Mozal Case Essay

537 Words3 Pages
FINANCING THE MOZAL PROJECT CASE STUDY SOLUTION: I. BACKGROUND INFORMATION: The Mozal Project, is a $1.4 B aluminum smelter production plant to be set up in Mozambique, is a joint venure of Alusaf, a subsidiary of a South African natural resource company, and International Development Corporation (IDC), a government-owned South African development bank, who are the equity investors in the project and will each provide $ 125 M worth of equity for the project. Mozambique, a poor emerging market country recovering from a civil war that devastated the country’s economy, presents unique risk for this project which threatens the viability of the project. Despite the risk, the sponsors are interested in structuring a limited-recourse financing deal with IFC involvement. Kimura and Husain of IFC were recommending a $ 120 million in Mozal project. This project was consistent with IFC’s mission of promoting a private sector investment in developing countries as a way to reduce poverty and improving people’s lives. However, IFC’s concerns are the size of the project, as well as the political risks of doing business in Mozambique because first, this would be the IFC’s largest investment ever and by far the largest investment in Sub-Saharan Africa. Second, the project was enormous by Mozambican standards--it was not much smaller than the country's 1996 gross domestic project (GDP). Third, Mozambique was a very poor country at the time (per capita GDP of $90) and had only recently emerged from 20 years of civil war. Fourth, many aspects of the deal remain undetermined such as who was going to provide half the equity needed to finance the project II. Assessing the Mozal Project To decide the value and overall riskiness of the investment, it is essential to analyze the project’s financial situation. The estimated figures in Exhibit 6 were used to make an approximate
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