It did not make the headlines. In fact, it was not even mentioned in most of the articles about the broken contract between J&F Investimentos and Paper Excellence on the sale of Eldorado Brasil Celulose SA. But the most interesting part in the otherwise predictable fight between two problematic paper giants over a mill is that, reportedly, the China Development Bank (CDB) has decided to back out of financing the deal.

This probably surprised a lot of people, as the CDB has been a key financier of Asia Pulp and Paper (APP). APP is controlled by the Widjaja family, which also controls Paper Excellence, a shell company that is used to hold pulp mills abroad. In 2013, the CDB provided APP with a USD 1.8 billion loan to build the Oki mill in South Sumatra, Indonesia, which corresponded to around 70% of the total investment. At the time, the Environmental Paper Network (EPN) sent the CDB several letters expressing concerns over the lack of adequate fibre supply from legal and responsible sources, high deforestation rates and lack of sufficient consultation and consent from local communities, among other concerns.

China is still heavily dependent on imports of pulp to provide for domestic demand. Therefore, it has a high interest in securing pulp supply from around the world. By financing the conglomerate controlled by the Sino-Indonesian Widjaja family to buy a major pulp mill in Brazil, the CDB could possibly help guarantee part of this supply.

In September 2017, when news broke about the possible Eldorado deal and a purchase by Paper Excellence, it is widely believed that the CDB would be interested in financing the deal. EPN therefore reached out to the CDB again, expressing our concerns over APP’s many broken promises and the lack of implementation of its own Forest Conservation Policy. This represents both reputational and financial risk for the CDB. And financial risk is something APP’s financiers have been exposed to in the past – in 2001 APP defaulted on USD 14 billion in debt. A few months later, when Paper Excellence also showed interest in buying Fibria, Brazil’s largest pulp and paper company, EPN again contacted the CDB, advising them on the risks associated with financing such a deal.

‘We therefore whole-heartedly applaud the CDB for recognising the environmental, social and governance risks of investing in Paper Excellence,’ says Mandy Haggith, Coordinator of EPN-International, ‘and for avoiding damage to its reputation through financial involvement in the Eldorado deal.’