27494 - Packages 2008

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Summary of Proposed Investment

Project Number

27494

Company Name

PACKAGES LIMITED

Date SPI Disclosed

Oct 17, 2008

Country

Pakistan

Industry

Agribusiness and Forestry

Projected Board Date

Nov 25, 2008

Status

Active

Sector

Other Paper Products

Department

Regional Industry - MAS Asia & Pac

Environmental Category

B - Limited

Previous Events

Approved : Mar 5, 2009
Signed : Mar 25, 2009
Invested : Jul 14, 2009

Project Description

Packages Limited (“Packages” or the “Company”) is Pakistan’s premier pulp and paper packaging company that has been an IFC client since 1964. It is listed on all the three stock exchanges of Pakistan. The company’s product range includes: paper and paper board (brown and white); writing and printing paper; tissue and sanitary products; and, flexible packaging products. It principally uses wheat straw, recycled and waste paper to produce paper and paper products. Packages is the market leader in sophisticated and high quality packaging products and the only company that provides complete packaging solutions under one roof in the country. Packages has strong business relationships with major multinationals operating in Pakistan such as Unilever, Nestle, P&G, Colgate and Tetrapak.

Packages is about to complete its expansion program, started in 2005, to increase capacity to 300,000 tons per annum (“tpa”) from 100,000 tpa. To achieve financial stability and secure long term viability, the company proposes to retire some $70 million of debt raised for the expansion and invest some $30.0 million to implement an environmental upgrade program and de-bottlenecking of its plant to enhance operational efficiencies (the “Project”) and capacity enhancements in its Packaging division. The total Project cost of some $100 million is proposed to be financed with a combination of equity/quasi equity and internally generated cash from operations during 2009-10 of the company.

Sponsor / Cost / Location

Product Line	IFC Investment (million USD)
Risk Management
Guarantee
Loan
Equity	50.0

Development Impact

The project is expected to have the following development outcomes:

- Supporting a Socially Responsible Company:

IFC investment will help ensure continued operation of a socially responsible company that provides direct employment to some 3,450 persons and indirectly impacts the livelihood of some 27,000 persons linked with its supply chain whose economic activity would otherwise be uncertain.

Packages actively engages with the community around its two sites. Several community development projects are ongoing at BSPM including provision of a deep tube well for drinking water; renovations to school buildings and provision of safe drinking water and sanitary facilities at 9 schools that have over 2,000 total enrollments; and widening of the road serving the factory to facilitate to promote greater economic activity in the s surrounding areas.

- Environmental Improvements at Lahore and BSPM:

IFC financial package will help the company to further reduce emissions and residue, which will lead to more environmentally and socially friendly production facilities at both the sites. This is also expected to have a strong demonstration impact on other local pulp and paper producers.

Private Sector Development

BSPM is located away from the key centers of commercial activity and would generate economic activity in what is otherwise an agrarian-based and under-developed part of the country. The company’s increased procurement of wheat straw will positively impact farmers’ incomes, who normally burn wheat straw for disposal. An increase in waste paper procurement will positively impact the income levels of waste paper collectors who typically belong to the poorest sections of the society. The company’s also contributions to national exchequer by way of import and corporate taxes.

Climate Change Benefits

The Project is expected to have a strong climate change impact by reducing carbon emissions related with burning of wheat straw; transportation saving on shipping of waste paper from other countries; and, elimination of approximately 450,000 cubic meters of land fills annually. Land filling has such negative environmental impacts as contamination of ground waters, residual soil contamination after landfill close, contribution to inefficient use of land space and off-gassing of methane, a potent greenhouse gas, generated by decaying organic wastes.

IFC key role will include:

Counter Cyclical Role: IFC will play a counter cyclical role by providing equity support to a long standing, well performing existing client at a time when other foreign investors are pulling out their investment from the country. IFC’s investment will signal to other investors and financial market players that it can stand by the company across economic cycles.
Long Term Strategic Investor: IFC is viewing this as a strategic investment to support Packages who needs funds to minimize the impact of tightening financial markets, which is occurring at a time when the benefits of the additional capacity have yet to be realized.

Advisory services: IFC will provide advisory services to improve waste paper collection. The improvement in waste paper collection yield will reduce the need to import waste paper by the company and provide a cheaper local source of raw material.
Neutral Party Role: The Sponsors are keen on IFC’s material involvement in this equity raising. They view IFC as a neutral party that has consistently proven over the long history of the relationship, to always act in the best interests of the company. The Sponsors are accordingly, not at all inclined to source equity from overseas financial houses or from other domestic financial sources as a result.

Resource Mobilization: IFC will help identify other multilateral institutions to invest alongside IFC in the preferred stock issue of the Company.

Raising Environmental and Social Standards: IFC will continue to guide the company to ensure high environmental and social standards in its operations. By 2011, the company expects to become the only player in the local industry to meet IFC E&S guidelines. This is expected to have a strong demonstration effect on the local industry.

The key environmental and social issues associated with this project are occupational health and safety, management of emissions to air and water, and traffic impacts arising from the transport of raw material and finished goods, and particularly at BSPM community development facilitated by the new manufacturing site. These impacts are largely site specific, reversible and may be mitigated by readily available measures. This is therefore an Environmental and Social Category B project.

Contacts

For Inquiries About the Project, Contact

Mr. Shahid Hafeez, Manager Industrial Performance

Tel : +92 (42) 582 0870
Fax: : +92 (42) 581 1978

Email: shahid.hafeez@packages.com.pk
Website: www.packages.com.pk

For Inquiries and Comments About IFC, Contact

General IFC Inquiries
IFC Corporate Relations
2121 Pennsylvania Avenue, NW
Washington DC 20433
Telephone: 202-473-3800
Fax: 202-974-4384
E Mail: Webmaster

Local Access of Project Documentation

This Summary of Project Information, Environmental Review Summary and associated Action Plan will be made available for local review at Bulleh Shah Paper Mills and Lahore – outside the gatehouse at each site.

Addresses are:

Packages Limited, Shahrah-e-Roomi,
PO Amer Sidhu, Lahore 54760,
Pakistan

Packages Limited,
Bulleh Shah Paper Mills,
10 – km, Kasur Kot Radha Kishan Road,
District Kasur, Pakistan

This Summary of Proposed Investment is prepared and distributed to the public in advance of the IFC Board of Directors' consideration of the proposed transaction. It is not an offer of shares to the public and is intended solely to enhance the transparency of IFC’s activities. This document should not be construed as presuming the outcome of the Board decision. Board dates are estimates only. The following SPI is disclosed in accordance with IFC’s Policy on Disclosure of Information that went into effect April 30, 2006.

The map is for illustrative purposes and does not imply the expression of any opinion on the part of the World Bank, concerning the legal status of any country or territory or concerning the delimitation of frontiers or boundaries. Country borders or names do not necessarily reflect the World Bank Group's official position. In some cases, available project location information is limited to the country of the project's activities. Locations are approximate.

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