IFC in Brazil: Helping build a diverse economy Public Disclosure Authorized

IFC’s manufacturing and services portfolio features a number of projects in brazil, the largest country in Latin America. Our eff orts support companies that seek to expand and tap into the country’s growing economy, increased consumer spending, and rising demand for goods and services. Our clients include local, regional, and global fi rms, with a particular focus on Brazilian companies that are planning to expand regionally and internationally.

Several industry sectors – automotive components, , steel, electronics, and life sciences, to name a few – off er tremendous potential to spur development in a country that also faces some complex challenges. Public Disclosure Authorized

What We Off er IFC, a member of the World Bank Group, is the largest multilateral source of loans and equity fi nance for private enterprises in emerging mar- kets. We bring the strength of our $18.3 billion net worth, global experience, local presence, and industry expertise to benefi t our clients.

• Tailored solutions that respond to client needs include: long-term debt, equity, Public Disclosure Authorized and quasi-equity products; local currency fi nancing; and tenures up to 12 years. IFC Advisory Services off er industry, regulato- ry, and country expertise across multiple subsectors and can help support fi nancial restructuring

• Track record: IFC investments span the globe, with particular strength in Latin America. As of June 2008 our manu- facturing and services investments total $2.4 billion in Brazil, 23 percent of IFC’s cumulative investment in the country. Projects in Brazil account for 28 percent of IFC’s portfolio in Latin America and the Caribbean

• Leadership in sustainability: IFC’s guidance can improve environmental and social performance, helping mitigate such risks as waste disposal, management of hazardous materials, and reputational concerns

• Guidance on corporate governance: IFC can help clients strengthen corporate governance standards, and our Public Disclosure Authorized leadership is well recognized in the Brazilian business community. For example, Sao Paulo’s stock exchange part- nered with IFC a few years ago to develop its corporate governance matrix, based on IFC’s own matrix

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The Business Case for Sustainability: Brazil’s Green Stock Index Soars

IFC’s support has helped launch a new index of publicly traded companies in Bra- zil that have adopted world-class sustainability standards–only the second such index in the emerging markets. The BOVESPA Corporate Sustainability Index, also known as ISE, lists companies, such as aerospace manufacturer , that pri- oritize corporate social responsibility, environmental best practices, and corporate governance along with revenue, profi t, and returns on investment. Already the index is showing that sustainability is good for business. Many observers are attributing a boom in Brazil’s stock market, with a larger number of IPOs, to this increased focus on sustainability.

Embraer: A leader in Sustainability

Embraer is one of the world’s fou r largest aircraft manufacturers and the only one based in a developing country. The company recently introduced a new generation of aircraft, assisted by long-term fi nancing from IFC. The new planes have quickly become a success with airlines and leasing companies across the globe. As a member of Brazil’s prestigious BOVESPA Corporate Sus- tainability Index, Embraer is demonstrating the business case for sustainabil- ity: that the drive for profi t, environmental stewardship, social responsibility, and corporate governance can function in tandem, bringing broad benefi ts from private sector growth. IFC role and development impact: • Long-term fi nancing: IFC’s investment came at a time when access to fi nancing was limited, given the risks of lengthy new product development cycles in the industry and the sovereign risks associated with an emerging market country such as Brazil. IFC helped improve Embraer’s access to longer-term credit in the international market. The average fi nal maturity of IFC’s loans was almost 10 years, a better refl ection of the commercial aircraft development cycle • Job creation, job preservation, and training: Embraer employs more than 14,500 employees and has developed one of Brazil’s best-trained cadres of engineers and technicians. The company plays an important part in reversing the brain drain of highly skilled workers from the country • Supply chain development: the company has catalyzed growth in the local supply chain, and this encourages suppliers to meet Embraer’s world-class standards of effi ciency, governance, and sustainability

Coteminas: Cultivating the Textile Industry

Coteminas is a publicly held, integrated Brazilian textiles holding company that merged with Springs U.S. in January 2006 to become Springs Global. The new fi rm is the largest home textiles producer in the world, with a global market share of 7 percent. IFC’s long-term partnership with the company has helped it expand and retain its Brazilian cotton farming and production facilities, creating new jobs, while enabling it to compete internationally by establishing a broader manufacturing presence in Asia.

IFC role and development impact: • Several rounds of fi nancing since 1993, in support of continuous expansion • Access to long-term fi nancing that would not be available otherwise • IFC’s brand helped mobilize additional funding • Local supply chain linkages, both upstream with cotton farmers and downstream with apparel manufacturers

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Randon Group and Fras-Le: Capitalizing on Growth in Automotives

As Brazil has emerged as a burgeoning hub for the automotive industry, automotive suppliers have set up shop as well. IFC is assisting Randon Group, which manufactures trailers and semitrailers for trucks and rail transportation, as it seeks to improve effi ciencies and raise its environmental standards. The June 2007 fi nancing agreement will allow the company to install an electrostatic and water-based painting line, introducing state-of-the-art technology to reduce air and water effl uents, improve product quality, and achieve cost savings.

