Pasabahce-Eskisheir (II) Pasabahce-Eskisehir was originally incorporated in 1998 as Pasabahce-Schott, a joint venture between Pasabahce Cam of Turkey and Schott-Zwiesel of Germany. Sisecam  and Carl Zeiss Stiftung (CZS) were the two sponsors and equal shareholders.  Sisecam/Pasabahce was to provide technical and production expertise and Schott was responsible for marketing and sales.  A greenfield plant was commissioned in Eskisehir, Turkey at a cost of approximately DM114 million (US$60 million), partly financed by an IFC A loan of DM29 million and two B loans aggregating DM29 million (Dresdner: DM19 million; Landesbank Rheinland-Pfalz: DM10 million).  However, in June 1999, Schott expressed its intention to terminate the joint venture for commercial reasons and the plant was shut down in July 1999.      As a result, both B Lenders, which had initially participated in the project financing due to their existing relationship with Schott, indicated that they would make a formal request for a prepayment, as Schott''s imminent departure amounted to a material adverse change in the project.  After lengthy negotiations, a solution was reached which was satisfactory to all parties concerned.  An amendatory project funds agreement was signed on March 2000, where Schott''s support was provided until November 30, 2001 and the B lenders agreed to remain in the project till July 31, 2001, after which they were granted the right to demand repayment for the full outstanding loan amount.  The project plant resumed operations in March 2000.  Schott sold its shares in the company to Sisecam and remained in the project solely to provide project funds support.      Satisfactory progress was made since operations were resumed, the project is performing, and the loans are being serviced on time.  However, after July 31, 2001, and in line with the Amendatory PFA, the two B lenders have asked for repayment for the full amount of their outstanding loans, despite all efforts undertaken by the B Loan Management Division to try to convince the B lenders to remain in the project. The  B lenders did so because they considered the country risk shifting to Turkey as the Schott guarantee will soon be extinguished on November 30, 2001, and the B Lenders do not want to assume further Turkey risk given the deteriorating macro-economic situation beginning from November 2000.    The recent economic crisis in Turkey has resulted in a severe debt scarcity, particularly for the manufacturing sector.  Commercial banks and financial institutions operating in the country are not willing or able to extend long-term credit to Turkish companies.  Foreign banks in particular have reached their Turkish exposure limits, or have revised their country strategy, and are reluctant to extend existing or new loans, and local TL loans from Turkish Eximbank are almost nonexistent.  Long-term hard currency loans are impossible to obtain, whereas short-term debt is priced expensively and is not guaranteed to be rolled over automatically, as was done routinely in the past.    Pasabahce-Eskisehir, already faced with the prospect of reduced revenue and cash flow due to the contraction in the domestic market, would find it very difficult to raise the additional financing required to make the full repayment as requested by the B lenders, and the Company''s liquidity would be severely curtailed.  As a result, the company has requested IFC to provide a dependable and stable source of long-term financing, to provide the liquidity required to replace the existing B lenders in full.  This loan would allow Pasabahce-Eskisehir to continue to focus on its core competences and concentrate on increasing its export revenue to compensate for the shortfall in the domestic revenues.    The proposed investment will have a significant development impact. IFCs support is critical at a time when high inflation, shrinking domestic demand and price increases have stagnated the economy, especially the manufacturing sector, and have brought about severe economic problems in the country.  Pasabahce-Eskisehir is a competitive glass tableware manufacturer that exports about 70% of its aggregate glass production, with a projected foreign exchange revenue of approximately US$25 million in 2001.  The company also employs a workforce of 250 people, and is a conscientious corporate citizen.      Through the proposed investment, IFC will support a Turkish company as it rides out current financial difficulties to emerge as a stronger and more competitive entity.  IFCs participation in the project would also provide comfort to other foreign investors who are wary of Turkey''s perceived macro-economic and political risks, and encourage additional foreign direct financing and investment in Turkey.  The devaluation of the currency has made Turkey''s exports more attractive.  By providing the timely replacement loan, IFC will allow Pasabahce-Eskisehir to seize this opportunity and focus on increasing its exports and improving its international competitiveness instead of having to divert resources to raise additional financing to pay off the two B lenders.  The proposed investment will also allow the company to continue normal operations and therefore keep its workforce intact, which is very important especially in a time when economic contraction is resulting in increased unemployment.