EBRD lends $40 million to Russian cosmetics group

By Richard Wallis

The European Bank for Reconstruction and Development is lending Russia’s leading cosmetics producer, Kalina, $40 million to refinance its short term debts and provide this former EBRD client with long-term working capital to help it meet the challenges of a difficult economic environment.

An EBRD financing package to OAO Concern Kalina, consisting of two five-year loans of $10 and $30 million, is aimed at supporting the group at a time of continuing uncertainty on the credit markets when long-term working capital is extremely scarce. The initially discussed financing amount of USD 35 mn was increased by USD 5 mn to accommodate the needs of the company.

The EBRD funding will allow Kalina to extend the maturity of its loan book and strengthen its balance sheet, as well as help it sustain its market share and seek to penetrate new segments.

Kalina, a listed company whose shares are traded on Russia’s RTS and MICEX exchanges, is the national cosmetic industry’s leader and targets middle-income consumers in what is one of the world’s most dynamic markets for cosmetic products valued at about $10 billion at the end of 2008.

This is a very well run company which has an impressive strategy and has long served as a model of transparency by having adopted its own corporate governance code and producing international financial reports since the start of its relationship with the EBRD nine years ago, said Alain Pilloux, the EBRD’s Business Group Director for Russia.

Kalina is an important employer both in its Ekaterinburg base and also in the rest of Russia through its extensive local network, including over 200 distributors, and the EBRD is happy to show its support for a company which sees the crisis as an opportunity to penetrate new market niches, as it successfully did after the 1998 one, Mr. Pilloux added.

The EBRD took a minority stake in Kalina through two of its Regional Venture Funds in 2000. This was sold at the time of the company’s successful Initial Public Offering four years later. The Bank also advanced a $20 million loan to the group in 2004 which allowed it to complete a large-scale modernisation programme. That loan has since been repaid.