A Randon subsidiary, Fras-le, is a homegrown components company that has become Brazil’s largest manufacturer and exporter of friction materials. It is also an environmental leader, producing asbestos-free brake pads, brake linings, blocks, and clutch facings.

Several rounds of IFC fi nancing, including equity and debt packages, are supporting the growth of this strong local player, helping Brazil strengthen its position as a destination of choice for the automotive industry. IFC’s most recent investment will help the company expand its brake pad manufacturing capacity to supply a new order from a large multinational OEM.

IFC role and development impact: • Long-term fi nancing for Randon and Fras-le of more than $50 million • Reduction in exposure to foreign exchange risk • Improvements in environmental standards • Enhancement of Brazil’s competitiveness: support for a strong local player reduces automotive manufacturers’ reli- ance on imported components

Lojas Americanas: Expanding Access to Con- sumer Goods

Lojas Americanas is one of Brazil’s leading retail chains, selling a broad range of leisure products, home appli- ances, beauty products, toys, clothing, and convenience food. The company operates a network of 375 stores (including the 127 stores acquired from BLOCKBUSTER in January 2007) and three distribution centers lo- cated in 19 Brazilian states and in the federal district. It employs 10,600 people in the parent company, selling 50,000 products purchased from 1,600 suppliers. The company’s multi–channel strategy includes provision of fi nancial services, allowing customers without bank accounts to access a wider range of higher quality, aff ordable goods. Two rounds of IFC fi nancing have supported the chain’s expansion, enabling it to add more stores that off er a range of goods at fair prices as well as build an electronic storefront.

IFC role and development impact: • Provision of $68 million in two rounds of long-term debt fi nancing to support the stores’ expansion program, the e–commerce operation, upgrading management information systems and working capital requirements for continued growth • Support for more environmentally friendly practices, especially better waste treatment • Job creation: Lojas Americanas hired 2,000 new staff in 2005 and 2006 • Increased access to consumer goods, especially in less developed regions: Lojas Americanas off ers rapid, aff ord- able access to its products in remote towns, through its web–based electronic storefronts and the expansion of the physical store network

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Saraiva S.A. Livreiros Editores: Supporting the Reading Habit in Brazil

Saraiva is to Brazil what Borders and Barnes & Noble are to the United States – a chain of mega-bookstores with numerous retail outlets and substantial online sales as well. The company is also a leading publisher of educational and legal books. IFC’s 1997 equity investment helped the company broaden its national footprint, adding retail locations and introducing the mega-bookstore concept to encompass the sale of books, CDs, videos, information technology products, and electronic devices. The expansion positioned the company ahead of its competitors in key markets, contributing to its impressive growth in profi ts.

IFC role and development impact: • Financing to enable Saraiva’s expansion in the late 1990s, a period of considerable volatility in Brazil • Support for best practices in corporate governance, an eff ort that has helped improve the company’s liquidity • Better access to reading materials, music, and video entertainment

Apolo Tubos: Meeting the Demand for Steel

Apolo Tubos, headquartered in , is a midsize supplier of steel products. Part of a larger conglomerate that produces a range of construction materials, the company is in the midst of an expansion. IFC support is helping the company broaden the range of products off ered, as it looks to diversify into production of value added products, such as steel tubing for oil and gas infra- structure projects.

IFC role and development impact: • Provision of long-term fi nancing to Apolo and other companies of the group amounted to $32.5 million. Without • IFC, the company would not have been able to access the funding it needed to support its expansion • Assistance in forming a joint venture with Lone Star Steel to produce value-added products • Job creation: the company has expanded its Brazilian workforce by 21 percent, from 475 workers in 2001 to 578 in 2006

OUR APPROACH In Brazil, the manufacturing and services sector focuses on second-tier companies with the potential to become market leaders in fast-growing sectors, including automotive components, steel products, life sciences, retail, and electronics.

We target: • Companies considering investment in other emerging market countries • Companies preparing for an IPO, in which IFC can play a role in raising corporate governance standards and in transforming from a family-owned to a publicly traded company • Companies interested in developing a long-term relationship with IFC as a key to growth

IFC’s Track Record in Brazil Brazil is IFC’s third largest country exposure, after India and Russia, with $2.4 billion in committed portfolio, of which $1.9 billion is disbursed as of June 30, 2008. Loan participations, for which IFC is lender of record, amount to $980 million. IFC’s cumulative com- mitments in Brazil total $10.4 billion (28 percent), of which $2.4 billion (23%) represent investments in manufacturing and services.

IFC Commitments in Latin America and the Caribbean Region Cummulative as of June 30, 2008 IFC Commitments in Brazil

Brazil 28% Total: $37.6 billion of which: Total: $10.4 billion of which: $2.4 billion $10.4 billion (28%) were in Brazil 23% (23%) were in manufacturing and services sectors 72% 77%

For more information about IFC’s manufacturing and services products and services in Brazil, please contact: Fares Zaki +55-11-5185-6899 or [email protected], Sabine Schlorke 1-202-458-5480 or [email protected], Adam D. Struve +55-11-5185-6886 or [email protected], Frederico Benite +55-11-5746 6863 or [email protected] Printed on material that meets internatiional environmental standards and is from sustainably managed commercial forests ifc.org 2008

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