Modern Karton Working Capital

completed

Modern Karton is the largest private sector producer of corrugating packaging materials in Turkey, with the third largest capacity in Europe. MK is targeting sales of US$52 million this year, with exports of about US$16 million. The proposed project will be the IFC''s second project with the company, the first being for MK''s US$110 million capacity expansion program for 1998-2000, which increased the company''s production capacity from 90,000 tons p.a. to 290,000 tons p.a. Full capacity utilization by MK is expected to be reached by 2004, which, along with the increase in exports, will create additional working capital needs. The proposed investment will be used to finance the incremental working capital needs of the company until full capacity utilization is reached.The recent crisis in Turkey has severely curtailed domestic market demand in the manufacturing sector, presenting challenges for the corporate sector at large. MK is finding that it has to increasingly rely on exports to make up for the loss in the domestic market. With an existing export base of US$4 million in 2000, which is expected to grow to US$30 million by 2004, the company is faced with the challenge of finding dependable sources of funding to finance its exports. However, the financial crisis has made access to bank financing very difficult for Turkish corporates such as MK, since interest rates have increased sharply and credits have become very scarce. Loan maturities exceeding even a one year range, are currently not available to the Turkish market and financing from the Turkish Eximbank is inadequate. As a result, MK is requesting a medium-term working capital loan of US$10 million from the IFC to finance an increased volume of sales and inventory over the next few years. Under the circumstances, without the IFC''s investment, MK would be forced to rely on extremely limited, short-term and more expensive financing which would adversely affect its liquidity. Therefore, in the context of the uncertain economic environment and the competitive pressures in the sector, the project critically supports the sustained and competitive evolution of a vital Turkish company. The project is expected to have the following developmental impacts, which are in line with the IFC''s mission to reduce poverty and improve people''s lives: - support the industrial packaging sector through paper production and further investments in corrugated box manufacturing; - increase exports for both MK and the country;- create employment in the paper plant and related fields, such as waste paper collection and shipping; - increase waste paper recycling and use of non-wood fibers (such as straw);- improve energy efficiency through cogeneration, which will also benefit surrounding enterprises (that buy the excess energy produced by Modern Enerji); and - disseminate modern technologies and advanced know-how in paper-making.