IFC to part-finance Volkswagen India project in Maha

Written by Sanjay Jog | Mumbai | Updated: Mar 18 2009, 04:05am hrs
The World Bank arm, International finance Corporation (IFC), has proposed a variety of options to part fund Volkswagen India Private Ltd's euro 580-million investment plan at Chakan in Pune district of Maharashtra.

The total project cost, including the construction of the fully integrated green-field car manufacturing plant with an initial capacity of 110,000 units and investment in tooling for the company's suppliers, is estimated at around euro 580 million.

IFC's proposed investment comprises a loan of up to euro 60 million equivalent for IFC's own account, and a syndicated loan of up to euro 75 million.

IFC may consider an equity or quasi-equity component within the proposed euro 60 million for its own account. The company's proposal submitted on March 12 will be taken by the IFC board for its approval on April 15.

According to an IFC report, "In light of the on-going liquidity crisis and the specific challenges faced by the automotive industry, IFC's expected role in the project includes provision and mobilisation of long-term financing necessary to complete the project, which is not available under the current financial market conditions, as well as the provision of local currency financing through swap intermediation, which may not be available under the current market conditions. In addition, IFC will explore the possibility of provision of advisory services to further develop the VW AG's local supplier base."

Besides, the IFC report says the project will generate employment and provide training. The project will benefit the local population by generating significant new employment of about 2,500 direct jobs as well as around 10,000 indirect jobs through the value chain from suppliers to distributors and dealers.

The company was incorporated in 2007 and project implementation started in the same year.

The plant will be operational on March 31. The company will target the small to compact car segments of the Indian market and expects to create a cost-competitive base for large-scale market expansion, which is expected to be achieved through a high degree of localisation of the supplier base.

The company is a wholly owned subsidiary of VW AG, held directly and indirectly, though other wholly-owned subsidiary of VW AG.