FINANCING PROJECTS IN THE FOREST FINANCING PROJECTS IN THE FOREST PRODUCTS INDUSTRYPRODUCTS INDUSTRY

European Bank for Reconstruction and DevelopmentEuropean Bank for Reconstruction and DevelopmentJuhani Numminen, Senior Adviser Juhani Numminen, Senior Adviser

Pulp, Paper and Forest Products IndustriesPulp, Paper and Forest Products IndustriesJoensuuJoensuu 8 November 20078 November 2007

Table Of ContentsTable Of Contents

IntroductionIntroductionEBRD EBRD –– an overviewan overviewFinancing with the EBRDFinancing with the EBRDEBRD in pulp, paper and forestryEBRD in pulp, paper and forestryCoCo--financing with commercial banksfinancing with commercial banksCase: Estonian CellCase: Estonian CellContactsContacts

IntroductionIntroduction

The main output of the forestry sector is wood raw material Demand for most end products of the Forest Products industries still grows steadilyEastern Europe is forecast to have the fastest growth of paper and board demand to 2015Western Europe is a big net importer of fibreEastern Europe, esp. Russia, has untapped forest resourcesIt is expected that investment in the Forest Products industries in Eastern Europe by local and foreign companies will gather paceMost Forest Products industries are very capital intensiveFinancing is critical to the development of this sector

EBRD EBRD –– an overviewan overview

What is the EBRD?What is the EBRD?

048

121620242832

'98 '99 '00 '01 '02 '03 '04 '05 '06

International financial institution, promotes transition to market economies in 27 countries from central Europe to central Asia

Owned by 60 countries and two inter-governmental institutions

Capital base of €20 billion

Cumulative commitments €30.5 billion

June 2006

Mobilisation capacityMobilisation capacity

Ability to mobilise Ability to mobilise funds from our funds from our partnerspartnersCumulative Cumulative additional funds additional funds mobilised EUR 64.1 mobilised EUR 64.1 billionbillionSectoralSectoral knowledge: knowledge: extensive experience extensive experience in wide and diverse in wide and diverse sectors sectors 0

25

50

75

100

1998 1999 2000 2001 2002 2003 2004 2005

EBRDMobilised

EBRD regionEBRD region

Strengths of the EBRDStrengths of the EBRD

Strong, internationally recognised financial partner with long-term perspective and mission;

Willing to share risks, including political risks (customised to each transaction);

Preferred Creditor Status;

One of the few sources of long-term limited recourse finance for projects;

Good working relationships with governments;

Political leverage due to EBRD’s unique mandate and shareholders’ structure

Active problem solving

Financing with the EBRDFinancing with the EBRD

EBRD Financing InstrumentsEBRD Financing Instruments

Loans (Euro, USD, RUR)

– Limited recourse

– Sponsor-guaranteed (with or without political risk cover)

Equity, including combination of loan and equity

– Straight equity (ordinary shares)

– Preferred equity

– Portage equity (with put back to the Sponsor at pre-agreed, debt-like pricing)

Guarantees, including credit enhancements (performance bonds etc.)

35%35%

Minimum Project Euro 20m

Minimum EBRD financing Euro 7m

Direct financing: Basic Guidelines Direct financing: Basic Guidelines

Significant equity contribution from the Sponsor ensures a prudent capital structure

Appropriate return on investments -a fair balance of risk / reward

EBRD money usually not to exceed 35% of capitalisation of company (or 50% in case of syndication)

Sponsor A

EBRDProject

Company

Co-financing Banks A/B loan structure

Limited Recourse Debt Limited Recourse Debt -- JVJV

Sponsors provide EUR 40 million in equity and robust completion, input and off-take obligations.

The EBRD provided a EUR 45 million loan

Maturity 7 years

Debt

Note: details are simplified for case study

Equity

Sponsor B

• The Sponsors guarantee the EBRD loan until the new plant is completed. Thereafter the loan must be repaid by the Project Company only.

Portage EPortage Equity Financequity Finance

The EBRD purchased for EUR 14 million a 20% equity stake in the Eastern European company established by the international sponsor

EBRD exits through a put and call arrangement to the international sponsor

Maturity 7 years

Pricing equal to sponsor’s debt funding costs plus a margin

Note: details are simplified for case study

Equity

EquityInternational sponsor EBRDLocal project

company

Risk equityRisk equity

ProjectCompany

EBRD exits through a put to the Sponsors with pricing depending on performance of the Company. EBRD takes full risk equity after “Project Completion” targets are met.

As an alternative, EBRD’s risk could have been limited to specified (such as political risk) events with recourse to the Sponsors in all other cases.

Risk

Note: details are simplified for case study

Equity

EquityInternational sponsor

Local sponsor

EBRD

EBRD in pulp, paper and forestryEBRD in pulp, paper and forestry

Selected EBRD investments in Selected EBRD investments in Forest Industries, 1993Forest Industries, 1993--20062006

Loan

Equity

20

8

LocalKazakhstanTestliner tissueKazakhstan Kagazy2007

Loan9SwedenA&R CartonRussiaPackakingA&R Carton2007

Type€millionCountryOwner/PartnerCountryProductCompanyYear

Loan11TurkeyKastamonuBosniaPulp & paperNatron-Hayat2006

Loan20PolandBarlinekUkraineParquetBarlinek2006

Loan35AustriaKronospanUkraineParticleboardKronospan UA2006

Loan21AustriaKronospanRussiaResinKronohim2006

Loan16 FinlandJohn NurminenRussiaTimber transportJohn Nurminen2006

Loan

Equity

12

1

FinlandKoskitukkiRussiaSawmill, plywood

Koskisilva2006

Loan36FinlandStora EnsoRussia2 Sawmills, packaging

Stora Enso2006

EBRD FinancingForeign InvestorProject

Selected EBRD investments in Forest Industries, Selected EBRD investments in Forest Industries, 19931993--20052005

