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The International Finance Corporation (IFC), the private sector arm of the World Bank Group, is providing €86mn to Kronostar, a company engaged in manufacturing medium density fibreboard (MDF) and particleboard in Russia. The financing will support the installation of new particleboard and MDF production lines. These wood panel materials are used to produce flooring, furniture components and wall-paneling products.

The financing consists of a €43mn for IFC’s own account (A loan), and a syndicated loan for €43mn (B loan) with RZB as a joint arranger.

Syndication of the B loan was oversubscribed and five other commercial banks were signed in to join RZB. These are Erste Bank, Investkredit Bank, Raiffeisenlandesbank Ober ísterreich, Raiffeisenverband Salzburg and State Bank of India. The total expansion project cost amounts to €183mn.

Kronostar was established in 2002 as a limited liability company owned 100% by Krono Holding AG, a company established and headquartered in Switzerland. Krono Holding AG is a European leader in wood panel board manufacturing. The new Kronostar facility was built on the site of the former financially distressed AOO Sharjadrew timber combine and is located in Sharja in Kostroma Oblast, 600km northeast of Moscow.

IFC’s investment will have a significant developmental impact given the plant’s location in a predominantly rural area where the need for economic diversification and employment generation is particularly acute.

This transaction will strengthen the Russian wood paneling industry by enabling the incorporation of leading technological and management know-how and modernisation. The wood materials industry has suffered from inadequate investment to support modernisation since the Russian financial crisis. Further, the lack of locally-manufactured wood panels has placed Russian furniture producers at a severe disadvantage.

Richard Ranken, director of IFC’s general manufacturing and services department notes: “The financing demonstrates IFC’s continued commitment to develop the private sector in the Russian Federation. This operation directly addresses both the need for efficient downstream conversion of Russia’s natural resources into more profitable value-added products, and the forestry products sector’s need for long-term investment.”