Ipek Kagit Working Capital Loan

completed

Ipek Kagit is Turkey''s leading producer of tissue paper with about 60% market share. Ipek Kagit was established by the Eczacibasi Group in 1970 as Turkey''s first large scale and modern tissue paper operation. In 1998, Ipek Kagit undertook a US$86 million expansion and modernization project, which increased Ipek Kagit’s total tissue paper capacity by 50,000 tons per year (tpy) to 87,000 tpy and its converting capacity by 28,000 tpy to 53,000 tpy. As a response to the economic crisis in Turkey which has caused a contraction in the domestic market, Ipek Kagit intends to increase its tissue paper exports substantially. Consequently, Ipek Kagit has requested IFC to provide a medium-term financing of up to US$12 million to fund its increasing export operations. After the recent political and macro economical turmoil, interest rates in Turkey have skyrocketed and credits have become very scarce. More importantly, local financial institutions do not provide the financial depth required for the long-term, outward looking strategic development of major corporations in Turkey. Loan maturities exceeding even a one year range are currently not available to the Turkish market. Without IFC’s investment, Ipek Kagit would be forced to rely on extremely limited, short-term and more expensive financing which would adversely affect liquidity. In the context of the uncertain economic environment and competitive pressures in the global industrial tissue paper sector, the project critically supports the sustained and competitive evolution of a vital Turkish corporation. The proposed project will have a significant development impact. IFC’s support of the project is critical at a time when higher inflation, shrinking domestic demand and price increases have stagnated the economy, especially manufacturing sector, which has brought about massive layoffs, causing severe economic and social instability in the country. Ipek Kagit is internationally competitive and export about 36,000 tons of its production, resulting in over US$36 million equivalent of foreign exchange earnings per year. Through the proposed investment, IFC will support a Turkish company ride out the financial difficulties to emerge as a stronger and more competitive company in the global setting. IFC’s participation of the project would provide comfort to other foreign investors who are wary of Turkey’s perceived macro-economic and political risks, and encourage additional foreign direct financing and investment in Turkey. The devaluation of the currency has made Turkey’s exports more attractive. By providing the timely export financing, IFC will help Ipek Kagit seize the market opportunity, boost export sales and most importantly equip it with the financial resources needed to explore new export avenues, thereby increasing the country’s foreign exchange earnings.