Turkey - Labor Intensive Industry Project : Loan 1952 - Project Agreement - Conformed

LOAN NUMBER 1952 TU DOCUMEMTTs Project Agreement (Labor Intensive Industry Project) between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT and SINAI YATIRIM VE KREDI BANKASI A.O. Dated . , , 1981 LOAN NUMBER 1952 TU PROJECT AGREEMENT AGREEMENT, dated rUe-L 13 , 1981, between the INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (herein- after called the Bank) and SINAI YATIRIM VE KREDI BANKASI A.0. (hereinafter called SYKB), a company established and operating under the laws of the REPUBLIC OF TURKEY (hereinafter called the Borrower): WHEREAS by the Loan Agreement of even date herewith between the Borrower and the Bank, the Bank has agreed to lend to the Borrower, for relending to SYKB, an amount in various currencies equivalent to forty million dollars ($40,000,000), on the terms and conditions set forth in the Loan Agreement, but only on condition that SYKB agree to undertake such obligations toward the Bank as are hereinafter set forth; and WHEREAS SYKB, in consideration of the Bank's entering into the Loan Agreemeat with the Borrower, has agreed to undertake the obligations hereinafter set forth; NOW THEREFORE the parties hereto hereby agree as follows: ARTICLE I Definitions Section 1.01 Wherever used in this Agreement, unless the context shall otherwise require, the several terms defined in the Loan Agreement and in the General Conditions (as so defined) have the respective meanings therein set forth. ARTICLE II Execution of the Project; Management and Operations of SYKB Section 2.01. (a) SYKB shall carry out the Project, described in Section 3.01 (a) of the Loan Agreement, and conduct its oper- ations and affairs, with due diligence and efficiency and in conformity with appropriate economic, financial and investment standards and practices, with qualified and experienced management and staff and in accordance with its Statutes and Statement of Policy. -2- (b) Without any limitation upon the generality of the foregoing, SYKB shall (i) beginning on July 1, 1981, and annually thereafter until December 31, 1986, review with tne Bank its plan for increasing its professional staff and make modifications to such plan as may be necessary under the conditions then prevailing and taking into account the Bank's comments, and (ii) promptly upon completion of such reviews implement such plan. Section 2.02. (a) In accordance with and subject to the provisions of the Loan Agreement, SYKB shall submit Investment Projects to the Bank for approval or for authorization for with- drawals to be made from the Loan Account. (b) (i) When submitting a Sub-loan (other than a free-limit Sub-loan) to the Bank for approval, SYKB shall furnish to the Bank an application, in form satisfactory to the Bank, together with a description of the Investment Enterprise and of the Investment Project to be financed thereunder (including a description of the expenditur3s for such Investment Project proposed to be financed by SYKB and an appraisal of the Investment Project) and the proposed terms and conditions of the Sub-loan, including the schedule of amortization of the Sub-loan, and such other informa- tion as the Bank shall reasonably request; and (ii) such apprai- sals will include a calculation of the economic rate of return which shall be calculated in accordance with a methodology satisfactory to the Bank. With respect to any Investment Project the economic rate of return shall be at least 15% except as the Bank shall otherwise agree. (c) Without restriction or limitation upon the provisions of paragraph (b), SYKB shall submit to the Bank for its approval in the manner set forth in said paragraph: (i) the first five Sub-loans for Investment Projects with respect to Small Scale Industry Enterprises (except for the calculations of the economic rate of return); and (ii) the first five Sub-loans made to other Investment Enterprises (irrespective of the free-limit). (d) Each request by SYKB for authorization to make with- drawals from the Loan Account in respect of a free-limit Sub-loan shall contain a summary description of the Investment Enterprise and the Investment Project (including a description of the ex- penditures proposed to be financed out of the proceeds of the Loan) and the terms and conditions of such free-limit Sub-loan, including the schedule of amortization therefor. -3- (e) SYKB shall furnish to the Bank for ex-post review a sample of appraisal reports in the English language with respect to free.