5 March 2018


In a blended financing, FLSmidth and IFU have partnered up to invest in an extensive brownfield development project in Pakistan. IFU will provide EUR 8.5 million in funding to the project.

The project concerns a 7,700 tons per day increase in the capacity for Power Cement Limited, an existing Pakistani cement producer. FLSmidth will be responsible for engineering, procurement, equipment supply and supervision. A Chinese contractor will be responsible for civil works and electrical and mechanical erection.

The main shareholder in the project is a Pakistani conglomerate, Arif Habib Corporation, operating within areas such as fertilizers, cement, steel and renewable energy. The project has an estimated budget of EUR 268m.

Pakistani development
Over the years, IFU has invested together with many Danish companies, including FLSmidth.

– IFU has been an important partner to FLSmidth in developing countries. Our partnership dates back to 1975, and we have since teamed up in more than 20 cement projects worldwide, said Tine Bremholm Kokfelt, General Manager, FLSmidth.

Now, IFU and FLSmidth have come together to help finance the expansion of Power Cement.

But IFU’s own funds make up only a part of the financing package. In what is known as ‘blended financing’ – the strategic use of development finance and private funding to raise capital for projects in emerging markets and developing countries – equity has also been provided by an independent investment fund, IFU Investment Partners, administered by IFU. This fund consists of equity from two Danish pension funds, PBU and PKA. Collectively, the partners are providing approximately EUR 8.5 million in funding to the Power Cement project.

Building on a strong relationship
This is the fifth joint project in Pakistan between IFU and FLSmidth and sees the return of IFU to Pakistan after a five-year break. Anders Paludan-Müller, Investment Director at IFU, is convinced that the longstanding partnership between IFU and FLSmidth is one of the key reasons this project got off the ground.

– When we appraise project proposals, one of the most key factors is the project partner. FLSmidth is a trusted, reputable and high-quality player in the cement production industry, so it is a big plus they are involved, said Anders Paludan-Müller.

Solid investment
IFU’s objectives are closely tied with contributing to the UN Sustainable Development Goals (SDGs), but IFU has commercial objectives as well. Investments are made on commercial terms in the form of equity and loans with the objective of a healthy return on its investments. There is, however, a willingness to accept greater risk than would many other traditional financial institutions.

– The Power Cement project carries several risk factors. Pakistan country risk is in general classified as high. This assessment is based on risks associated with personal safety, the political situation, instability in the business climate and transparency. It is a highly regulated economy with a lot of red tape and currency constraints, said Anders Paludan-Müller.

With risk comes opportunity
From an investment perspective, it was clearly an upside that the plant’s existing infrastructure could be transformed into a modern, profitable operation. But it also depends on having strong partners who are used to operating in such a climate.

– We need to be able to trust our partners, and we carry out strict due diligence. Our evaluation of the Arif Habib Corporation revealed a solid track record in turning around underperforming enterprises as well as strong management who knows how to navigate within the local environment, said Anders Paludan-Müller.

Mutual commitment
Anders Palludan-Müller will represent IFU and FLSmidth on Power Cement’s Board of Directors. This is part of the mutual commitment between IFU and the project owner. IFU wants to have a finger on the pulse and to have some influence on the project. But it is not just about control, it is also because IFU has good advice to offer, based on its experience across 1200 investments.

For the project owner, IFU provides a stamp of approval, particularly because it is backed by the Danish government. This carries an inherent credibility towards the project’s other stakeholders.

It is all part of realising the objective of contributing to Pakistan’s development and delivering to IFU’s own investment goals.