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IFC PROVIDES US$1.75 MILLION IN FINANCING FOR LEATHER GARMENT MANUFACTURING PLANT IN MONGOLIA Part of Extending IFC’s Reach Initiative


L. Joseph
Phone: (202) 473-7700
Fax: (202) 974-4384
E-mail: ljoseph@ifc.org


WASHINGTON, D.C., March 25—The International Finance Corporation (IFC) has recently signed investment agreements providing a financing package of US$1.75 million to leather tanners G&M Industrial Co. Ltd. of Mongolia (G&M) to diversify operations to include a US$3.5 million leather garment manufacturing plant with an annual capacity of 80,000 garments. The project will be Mongolia’s first large-scale private leather garment enterprise. It will also be IFC’s first investment in Mongolia. As such, it is expected to have an important demonstration effect and set the stage for similar investments in the future.

G&M will make use of its own high quality goat and sheep leather, a skilled domestic labor force, and support from European specialists on technology and marketing. The finished leather garments will be sold initially to the domestic market as well as to the Russian and Chinese markets, specifically to Siberia and Inner Mongolia. Exports to western European markets will be developed progressively.


IFC’s financing package consists of a loan of US$1.45 million for its own account and an equity investment of US$0.3 million, which will be 14.8% of G&M’s share capital. The project will be implemented over a two-year period. In addition to arranging financing, IFC has given substantial assistance for project structuring and development and for marketing support. G&M is a joint venture between the Mongolian sponsor, Enkhjing Co. Ltd. (which will own 78.3% of the equity) and Testorf Trading GmbH, a German company (which will own 6.9% of the equity). Testorf Trading GmbH is providing technical assistance to the tannery. Since 1994, the tannery has become a domestic market leader for high quality goat and sheep leather.


“The project will help to develop Mongolia’s emerging private sector, and IFC’s financing is likely to be regarded as a positive signal to other investors and financing institutions,” said IFC Vice President Carol Lee. “By adding value to Mongolia’s livestock industry, the project promotes the objectives of Extending IFC’s Reach Initiative. G&M is the kind of project that IFC would like to encourage under the Initiative’s Small Enterprise Fund (SEF), which targets small-scale investments in countries where the scope for private enterprise is limited.”


“Extending IFC’s Reach Initiative” is a three-year pilot program, launched in 1996, to expand the geographic range of IFC’s activities to developing countries facing challenging conditions, limited flows of foreign investment, and constraints to private sector activity. Sixteen countries or clusters of countries have been selected for this program, including Mongolia, which is transitioning from a centrally-planned to a market economy. Besides supporting the country’s nascent private sector, IFC is also providing substantial assistance to adapt Mongolia’s emerging legal system to the requirements of international project financing.


A US$40 million SEF was created under Extending IFC’s Reach Initiative to invest in projects with total costs between US$250,000 to US$5 million. G&M is one of the first projects approved under the SEF.


IFC, a member of the World Bank Group, is the largest multilateral source of equity and loan financing for private sector projects in developing countries.


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