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Cargills Agriculture and Commercial Bank
Summary of Investment Information
This Summary of Investment Information (SII) is prepared by IFC to disclose a factual summary of the main elements of the potential investment. It also includes findings and recommendations related to environmental and social considerations regarding this potential investment. The purpose of the SII is to enhance the transparency of IFC’s activities. For any project documentation or data included or attached herein that has been prepared by the project sponsor, authorization has been given for public release by the project sponsor. IFC considers that this SII is of adequate quality for release to the public, but has not necessarily independently verified all of the project information therein.
The SII is distributed in advance of IFC Board of Directors’ consideration and may be periodically updated thereafter. Board dates are estimates only and this document should not be construed as presuming the outcome of the Board Directors.
O-AA - Commercial Banking - General
Date SPI disclosed
October 19, 2012
Projected board date
November 26, 2012
Last Updated Date
October 19, 2012
Invested: April 2, 2013
Signed: March 8, 2013
Approved: January 14, 2013
E&S Risks /Impacts andMitigation
The proposed project involves an equity investment of LKR 495Mn (approx. US$3.84Mn) to acquire up to 10% shares in a Greenfield Licensed Commercial Bank, Cargills Agriculture & Commercial Bank (‘CACB’ or ‘The Bank’) and a senior loan of up to US$7 Mn to support the Bank’s debt funding requirements. In September 2011, the Central Bank of Sri Lanka granted CACB provisional approval to set up operations subject to fulfillment of routine terms and conditions.
Project Sponsor and Major Shareholders of Project Company
The proposed shareholding structure is as follows: Cargills (Ceylon) PLC (sponsor): 15%; CT Holdings (sponsor): 15%; IFC: 10%; An International Development Finance Institution: 10%; Employees of CACB: 5%; Local Corporate/HNI/Foreign investors: 45%
CT Holdings PLC (formerly Ceylon Theatres PLC): is one of the diversified conglomerates listed on the Colombo Stock Exchange (CSE). The group has over 30 subsidiaries and associate companies and operates in the retail space, food processing, property development, financial services, ceramic and tiles, entertainment, packaging and plantations. CT Holdings had a market capitalization of US$201Mn as at 29th June 2012.
Cargills (Ceylon) PLC: The operations of Cargills (no relation to Cargill USA) started off as a general warehouse, import and wholesale business in Colombo under an establishment named the 'House of Cargills'. A successful bid by Sir Chittampalam A. Gardiner saw the House of Cargills being incorporated as a Public Limited Liability Company on 1 March 1946. In 1981 Ceylon Theatres acquired controlling interest of the Company, and in 1983 Cargills established the first supermarket chain in Sri Lanka. Currently, Cargills is the largest modern retailer in Sri Lanka, with 45% market share. Cargills is a publicly listed Company on the CSE with a market capitalization of US$243 million as on June 27, 2012. Cargills had a revenue and net profit of US$ 293 Mn and US$9.1 Mn as of close financial year March, 2012. Cargills is a 70% owned subsidiary of CT Holdings PLC.
Total Project Cost and Amount and Nature of IFC's Investment
IFC’s proposed investment subject to IFC Management and Board approval: (i) an equity investment of LKR 495 Mn (approx. US$3.84 Mn) to acquire a 10% stake (44 Mn shares) of CACB’s initial share capital; (ii) US$7 Mn, 7 year tenor, senior loan.
IFC investment as approved by Board
10.88 million (USD)
IFC Investment (million USD)
* These investment figures are indicative
Location of Project and Description of Site
CACB is headquartered in Colombo, Sri Lanka and expects to operate branches across the country.
Expected Development Impact
Access to Finance - The Bank will increase access to finance to MSMEs especially in the unbanked agrifinance sector. The project is expected to contribute to IFC's IDG on Access to Finance to SME/Micro clients.
Expansion in North and East - The Bank is expected to have significant operation in the underserved N-E region of the country which is also part of the farming, fisheries, dairy production area of Sri Lanka.
Build investor confidence - IFC's participation can help build foreign investor confidence and help channel future FDI in the country which is critical for the growth of the economy and specifically for the reconstruction and development of the war affected N E regions.
A niche Banking model - The Bank will be built on a unique business model with a bias towards serving the underserved MSMEs and underpenetrated regions of the country. Its strategy of serving the agriculture and linked communities will take its operations outside of the well banked western provinces. The Bank will use mobile banking technologies and take advantage of the extensive Cargills supermarket footprint and its links to the agriculture community to implement its differentiated banking strategy. This project will add a new dimension to the banking sector in Sri Lanka.
Employment in the rural regions - The Bank plans to hire graduates as loan officers from the local communities to work in its branches creating job opportunities for young people in the rural regions of the country.
IFC's Expected Role and Additionality
IFC's association to this project will add further credibility to the proposal amongst investors, rating agency and regulators.
Development of best in class SME banking business model - As a new player in SME Banking the Bank will need support and advice in building the best practice operational processes and standards in order to built a profitable franchise given the difficulty to assess the risks inherent to SME financing as well as the higher transaction costs. IFC with its global expertise in this area, strong on the ground advisory capabilities and its successful track record in investing in greenfield banks will be critical to the Bank's success.
Strategic Partner - As an equity partner, IFC wll instill good governance and help the Bank in strenghtening capacity at the board level. IFC will be able to work with like minded investors in fulfilling this objective.
International Strategic Partner - As requested by the sponsors, IFC will help to introduce a strategic partner with a strong track record in SME/Rural/Agriculture Banking to be an investor/technical partner in the project.
Financial Additionality- IFC plans to provide long term debt financing to the Bank along with its equity investment which would be beneficial for the Bank to manage its funding during the initial years of operations.
Environmental & Social Categorization Rationale
CACB is a greenfield bank and hence does not have any lending exposure currently. The lending business of the bank is expected to comprise full range of commercial banking including corporate and project finance, SME and microfinance. Overall, this may present potentially undesirable environmental or social risks and impacts that will be diverse in nature, widespread in geography and some of which may have irreversible E&S impacts. Hence, the E&S risk of the proposed investment is high and the project is categorised as FI-1. The applicable Performance requirements will be i) the IFC- FI Exclusion List; ii) The host country E&S laws and regulations; and iii) the IFC Performance Standards.
Main Environment & Social Risks and Impacts of the Project
Main E&S risk and impacts of the project emanates from the corporate, project and SME finance. These includes impacts like occupational health & safety concerns, labour and working conditions, fire and life safety, construction related E&S risks, waste and pollution management and possibly land and biodiversity impacts depending on the nature and location of the investments to be made by the bank. Additionally, there is a likelihood of social risks and impacts in case of agriculture related projects in the country. At present the bank does not have an E&S risk management system in place. The bank was found to be in gross compliance with IFC's requirements of PS-2 on Labour and Working Conditions.
Mitigation Measures/ ESAP
Anticipated completion Date
Establish ESMS including guidelines for its implementation.
within a month from Commitment
Appoint ESMS officer/team for implementation of SEMS
on or prior to commitment
Review ESMS implementation
six months from commitment
For inquiries about the project, contact:
Mr. Harris Premaratne
Cargills Agriculture and Commercial Bank Limited
No. 696, Galle Road, Colombo 3.
Tel: +94 (0) 777 762234
Fax: +94 (0) 11 2 055575
For inquiries and comments about IFC, contact:
General IFC Inquiries
IFC Corporate Relations
2121 Pennsylvania Avenue, NW
Washington DC 20433
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