[China Co-Financing Fund] IDB Invest administers USD 45 million loan from CHC to Klabin S.A. for Puma II paper/pulp production project (Linked to Project ID #86526)

On October 31, 2019, the private sector institution of the Inter-American Development Bank (IDB) Group, IDB Invest (formerly Inter-American Investment Corporation, or IIC), signed an 800 million USD loan package with Klabin S.A. for the Puma II project: the construction of two new machines to produce paper, paper products, and paper pulp at Klabin's plant in Ortigueira, Paraná. IDB Invest was both the exclusive leader of the loan package and agreed to provide 180 million USD from its own funds. The People's Bank of China (PBOC) provided USD 45 million via the IDB Invest-managed China Co-Financing Fund for Latin America and the Caribbean. The borrowing terms are unknown. Of the remaining USD 575 million, the IFC provided a ten-year USD 103 million loan from its own resources and a USD 50 million ten-year loan through the IFC Managed Co-Lending Portfolio Program (MCPP). The IFC also noted 72 million USD of the total 800 million would come from "an international agency (which will be effective in the coming months)," later confirmed to be Japan International Cooperation Agency (JICA) in Klabin financial statements, and another USD 350 million would come from the following commercial banks: Santander, Rabobank, HSBC, Sumitomo Mitsui Banking Corporation, Crédit Agricole, BNP Paribas, Sumitomo Mitsui Trust Bank, and KEB Hana. The IFC served as a "lender of record" for the commercial banks alongside IDB Invest. Of the USD 350 million from the commercial banks, USD 127 million was a syndicated loan put together by the IFC with a 7-year maturity period. The IDB approval date for this loan financing was September 24, 2019, and it refers to this project as "11984-02: PUMA II". IFC project number is 42138. Besides the loan package put together by IDB Invest and the IFC, USD 245 million was provided by Finneva, with a loan agreement signed October 15, 2019 and another loan was provided by the Brazilian Development Bank (BNDES) worth BRL 3 billion. The total project cost was originally estimated to be BRL 9.1 billion, and is now estimated to be about BRL 12.9 billion due to inflation, exchange rate changes, additional costs due to COVID, and a change in one of the project's machines to be used for a different kind of paper product production. Klabin's financial statements discuss the entire USD 800 million loan from the IFC, IDB Invest (including the China Co-Financing Fund), and JICA together, so the precise loan terms of the CHC financing, as well as whether or not the financing provided by the CHC has been disbursed, are unknown. However, the first disbursement from the USD 800 million loan package, worth USD 100 million, occurred between March 31, 2020 and June 30, 2020. The disbursement was divided into two tranches, with USD 48 million having a 7-year maturity (maturing in 2026) and a 6M LIBOR +1.45% interest rate; and USD 52 million having a 10-year maturity (maturing in 2029) and a 6M LIBOR + 1.75% interest rate. Per Klabin's Quarterly Information Report at September 30, 2020, the financing from BID Invest and IFC is collateralized by the industrial plants in Correia Pinto - SC and Telêmaco Borba - PR. The Puma II project is to be completed in two phases, with the first increasing the existing Puma I unit's capacity by adding an additional kraftliner paper machine (PM 27) and pulp-making (fiberline) machine. The second phase originally was to add another new fiberline machine and kraftliner machine (PM 28), but was switched to a coated board machine instead of kraftliner. The Puma I unit was also partially financed by IDB, and reached completion in September 2016. Puma II will increase Klabin's production in their Ortigueira location by 920,000 tons per year. Surplus energy (about 90 MW per hour) from the project generators will be transmitted to Brazil's National Interconnected System (SIN), sufficient to supply around 250,000 homes. For more specific information on the specific machinery to be added and the capacity of the individual parts of Puma II, see the Environmental and Social Review Summary (ESRS) published by IDB Invest. According to its press releases, Klabin received the installation license for the Puma II project in April 2019 and signed a Protocol of Intent with the State of Paraná government on December 17, 2019 regarding implementation details. Phase 1 construction began July 3, 2019. Originally, Phase 1 completion was scheduled for May 2021 and Phase 2 for 2023 (ESRS, Klabin Quarterly Financial Statements Q1 2020). There were delays in implementation due to COVID, as construction was suspended in or about March 23, 2020, and began again at a slower pace around May 2020. The machines built in the first phase started operation at the end of August 2021. Phase II construction had also started by the end of August 2021, but the exact date is unknown. Per the Quarter 1 2022 Klabin financial documents, the construction phase of the second paper machine was 32% complete, according to measurements made on 04/17/2022. Startup is forecast for the second quarter of 2023. By the end of March 2022, a total of R$ 8.489 billion across all loans had been disbursed for the project. Klabin listed the following companies as partners in project implementation for the first phase: Andritz, Confab Industrial, Veolia HPD, Siemens, SUEZ Water Technologies & Solutions, Valmet, and Pöyry. According to IDB Invest, Klabin is the largest paper producer in Latin America, and the largest exporter and recycler of packaging paper in Brazil. The project goals, as described by IDB Invest, are "to increase Brazilian industrial production and its efficiency, promote global and regional trade through export growth, expand and streamline the pulp and paper industry value chain, create jobs, increase renewable energy generation, as well as increase energy efficiency. [sic] promote the improvement of the social and environmental practices of the sector in Brazil." The China Co-Financing Fund was established on 14 January 2013 with a contribution of 2 billion USD by the People's Bank of China, and it is administered by the IDB. For more information, see Umbrella Project ID #86526.

Additional details

1. Klabin's financial statements does not explicitly record that 100 million USD of the 800 million USD loan has been drawn down. However, this is extrapolated from the Klabin financial statement stating that 700 million is the remaining amount. 2. Assumption regarding collateral: the exact language used in Klabin's financial statements about the loan's collateral is as follows: "The financing from BID Invest and IFC is guaranteed by the industrial plants in Correia Pinto - SC and Telêmaco Borba - PR." This is assumed to be collateral, not a guarantee per AidData's methodology, because (1) an industrial plant tends not to have the capability to provide such a guarantee and (2) The "Guarantees" section noted that "Export credit loans, export prepayments, BONDs, Agribusiness Receivables Certificates and working capital do not have collateral." This indicate guarantee/collateral are being used interchangeably in the statements. 3. With a nominal production capacity of 3.5 million tons a year of pulp and paper and gross revenues of R$ 11.5 billion in 2018, Klabin S.A. is the largest producer, recycler and exporter of packaging paper in Brazil and the market leader in industrial bags and corrugated packaging. In addition, it is the only company in the country to offer the market a solution in short fiber, long fiber and fluff pulp.

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