Loan of the Year and Infrastructure Financing of the Year-Brazil: LD Celulose
SPONSORS: Lenzing AG of Austria (51%) and Duratex S.A. of Brazil (49%)
LOCATION: Minas Gerais State
FINANCING TYPE & SIZE: $1.134 billion loan financing led by IDB Invest and IFC
BANKS: International Finance Corporation (IFC), The Inter-American Investment Corporation (IDB Invest), Finnvera, Banco Santander, BNP Paribas, Commerzbank Aktiengesellschaft (Luxemburg Branch), Erste Group Bank AG, HSBC Bank plc, KfW IPEX-Bank GmbH and Raiffeisen Bank International AG, Finnish Export Credit Ltd., Wells Fargo Bank, N.A.
LAW FIRMS: Allen & Overy LLP, Linklaters LLP, Kelley Drye & Warren LLP, Eisenberger & Herzog Rechtsanwalts GmbH, Machado Mayer Advogados Associados, Pinheiro Guimaraes-Advogados, Binder Grosswang Rechtsanwalte, Austria
Mention forestry and Brazil together in the same sentence and the images that come to mind can be two-fold.
First there is the Amazon rainforest, an area of massive global climate importance, biodiversity and indigenous life and culture. A second image is one of planned forestry with fast-growing eucalyptus tree plantations and recognition that this industry is one of Brazil’s leading commercial sectors.
The LD Celulose joint-venture between Austria’s Lenzing AG and Brazil’s Duratex S.A, to build a greenfield pulp processing plant in Minas Gerais State, is the only dual winner in the 2020 LatinFinance Project & Infrastructure Finance Awards. The project won the PIF for Brazil and for Loan of the Year.
The two sponsors, which secured financing from the IDB Invest and from the International Finance Corporation, are building a new mill to produce up to 500,000 tons of soluble cellulose per year for Lenzing’s operations in Asia. The company will take 100% of the facility’s output, either for its own fiber needs or to sell into the market, said Thomas Obendrauf, chief financial officer of Lenzing.
“This is by far the biggest single investment we have ever made. For us it is a key milestone to structurally strengthen our business and our cost. We are glad to team up with a partner from Brazil, who of course knows the country very well. Each partner brings a strength,” Obendrauf said.
Lenzing’s non-woven fiber market, which is about 30% of its business has seen an uptick due to the COVID-19 crisis as demand for sanitary wipes and products has increased. The remaining 70% of the fiber business is in textile applications, which suffered due to the crisis.
“The increase in demand for non-wovens was not good enough to compensate for textiles, but we see that market coming back,” Obendrauf said.
The project is due to be completed in 2022. A key factor that helped push the project to the top of the pile was the forethought to include a 144 MW co-generation plant with 40% of the energy produced expected to be fed back into the national electric grid.
The deal, which had been under discussion for three years prior to the final closing of financing details, which occurred just prior to the massive breakout of the COVID-19 pandemic in Latin America. The plant is expected to be completed by the end of 2021 and come online in March of 2022.
“When we decided to go to the IFC for financing the project, we expected that we would have a very high level of commitment from the company and the banks on sustainability measures. But this happened more than expected,” Antonio Joaquim De Oliveira, chief executive officer of Duratex said in an interview with LatinFinance.
“It is amazing. If you divide the time we dedicated to the formal process, I would say we dedicated 70-75% of the project taking care of questions related to social, environmental and sustainability. The requirements the IFC and the banks put for us were unbelievably high and very precise,” he said.
The expected industrial capex for the project is about $1.3 billion, Obendrauf said, with the joint-venture having an equity ratio of 37% between the two partners. The rest of the financing comes in the form of loans from international financial institutions.
The IFC and IDB Invest are each offering a loan package of $500 million while Finland’s export credit agency, Finnvera, is providing $147 million.
The deal stood out for both its size, greenfield status and co-generation plant. The new plant will result in roughly 1,100 new jobs and allow LD Celulose to sustainably plant and manage approximately 70,000 hectares of eucalyptus plantations.
“We plant 24 hours a day. We cut forest every hour of the day… WE try to put our best efforts towards preservation. We put 1 million hectares in preservation near rivers and mountains. There is a lot of capex involved in this project, but unfortunately our nation at this moment is failing to make efforts for those who deforest in the north. This is a social problem, with poor regions and many farmers with bad intentions,” Oliveira said.
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