The principal shareholders of the holding company that will be created to hold the assets of the Simplemente Madera Group will be Mr. Clement-Marie Ponçon Guillot with his sons Eric Ponçon Chavlier and Arnoldo Ponçon Chavlier (the “Ponçon Family”) and JJAD Investments LLC, an Ohio based limited liability company.

The main sponsor of the project is the Ponçon Family. Ponçon Family has been in Nicaragua for over 20 years and is a well-established and reputable business owner with interests in plantations, furniture, agribusiness, and tourism and real estate companies in Nicaragua. These businesses provide employment in many rural areas of Nicaragua and extend job and skills training for their work force. The Ponçon Family also runs a foundation that supports and operates several schools and social projects in rural areas. The main Sponsor’s relationship with IFC spans a period of five years, during which they have partnered with IFC on a number of advisory services projects.

The total project cost is estimated at $22 million. The proposed IFC investment is a combination of A Loan for IFC’s own account to MAPIINSCA and Exchange S.A. and equity in the holding company to be created, aggregating up to $10 million.

10.0 million (USD)

Product Line	IFC Investment (million USD)
Risk Management
Guarantee
Loan	7.0
Equity	3.0

* These investment figures are indicative

The project operations will be located in the town of Xiloa, 17 kilometers west of Managua, and in the RAAN, 445 kilometers north-east of Managua, and 100 km west of the town of Puerto Cabezas.

- The Xiloa location is a 3 hectares industrial site that accommodates MAPIINICSA and Exchange S.A. industrial and manufacturing operations.

- The RAAN location is a site of the salvage logging and basic wood sawing operations. The latter will be expanded to process and store the hurricane-affected lands acquired as part of the project.

Development of Nicaragua’s Forest Products Sector:

Production from the project will help address the deficit of construction timber in Nicaragua and in the region. Increasing the supply of legally harvested wood will also encourage development of Nicaragua’s downstream capacity in the furniture and other wood processing industries. In addition, the project could serve as a model for private and public involvement in sustainable development of the hurricane affected lands.

Job Creation:

The project will create 400 additional permanent jobs. Most of the employment opportunities are expected to be in RAAN, where the unemployment rate is higher than in the rest of the country. The project will also continue to support indirect employment through outsourcing of the company’s trucking and furniture manufacturing to independent small businesses that employ an aggregate of 100 people.

Positive Impact on Climate Change:

The project will have a significant impact on global climate change. Processing the downed trees into lumber will achieve the carbon sequestration for the life of the manufactured products, as opposed to leaving the trees on the ground to decompose and emit greenhouse gases, such as methane and CO2. Reforestation will also contribute to carbon sequestration and maintaining healthy tropical ecosystems.

The project will help prevent deforestation of the hurricane affected area by establishing plantations and setting aside areas for natural forest re-growth, rather than being converted into agricultural use or cattle farming lands. The positive impact of the Project on the environment could be further increased if a future investment in a cogeneration power plant proves feasible.

Community Engagement:

The project will have a significant beneficial impact on local RAAN communities as it is the company’s practice to allow the local community to benefit from company infrastructure, such as access roads, and provisions such as food, fuel, etc which are made available to them at cost. The sponsor has already demonstrated their interest in working with indigenous communities through their work with the Layasiksa, a local community.

Impact on Local Economy:

The project will help increase and diversify Nicaragua’s exports and generate much needed foreign exchange. The project will also produce significant tax revenues for the local government.

IFC contributes extensive regional and sectoral experience, provides significant advice on environmental, health and safety issues, and financing that matches the company’s tenor requirements and risk appetite. IFC’s expected development contributions comprise:

Sectoral Expertise:

The company is relatively new to the processing part of the sector and IFC is providing industry advice and prospective that brings value to the company and the project. Also, IFC’s relationships with other companies that operate in the sector and its network of clients could prove to be useful in developing markets for the company’s products.

Environment and Social Advice:

The company is keen to ensure that their operations comply with the best-practice environmental and social standards. IFC’s investment will require the company to operate according to FSC or other certification requirements and establish a track record of sustainable harvesting and plantation development. As a requirement for IFC’s engagement, SMG will have to demonstrate compliance with an Environmental and Social Action Plan.

Corporate Governance:

IFC’s presence as a lender and a shareholder will greatly improve corporate governance standards of this family-owned and operated business, including IFC’s assistance in introducing improved corporate management practices. As a first step, the company will hire an outside professional accountant to prepare an IFRS audit of the company’s financial statements.

Provision of Long-term Finance:

IFC’s presence as a long-term equity investor and its ability to structure both debt and equity instruments provides much needed flexibility to the project and financial comfort to the sponsor.

Advisory Services:

IFC’s history with the sponsor goes back to 2003, when IFC first provided project grant money and retained a technical consultant for a tourism project. Since then, IFC has partnered with the sponsor on several technical assistance and advisory services projects. For example, the IFC LAC Advisory Services Facility is working indirectly with the sponsor through their furniture manufacturing company, which is among the buyers of wood from the community forestry projects partially financed by IFC and WWF. IFC is also helping the sponsor fund an engineering study for implementing a cogeneration plant using the extensive biomass available in the area.

The most significant social and environmental issues associated with the project are consequences of unintended land access brought about through construction of forest roads, and the environmental impact such as land erosion and soil compaction arising from harvesting operations. The project is being developed in an area of indigenous peoples and so care is required in project design and operation to ensure that no negative impacts to these groups arise from the project. In both processing plants and harvesting operations, attention must be paid to provision and correct use of personal protective equipment. Wood processing generates large quantities of wood chips which must be managed appropriately.

Though there is a wide range of potential environmental and social impacts, they can be practically managed and the majority of these will be site specific and largely reversible. Independent, third-party forest certification will also help ensure that this project meets international standards for environmental and social management. This is therefore a Category B project under IFC’s Policy on Social and Environmental Sustainability.