-limit Sub-loans; such sample shall be selected by the Bank from the list of approved Investment Projects submitted to the Bank and include not less than 10% Investment Projects in case of Sub-loans to Small Scale Industry Enterprises and not less than 25% in all other cases. (f) Except as the Bank and SYKB shall otherwise agree, SYKB shall submit applications for approval of Investment Projects pursuant to the provisions of paragragh (b) of this Section and requests for authorizations to withdraw from the Loan Account pursuant to the provisions of paragraph (c) of this Section on or before December 31, 1983. Section 2.03. (a) The amortization schedule applicable to each Investment Project shall provide for an appropriate period of grace, and, unless the Bank and the Borrower shall otherwise agree, (i) shall not extend beyond twelve years from the date of approval by the Bank of such Investment Project or of authoriza- tion by the Bank to make withdrawals from the Loan Account in respect of such Investment Project, and (ii) shall provide for approximately equal semi-annual, or more frequent, aggregate payments of principal and interest or approximately equal semi- annual, or more frequent, payments of principal. (b) SYKB shall transmit to the Bank, for its prior approval, any substantial changes proposed to be made by the SYKB in respect of the repayment provisions of any sub-loan. Section 2.04. (a.) SYKB undertakes that unless the Bank shall otherwise agree, any Sub-loan will be made on terms whereby SYKB shall obtain, by written agreement or other appropriate legal means, rights adequate to protect the interests of the Bank and of SYKB, including, in the case of any such Sub-loan: (i) the right to require the Investment Enterprise to carry out and operate the Investment Project with due diligence and efficiency and in accordance with sound technical, financial and managerial standards and io maintain adequate records; (ii) the right to require that: (1) the goods and services to be financed out of the proceeds of the Loan shall be purchased at a reasonable price, account being taken also of other relevant factors such as time of delivery and efficiency and reliability of the goods and avail- ability of maintenance facilities and spare parts therefor, and, in the case of services, of their quality and the competence of -4- the parties rendering them, and (2) such goods and services shall be used exclusively in the carrying out of the Investment Project; (iii) the right of the Bank and of SYKB to examine such goods and the sites, works, plants and construction included in the Investment Project, the operation thereof, and any relevant records and documents; (iv) the right to require that the Invest- ment Enterprise take out and maintain such insurance, against such risks and in such amounts, as shall be consistent with sound business practice and that, without any limitation upon the foregoing, such insurance cover hazards incident to the acquisi- tion, transportation and delivery of the goods financed out of the proceeds of the Sub-loan to the place of use or installation, and that any indemnity thereunder be payable in a currency freely usable by the Investment Enterprise to replee or repair such goods; (v) the right to obtain all such information as the Bank or SYKB shall reasonably request relating to the foregoing, to the administration, operations and financial condition of the Invest- ment Enterprise and the benefits to be derived from the Investment Projects and (vi) the right of SYKB to suspend or terminate the right of the Investment Enterprise to the use of the proceeds of the Sub-loan upon failure by such Investment Enterprise to perform its obligations under its agreement with SYKB. (b) SYKB shall exercise its rights in relation to each Investment Project in such manner as to (i) protect the interests of the Bank and of SYKB, (ii) comply with its obligations under this Agreement and the Subsidiary Loan Agreement and (iii) achieve the purposes of the Project. Section 2.05. Except as the Bank shall otherwise agree, SYKB shall apply not less than one third of the proceeds of the Loan relent to it for Sub-loans to Small Scale Industry Enterprises. Section 2.06. SYKB shall give priority to Investment Projects in the urban areas of Turkey specified in the Schedule to this Agreement and provide technical assistance and equity for such Investment Projects as needed. Section 2.07. SYKB shall furnish to the Bank all such infor- mation as the Bank shall reasonably request concerning the expenditure of the proceeds of the Loan, the Project, the Investment