At Capital Weekly 08 February 2009

08 February 2009

AT CAPITAL RESEARCH AT Capital Weekly Update

Key themes in this issue are: Overview:

There has been a steady rise in protectionist rhetoric globally in recent months. This has been seen in the US in terms of “Buy America” clauses in the stimulus package. There have also been strikes in the UK against overseas workers.

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Emerging economies are suffering from the collapse of the US and European financial sectors. Hedge funds are pulling back. And more importantly, capital constrained banks are pulling back.

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Such growing protectionism occurs at a time when the major export nations, especially in Asia, such as Japan, Korea and Taiwan are seeing an unprecedented collapse in their trade activity.

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Bangladesh is actually a more “open” economy than either India or Pakistan. Thus rising protectionism, the collapse in global trade and the substantial retrenchment by global banks is likely to have an increasingly negative impact on Bangladesh.

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Although RMG is nearly 80% of exports, the other 20% is showing significant signs of slowdown. Ceramics export demand is falling sharply as is the demand for Agro-products, especially frozen food exports.

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There is likely to be a substantial reduction in available trade finance in BD.

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Global banks have been cutting back international lending including trade finance, partly due to balance sheet pressure and in part from moral suasion by governments who have bailed them out. This is already being reflected in terms of tougher Letters of Credit (LC) terms for Bangladeshi exporters.

Ifty Islam Managing Partner [email protected]

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In addition, domestic banks, some of whose clients have lost substantial amounts due to falling commodity prices during the second half of 08 are also risk averse.

Syeed Khan Partner [email protected]

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Indian External Affairs Minister Pranab Mukerjee visits Dhaka Feb 8. We discuss some of the major issues in India-Bangladesh Relations. We recognize there are challenges but argue there are also significant mutually beneficial opportunities.

Weekly News Update

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Asian Tiger Capital Partners

EDITORS

Jisha Sarwar Senior Research Associate [email protected]

Asian Tiger Capital Partners UTC Building, Level 16 8 Panthapath, Dhaka-1215 Bangladesh Tel: 8155144, 8110345 Fax: 9118582 www.at-capital.com

Global Protectionist Pressures Set to Rise in 2009

08 February 2009

Contents

AT CAPITAL RESEARCH Page

Overview Growing Global Protectionism

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Global Exports are Collapsing

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What does rising protectionism mean for Bangladesh?

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Indian Foreign Minister arrives in Dhaka this week

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India an Opportunity not a Threat

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Composition of India’s Trade with Bangladesh

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Trade and transaction costs

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Energy Cooperation

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“India+1”: Bangladesh attracting diversification investment from India

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Stock Market Weekly

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Weekly Stock Market Commentary

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Stock Market News

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Economics

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Economics News

Sector News

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Agriculture & Food/ Aviation/ Banking

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Infrastructure & Energy

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Leather Goods/ Real Estate/ Ship Building

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Telecoms/ Textiles

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Tourism

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08 February 2009

AT CAPITAL RESEARCH Ifty Islam, Managing Partner [email protected]