Project Foreign Investor EBRD Financing

Year Company Product Country Owner/Partner Country €million Type

2005 Botnia Saw mill Russia Metsa-Botnia Finland 22 Loan

2005 OOO Pfleiderer Particleboard Russia Pfleiderer Germany 25 7

Loan Equity

2005 Egger Romania Particleboard Romania Egger Austria 44 17

Loan Equity

2005 Kronospan MDF Slovakia Kronospan Group Austria 14 Loan

2005 Svilosa Pulp Bulgaria local 18 Loan 2004 Frati-Sebes Particleboard,

MDF, Resin Romania Kronospan Group Austria 70 Loan

2004 Estonian Cell Pulp Estonia Larvik Cell Heinzel Holding

Norway Austria

19 Equity

2003 Kronospan MDF, Resin Russia Kronospan Group Austria 63 Loan 2003 Rubizhansky Paperboard,

Packaging Ukraine D.S. Smith U.K. 12 Loan

2003 Pestovo Saw mill Russia UPM Finland 15 Loan

2002 Imavere Saw mill Estonia Local 7 Loan 2002 Stora Enso MPF* Saw mills,

Packaging Regional Stora Enso Finland 100 Loan

Selected EBRD investments in Forest Industries, Selected EBRD investments in Forest Industries, 19931993--20052005

Project Foreign Investor EBRD Financing Year Company Product Country Owner/Partner Country €million Type

2000 Kostrzyn, KZP Paper Poland Trebruk Sweden 12 11

Equity Loan

1999 Ambro Pulp, Paper Romania Rossmann/Sical France 6 Loan 1999 Imavere Saw mill Estonia Local 5 Loan 1997 Imavere Saw mill Estonia Local 7 Loan 1997 Krono-Wood

Mielec Chipboard Poland Kronospan Group Austria 19 Loan

1996 Kostrzyn, KZP Paper Poland Trebruk Sweden 13 Loan

1995 Sepap Steti Pulp, paper Czech Rep. AssiDoman Sweden 57 Loan 1994 Kronospan

Szczecinek MDF, Resin Poland Kronospan Group Austria 31 Loan

1994 Kwidzyn Pulp, paper Poland International Paper U.S. 28 Loan 1994 Papirnica

Kolicevo Paperboard Slovenia Saffa/Sarrio Italy 3

10 Equity Loan

1993 Kostrzyn, KZP Paper Poland Trebruk Sweden 18 Loan

Selected EBRD investments in Forest Industries, Selected EBRD investments in Forest Industries, 19931993--20052005

Project Foreign Investor EBRD Financing Year Company Product Country Owner/Partner Country €million Type

1994 Zapsibinvest Solid wood board

Russia Loschen Germany 4 Loan

1993 Kostrzyn, KZP

Paper Poland Trebruk Sweden 18 Loan

1993 Polspan Szczecinek

Chipboard Poland Kronospan Group

Austria 16 Loan

1993 Malta-Décor Paper Poland Kronospan Group

Austria 6 Loan

1993 Kner Nyomda

Packaging Hungary Cofinec France 4 2

Equity Loan

1993 PCA-Budafok

Packaging Hungary PCA U.S. 3 Loan

Total 688

CoCo--financing with commercial banksfinancing with commercial banks

CoCo--financing with commercial banksfinancing with commercial banks

EBRD remains lender of record for the entire loan => only one term sheet to be negotiated

Commercial lenders (including relationship banks of the Sponsor) benefit from EBRD’s preferred creditor status

Interest on loan is exempt from any withholding tax

Attracting external finance increases the resources available for funding other projects

B loan:

Banks via Participation Agreement

EBRD A/B Loan Agreement

Syndication:Syndication: The A/B loan structureThe A/B loan structure

EBRD is lender of record for the entire loan.

Participation Agreement transfers all risks in the B loan to the B lender.

B lenders share Preferred Creditor Status (including, inter alia, exemption from withholding tax, bank provisioning requirements and foreign debt rescheduling).

Borrower

A loan: EBRD

Case: Estonian CellCase: Estonian Cell

Estonian CellEstonian Cell

EUR 19 million equity investment into green-field Aspen BCTMP pulp mill in Estonia, 140,000 t/a

Total project cost EUR 153 million

Second largest foreign direct investment in Estonia

Three equal shareholders: EBRD, Larvik Cell, Heinzel

State-of-the-art technology and high-demand product

Low cost producer

Estonian CellEstonian Cell

Larvik Cell AS,Norway

1/3 Shareholder & Sponsor

Estonian Cell ASEstonia

Estonian State ForestManagement Centre

Long-term wood supply contract

Nor-Est Wood ASEstonia

Long-term wood supply contract

Gas / Electricity UtilitiesRWE IN / Tessag KSH

with Andriz as the main equipmentsupplier

Wilfried Heinzel AGAustria

Wood SupplyAgreements

Heinzel Holding GmbHAustria,

1/3 Shareholder

RZBSenior Debt Underwriter

OeKBAustrian Export Agency

EBRD1/3 Shareholder

Agency Agreement EPC Contract

LT Supply Agreements

EUR 19 mln

EUR 108 mln

ContactsContacts

Juhani NumminenSenior Adviser, LondonPulp, Paper and Forest Products Industries+44 20 7338 7056numminej@ebrd.com

Visit the EBRD website for “A Guide to EBRD financing”http://www.ebrd.com/pubs/find/index.htm