Enterprises, the Investment Projects, and the Sub- loans. -5- Section 2.08. SYKB shall duly perform all its obligations under the Subsidiary Loan Agreement. Except as the Bank shall otherwise agree, SYKB shall not take or concur in any action which would have the effect of assigning, or amending, abrogating or waiving any provision of the Subsidiary Loan Agreement. Section 2.09. Except as the Bank and SYKB shall otherwise agree, SYKB: (i) shall not sell, lease, transfer or otherwise dispose of any of its property or assets, except in the ordinary course of business and (ii) shall take all action necessary to maintain its corporate existence and right to carry on operations and to acquire, maintain and renew all rights, powers, privileges and franchises necessary or useful in the conduct of its business. Section 2.10. Except as the Bank and SYKB shall otherwise agree, SYKB shall calculate the economic rate of return in accordance with a methodology satisfactory to the Bank for its loans (including free-limit Sub-loans) and investments whose investment cost shall exceed $750,000 equivalent in prices as of December 31, 1980. The economic rate of return shall nor- mally be at least 15%. Section 2.11. Except as the Borrower, the Bank and SYKB shall otherwise agree, SYKB shall: (i) charge a commitment fee and interest on its foreign-currency Sub-loans withdrawn and outstanding at the rate specified in Section 2.05 and 2.06, respectively, of the Loan Agreement, plus 5.5% per annum and the taxes and charges at the applicable rates; and (ii) periodically establish and then apply an interest rate on its TL Sub-loans on the basis of the interest rates prevailing at the time in Turkey for similar loans and inform the Bank of the established interest rate prior to applying such rate. Section 2.12. Except as the Bank shall otherwise agree, SYKB shall: (a) establish a fund to finance: (i) technical assistance and other services to assist Investment Enterprises in preparing and carrying out Investment Projects; (ii) on-the-job and other training of the staff of Investment Enterprises; (iii) training of staff of SYKB related to operations under its Statement of Policy; and (iv) technical assistance for SYKB to carry out industrial sector studies; -6- (b) by July 1, 1981, pay an amount of not less than $25,000 equivalent and by January 1, 1982 a further amount of not less than $25,000 equivalent into the fund referred to in paragraph (a) hereof and retain 1/2 of 1% of all interest paid on Sub-loans for said fund; and (c) apply for purposes set forth in paragraph (a) (i) and (ii) hereof: (i) not less than two thirds of the fund; and (ii) 80% of its financing out of the fund as a grant; provided, however, that the grant shall not exceed 2% of any Sub-loan. Section 2.13. SYKB shall: (i) prepare and maintain a list of qualified and experienced consultants to assist Investment Enterprises in carrying out Investment Projects and periodically update such list on the basis of experience gained in the carrying out of such Projects; and (ii) assign a sufficient number of qualified and experienced staff to supervise all technical assis- tance by SYKB. Section 2.14. SYKB shall conclude a protocol satisfactory to the Bank with at least two commercial banks with an adequate branch network in the urban areas of Turkey or I§ Bankasi A.S., specifying arrangements under which such banks identify, screen and refer potential Investment Enterprises to SYKB and assist SYKB in administering Sub-loans. SYKB shall not take or concur in any action which would have the effect of assigning, or amending, abrogating or waiving any provision of such protocol without the Bank's prior consent. Section 2.15. SYKB shall: (a) prepare and furnish to the Bank for its approval not later than July 1, 1981 a program for systematic and comprehensive project supervision including evaluation of enterprises receiving technical assistance out of the fund referred to in Section 2.12 of this Agreement six months after completion of such assistance, and promptly carry out such program after the Bank's approval; (b) carry out, not later than June 30, 1983, a study under terms of reference satisfactory to the Bank inter alia on the execution of the Project, the use of the proceeds of the Loan and the performance of the commercial banks under the protocol referred to in Section 2.14 of this Agreement; -7- (c) furnish to the Bank a completion report not later than six months after the Closing Date, of such scope and in such detail as the Bank shall reasonably request. Section 2.16. SYKB