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IFC Innovates with Investment in New Chilean Forestry Fund Lignum Fund offers creative financing for Chile’s forestry sector


Karina Manasseh
Phone: (55 11) 5185-6881
E-mail: Kmanasseh@ifc.org

Washington D.C., April 24, 2006—The International Finance Corporation, the private sector arm of the World Bank Group, has committed $6.5 million to the Fondo de Inversión Forestal Lignum (the “Lignum Fund”), a $39.4 million Chilean private equity forestry fund, launched on April 12, 2006, to enable small and medium landowners to significantly increase their current income and to monetize and optimize the value of their current landholdings.

The Lignum Fund and the proposed forest-backed securitization are innovative financial instruments to offer an alternative capital market funding source for the forestry sector. At the same time, the Fund will have an important environmental impact through sustainable forestry management practices and the afforestation of dry, eroded land that currently has marginal alternative agricultural use.

Atul Mehta, IFC’s director for Latin America and the Caribbean, noted that, “IFC is proud to have partnered with Fundación Chile, Asset Chile and Independencia in this pioneering and creative venture.  The Lignum Fund will further develop securitization of forestry assets and has significant potential to be enlarged and replicated.”

The Lignum Fund has been developed and structured by a strategic alliance comprising Fundación Chile, Asset Chile, and Independencia S.A. Administradora de Fondos de Inversión (“Independencia”).  Fundación Chile will provide forestry technical advisory services to the Lignum Fund through a wholly-owned affiliate, SIF S.A. The Lignum Fund will be managed by Foresta Administradora de Fondos de Inversión S.A., an investment fund management company jointly owned by Asset Chile and Independencia. Fundación Chile, Asset Chile, and Independencia have each subscribed for a small portion of the Lignum Fund’s shares and the balance of participation is from a group of individual investors and Chilean and international institutional investors.

In its first three years, the Lignum Fund plans to acquire approximately 12,000 hectares of immature pine and eucalyptus forests, and plant approximately 15,000 hectares of land with pine and eucalyptus under long-term land-use right agreements with small and medium landowners.  These forestry assets of the Lignum Fund will be managed, harvested, and commercialized under long-term agreements signed with Forestal Celco S.A. and Forestal Mininco S.A.  On the basis of these contracts, the Lignum Fund intends to issue a securitized financial instrument backed entirely by net cash flows generated from the harvest and commercialization of its forestry assets.  Following this securitization, Fund investors will receivecash proceeds  as both dividends and a return of capital.  The Lignum Fund has a four-year duration, with the possibility of an additional four-year extension if approved by the fund investors.  Upon the final liquidation of the Lignum Fund, the fund investors will also receive an in-kind distribution of the subordinated tranche of the securitized bonds.

Ms Michele Golodetz, General Manager of SIF S.A. stated that "As one of Fundación Chile's most important innovations, the Lignum constitutes the first Forestry Fund established in Chile. We are privileged to complement Fundación Chile's forestry experience with the financial structuring and fund management expertise of Asset Chile and Independencia,  the support of the primary Forestry companies in Chile as well as the contributions made by the IFC. The Lignum Fund will allow forest owners to sell their forests before the end of the cycle and permit small and medium land owners to diversify into the forestry sector and receive payments throughout the growth period.

Dimitris Tsitsiragos, IFC’s director for Global Manufacturing and Services, said, “The Lignum Fund will capitalize on Chile’s competitive forestry sector and the solid support of Forestal Celco and Forestal Mininco.  This investment has many compelling features and strongly supports IFC’s strategy in the forestry sector.”

The International Finance Corporation is the private sector arm of the World Bank Group and is headquartered in Washington, D.C. IFC coordinates its activities with the institutions of the World Bank Group but is legally and financially independent. Its 178 member countries provide its share capital and collectively determine its policies. The mission of IFC is to promote sustainable private sector investment in developing and transition countries, helping to reduce poverty and improve people’s lives. IFC finances private sector investments, helps clients improve social and environmental sustainability, and provides technical assistance and advice to governments and businesses. From its founding in 1956 through FY05, IFC has committed more than $49 billion of its funds and arranged $24 billion in syndications for 3,319 companies in 140 developing countries. IFC’s worldwide committed portfolio as of FY05 was $19.3 billion for its own account and $5.3 billion held for participants in loan syndications. For more information, visit
www.ifc.org.

Fundación Chile was established in 1976 and is a private, non-profit institution, created by the Chilean government and ITT Corporation with the objective of contributing to market innovation and technology transfer, essentially in sectors based on renewable natural resources.  It’s main areas of activity are in agribusiness, aquaculture/fisheries, forestry/wood products and various other sectors including IT services.  

Asset Chile is a Chilean investment bank, founded in 1984, providing corporate finance advisory services in a variety of areas including mergers and acquisitions, strategic alliances, divestments, initial public offerings, and general capital markets transactions.  Asset Chile pioneered the external debt conversion schemes developed in Chile during the 1980s, executing more than $1 billion in debt-to-equity swaps.  It also pioneered non-recourse local currency financing for large mining projects; has been a leader in advising on mergers; has been instrumental in developing build-operate-transfer concession schemes for ports in Chile; and was first to develop local bond financing for the mining sector in Chile.  Throughout its history, Asset Chile has advised on transactions with an aggregate value of more than $5 billion ranging in size from $5 million to more than $500.]

Independencia S.A. Administradora de Fondos de Inversión is a privately-owned Chilean fund management company specializing in real estate investments.  It manages two real estate funds –Fondo de Inversión Rentas Imobiliaria and Fondo de Inversión Desarrollo Inmobiliaria –with a total asset value of $150 million.