The project consists of a US$ 20 million (€19.6 million) loan to the leading Armenian brandy producer, Yerevan Brandy Company (YBC), to finance permanent working capital needs and its development. A commercial guarantee, subject to a carve-out for specified political events, is provided by the sponsor of the project and the sole shareholder in the company, Pernod Ricard S.A.
The proceeds of the loan will enable YBC to develop its exports towards the Commonwealth of Independent States and western countries through:
- the strengthening and restructuring of its balance sheet by replacing short-term debt with long-term debt to finance spirit stocks;
- the upgrading of its equipment and facilities to raise quality standards and to selectively increase its production capacity; and
- the financing of permanent working capital requirements.
The project represents the first EBRD private sector project in Armenia. The transition impact and demonstration effect of the project are expected to be high, given:
- its support for a private sector company, strengthening market-oriented behaviour in Armenia;
- its strong economic links with the grape-growing sector, which is badly in need of investment; and
- its support for the restructuring of a post-privatised company and the establishment of this company as a key market player.
YBC is the leading Armenian brandy producer and exporter. The company was acquired in 1999 by Pernod Ricard S.A. YBC sold 1 million litres of brandy in 1999. Pernod Ricard S.A., the majority owner of YBC, is the leading European alcoholic beverage producer and the fifth largest worldwide. The company had a consolidated net turnover of €3.6 billion in 1999. The Pernod Ricard Group has a strong track record of developing and implementing wine projects around the world, as shown by the success of its Australian Jacob’s Creek brand.
US$ 20 million (€19.6 million) long-term loan with a commercial guarantee from the sponsor, subject to a carve-out for specified political events.
The project was screened B/1, requiring an environmental analysis and audit. These were conducted by independent environmental consultants in February 2000. The main issues arising from the audit were:
- exceeding the limits for suspended solids within waste water discharged from the Yerevan main plant;
- potential fire hazard resulting from poor electrical networks and insufficient fire-fighting equipment;
- poor handling and storage of hydrocarbon products;
- asbestos-containing materials within the fabric of buildings, particularly roofing; and
- poor housekeeping.
An environmental action plan (EAP), which has been agreed with the company on the basis of the results of the analysis and audit, includes appropriate measures to address these issues. Implementation of the EAP will ensure that the company reaches compliance with relevant national and EU standards. According to the audit, the company has not been subject to fines or penalties for non-compliance with health, safety and environmental regulations in the past. The company will report annually to the Bank on environmental matters, such as compliance status and progress with implementation of the EAP.
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