is expected to have a positive development impact in several areas:

- Promoting the privatization of non-performing SOE:

The privatization of the previously state owned steel firm is expected to enhance its production efficiency and competitiveness and help regain its local industry leader status. The implementation of state-of-art technology will transform it into a competitive manufacturer; facilitate efficient use of energy and raw materials and help raise productivity levels in the country.

- Supporting the modernization of the sector:

CMC will transfer management expertise, technological know-how, advanced marketing methods, and a proven quality control system to Croatia and help support the modernization of the sector.

- Strengthen supply chains:

Increased purchases of domestic raw materials (scrap) will expand opportunities for upstream suppliers, while increased local production of high quality steel pipes will provide the necessary inputs for the infrastructure sectors.

- Improved environmental standards:

Replacement of the existing obsolete EAF with a state-of-the-art unit will substantially reduce primary and secondary particles and flu gas emissions during EAF charging, melting and tapping phases. The use of waste energy for scrap preheating and other features of the new unit will allow a 20% reduction in energy consumption per tonne of liquid steel. The major environmentally-dedicated project is the construction of a new Bag House with sufficient capacity to meet the needs of the Electric Arc Furnace, the Ladle Furnace and the Continuous Caster. Sheeting of the Steel Shop will ensure secondary emissions (from EAF and LF) and emissions (from CC) are kept within the Steel Shop building. CMCS are also considering further protection against EAF secondary off gases emissions by constructing a canopy hood. Investment in environment protection amounts to USD 15 million (25% of the CAPEX).

- Provision of long-term financing commensurate with client’s needs:

The company sees IFC as a strategic partner and a provider of long term funding, which will enable it to implement its growth strategy. The company also aims to capitalize on the steel industry’s good performance to mobilize debt with sufficiently long tenors. The proposed IFC A and B loans will be structured to meet the company’s long term funding needs and accommodate, at the same time, the cyclical nature of the sector. The maturity and grace period of the proposed IFC funding would allow adequate time for the turnaround process to be fully implemented. Furthermore, IFC has extensive experience and expertise in the global steel sector and in supporting post-privatization restructuring and therefore can contribute to this process.

- Resource Mobilization:

CMCS believes that IFC’s presence will ensure the success of a large syndication, which will be an attempt to tap the syndicated loan market for long-term loan financing. The banks take comfort in IFC taking a long-term view of the industry, which is cyclical and capital intensive in nature. Especially given the current credit crunch stemming from the recent turmoil of US sub-prime market, the company wants to ensure that its current efforts to raise a substantial amount of long-term financing will be a success and feels that IFC’s presence and mobilization capacity will provide significant comfort to participants.

- Continued support of environmental, health and safety improvements:

IFC will play a role in identifying shortcomings in environmental, health and safety standards and guiding the company’s improvements in these areas. The proposed project will result in further environmental improvement investments including the construction of a new EAF, fabric filter Bag House and Melt Shop Sheeting. IFC’s environmental and safety requirements will provide stamp of approval for the company’s large investment program especially as its products are exported in countries where the compliance of the company’s production process with high environmental standards is valued.

CMC Sisak (CMCS) is a category B project according to IFC''s environmental and social review procedure. A summary of IFC’s environmental and social review findings for the project including the rationale for the B categorization will shortly be (is) publicly available in the Environmental and Social Review Summary (ESRS) disclosed through IFC’s project website (http://www.ifc.org/projects). The Environmental and Social Action Plan (ESAP), which is attached to the ESRS, contains specific tasks that the client will undertake to mitigate perceived risks and impacts from the project, and to ensure compliance with IFC’s Performance Standards.

The main EHS aspects of the proposed projects are associated with the process of reconstruction of production facilities and refurbishing of the existing plants, including social and environmental assessment and putting in place appropriate permissions. During the operations phases the key issues include EHS management capacity, air emissions solid hazardous waste management, waste water discharges/management, plans for the clean-up of the CMCS site. Management of occupational health and safety during reconstruction and especially during operations is crucial. In addition, the energy efficiency of the processes needs to be carefully assessed and if necessary improved. Labor and community issues including retrenchment need to be dealt according to Croatian law and IFC PS2 requirements.