shall not amend its Statutes without the Bank's prior consent; the Bank will not withhold its consent unless such amendment materially and adversely affects the opera- tions and financial condition of SYKB. ARTICLE III Financial Covenants Section 3.01. SYKB shall maintain records (including separate records for the fund referred in Section 2.12 of this Agreement and the supervision activities of SYKB) adequate to record the progress of the Project and of each Investment Project (including its cost thereof) and to reflect in accordance with consis- tently maintained appropriate accounting practices the operations and financial condition of SYKB and shall enable the Bank's representatives to examine such records. Section 3.02. SYKB shall: (i) have its accounts and financial statements (balance sheets, statements of income and expenses and related statements) for each fiscal year audited, in accordance with appropriate auditing principles consistently applied, by independent auditors acceptable to the Bank; (ii) furnish to the Bank as soon as available, but in any case not later than five months after the end of each such year, (A) certified copies of its financial statements for such year as so audited and (B) the report of such audit by said auditors in English, of such scope and in such detail as the Bank shall have reasonably requested; and (iii) furnish to the Bank such other information concerning the accounts and financial statements of SYKB and the audit thereof as the Bank shall from time to time reasonably request. Section 3.03. SYKB represents that at the date of this Agreement no lien exists on any of its assets as security for any debt, except as otherwise currently reported or disclosed in writing by the SYKB to the Bank. Section 3.04. Except as the Bank shall otherwise agree, SYKB shall: (i) conduct its operations and affairs in such manner as shall be necessary to maintain, at all times, its debt/equity - 8 - ratio within the limit referred to in Section 3.05 of this Agree- ment; and (ii) if such ratio shall, for reasons beyond SYKBI's control, be temporarily exceeded, promptly take all such reason- able action as shall be necessary or advisable to bring such ratio within such limit. Section 3.05. Except as shall be otherwise agreed between the Bank and SYKB, SYKB shall not incur or permit any subsidiary to incur any debt if, after the incurring of such debt, the con- solidated debt of SYKB and all its subsidiaries then incurred and outstanding would be greater than nine times the consolidated capital and surplus of SYKB and all its subsidiaries. For the purposes of this Section: (a) "debt" means any debt incurred by SYKB or any subsidiary maturing more than one year after the date on which it is origi- nally incurred; (b) "subordinated loan" means any debt to mature after the maturity of any debt outstanding from time to time from creditors other than shareholders of SYKB and its subsidiaries, such debt to be repaid in accordance with its terms only after all claims from such creditors have been satisfied; (c) debt shall be deemed to be incurred and outstanding: (i) under a loan contract or agreement (including the Loan Agree- ment) on the date and to the extent the amount of the loan is drawn down and outstanding pursuant to such loan contract or agreement; and (ii) under a guarantee agreement, on the date the agreement providing for such guarantee has been entered into but only to the extent that the guaranteed debt is outstanding; (d) whenever in connection with this Section it shall be necessary to value in terms of liras debt payable in foreign currency, such valuation shall be made at the prevailing lawful rate of exchange at which such foreign currency is, at the time of such valuation, obtainable by SYKB for the purposes of servicing such debt or in the absence of such rate of exchange, at a rate of exchange acceptable to the Bank; (e) "consolidated debt of SYKB and all its subsidiaries" means the total amount of debt of SYKB and its subsidiaries, incl iding any debt owed by SYKB to its shareholders, but excluding any debt owed by SYKB to any subsidiary or by any subsidiary to SYKB or to any other subsidiary; and -9- (f) "consolidated capital and surplus of the SYKB and its subsidiaries" means the aggregate of the unimpaired paid-up capital, surplus and free reserves of and subordinated loans to SYKB and its subsidiaries after excluding therefrom such amounts as shall represent equity Interests of SYKB in any subsidiary or of any subsidiary in SYKB or any other subsidiary. Section 3.06. SYKB shall notify the Bank prior to making any repayment in advance of maturity in respect of borrowings from the Borrower or its agencies for medium and long-term relending, or from any foreign and local source and shall not make any such repayment which in the judgment of the Bank would materially affect SYKB's ability to meet its financial obligations. Section 3.07. SYKB shall take such steps satisfactory to the Bank as shall be necessary to protect itself against risks of loss resulting from changes in the rates of exchange between the currencies (including Turkish Liras) used in its operations. Section 3.08. The Bank and SYKB shall from time to time, at the request of either party, exchange views through their repre- sentatives with regard to the administration, operations and financial condition of SYKB and its subsidiaries, and SYKB shall furnish to the Bank all such information as the Bank shall reason- ably request concerning the administration, operations and finan- cial condition of SYKB and its subsidiaries, and the progress of the Project. Section 3.09. SYKB shall enable the Bank's representatives to examine the records referred to in Section 3.01 of this Agree- ment and any relevant documents. Section 3.10. SYKB shall retain at least 5% of its annual net income up to a maximum of 2% of its loan and equity portfolio as a reserve to protect itself against losses from bad debts. ARTICLE IV Effective Date; Termination Cancellation and Suspension Section 4.01. This Agreement shall come into force and effect on the date upon which the Loan Agreement becomes effec- tive. - 10 - Section 4.02. This Agreement and all obligations of the Bank and of SYKB thereunder shall terminate on the date on which the Loan Agreement shall terminate in accordance with its terms, and the Bank shall promptly so notify SYKB thereof. Section 4.03. All the. provisions of this Agreement shall continue in full force and effect notwithstanding any cancellation or suspension under the General Conditions. ARTICLE V Miscellaneous Provisions Section 5.01. Any notice or request required or permitted to be given or made under this Agreement and any agreement between the parties contemplated by this Agreement shall be in writing. Such notice or request shall be deemed to have been duly given or made when it shall be delivered by hand or by mail, telegram, cable, telex or radiogram to the party to which it is required or permitted to be given or made at such party's address herein- after specified or at such other address as such party shall have designated by notice to the party giving such notice or making such request. The address so specified are: For the Bank: International Bank for Reconstruction and Development 1818 H Street, N.W. Washington, D.C. 20433 United States of America Cable address: Telex: INTBAFRAD 440098 (ITT), Washington, D.C. 248423 (RCA) or 64145 (WUI) For SYKB: Sinai Yatirim ve Kredi Bankasi A.0. Barbaros Bulvari 41 Besiktas Istanbul Turkey - 11 - Cable address: Telex: YATIRIMBANK SYKB 26263 TR Istanbul Section 5.02. Any action required or permitted to be taken, and any documents required or permitted to be executed, under this Agreement or under Section 2.03 of the Loan Agreement on behalf of or by SYKB may be taken or executed by its General Manager or by such other person or persons as SYKB shall designate in writing, and SYKB shall furnish to the Bank sufficient evidence of the authority and the authenticated specimen signature of each such person. IN WITNESS WHEREOF, the parties hereto, acting through their representatives thereunto duly authorized, have caused this Agreement to be signed in their respective names in the District of Columbia, United States of America, as of the day and year first above written. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Ac1:'j Regional Vice President Europe, Middle East and North Africa SINAI YATIRIM VE KREDI BANKASI A.O. By Auoz Represetatvke Authorized Representative - 12 - Schedule Urban Areas referred to in Section 2.06 of this Agreement: Adana, Afyon, Ankara, Antalya, Aydin, Balikesir, Bursa, Elazig, Eskisehir, Gaziantep, Hatay, Istanbul, Izmir, Kayseri, Kocaeli, Konya, Kutahya, Malatya, Sakarya, Samsun, Sivas, Trabzon and Zonguldak. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT CERTIFICATE I hereby certify that the foregoing is a true copy of the original in the archives of the Interna- tional Bank for Reconstruction and Develop- ment. In witness whereof I have signed this Certifi- cate and affixed the Seal of the Bank thereunto this J i day ofJ 0.ML& , 198 L. FOR SECRETARY