Overview Growing Global Protectionism “Trade encourages specialization, which brings prosperity; global capital markets, for all their problems, allocate money more efficiently than local ones; economic co-operation encourages confidence and enhances security. Yet despite its obvious benefits, the globalised economy is under threat…the re-emergence of a spectre from the darkest period of modern history argues for a different, indeed strident, response. Economic nationalism—the urge to keep jobs and capital at home—is both turning the economic crisis into a political one and threatening the world with depression. If it is not buried again forthwith, the consequences will be dire…The links that bind countries’ economies together are under strain. World trade may well shrink this year for the first time since 1982. Net private-sector capital flows to the emerging markets are likely to fall to $165 billion, from a peak of $929 billion in 2007. Even if there were no policies to undermine it, globalization is suffering its biggest reversal in the modern era.” (The Economist, Feb 6, 2009) There has been a steady rise in protectionist rhetoric that has manifested itself in different ways, from the proposed inclusion of “Buy American” in the Congressional Stimulus package, to strikes and demonstrations in the UK against Italian workers at refineries. New Treasury Secretary Tim Geithner’s pointed accusation of Chinese currency manipulation in his confirmation hearings played to a receptive Congress and public. China is also at the receiving end of a ban on its toy exports to India for 6 months. In France and Britain, politicians pouring taxpayers’ money into ailing banks are demanding that the cash be lent at home. Since banks are reducing overall lending, that means repatriating cash. Regulators are thinking nationally too. Switzerland now favours domestic loans by ignoring them in one measure of the capital its banks need to hold. This contrasts with foreign lending which counts in full. This is economic nationalism, but of a less obvious type. The purpose is to steer banks towards supporting businesses and jobs at home, not abroad. That has an undercurrent of protectionism about it. As Brad Stetser of the Council for Foreign Relations has noted, that’s not to say that the problems emerging economies now face trying to raise funds originated in the emerging world. They didn’t. They are suffering from the collapse of the US — and European — financial sector. Hedge funds are pulling back. And more importantly, capital constrained banks are pulling back. That — not the fiscal deficit — is what is pulling funds out of the emerging world. Emerging economies in that sense are no different than any other borrower facing difficulties getting a bank loan. He concludes that “The fact that the financial sector now depends on a government backstop may have prompted the banks to pull back more from foreign markets than their home markets, though they are clearly doing both. Deglobalization — particularly financial deglobalization — isn’t going to be pretty.”

Global Exports are Collapsing Such growing protectionism occurs at a time when the major export nations, especially in Asia, such as Japan, Korea and Taiwan are seeing an unprecedented collapse in their trade activity. As the Economist notes:”many of Asia’s tiger economies seem to have been hit harder than their spendthrift Western counterparts. In the fourth quarter of 2008, GDP probably fell by an average annualized rate of around 15% in Hong Kong, Singapore, South Korea and Taiwan; their exports slumped more than 50% at an annualized rate”. In the fourth quarter of 2008, real GDP fell by an annualized rate of 21% in South Korea and 17% in Singapore, leaving output in both countries 3-4% lower than a year earlier. Singapore’s government has admitted the economy may contract by as much as 5% this year, its deepest recession since independence in 1965. In comparison, China’s growth of 6.8% in the year to the fourth quarter sounds robust, but seasonally adjusted estimates suggest output stagnated during the last three months. Asia’s largest economy, Japan, is yet to report its GDP figures, but exports fell by 35% in the 12 months leading to December. In the same period, Taiwan’s exports dropped by 42% and industrial production was down by an extraordinary 32%, worse than the biggest annual fall in America during the Depression. South Korea released preliminary data for January external trade. The results were grim. Exports tumbled by a great-than-expected 32.8% y/y. While that is a terrible figure, looking at the actual total decline in exports is perhaps even more shocking - exports are down 47% since the middle of last year. So the theme of collapsing global trade looks to be alive and well. The sheer scale of the fall in Korean and Taiwanese exports shows up most cleanly if monthly exports are plotted over time (charts below courtesy of Brad Stetser).

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Looking at the annual % change confirms that the current slowdown is sharper than past slowdowns, and given the strong growth in exports over the past several years, a bigger percentage change interacts with a bigger base to produce a far bigger absolute fall.

Source: Bespokeinvest

However, the rally is still modest relative to the scale of the decline evidenced in the upper chart. Moreover, the collapsing trade in the regions other major exporters that we highlighted above suggests global trade remains under extreme pressure. It is difficult to see how China can remain immune to that. As a result, expectations that Chinese GDP may halve towards 6% in 2009, do not appear over-pessimistic, even in the face of the USD 571bn stimulus package passed last year. The latest Chinese purchasing managers’ survey from CLSA wasn’t as bad as the last one. The fall in the pace of contraction in activity has generated hope that China’s economy will rebound later in the year. China’s stimulus will help, as will the fact that China’s state banks are liquid and have clear instructions to lend. As the chart below illustrates, the Shanghai stockmarket has bounced off its lows.

The passing of the USD 780bn US stimulus package looks more certain in the light of Friday’s shocking January Labor Market report. The unemployment rate jumped to 7.6% and as the chart below illustrates, the revised job loss picture is looking far worse than originally reported. The US downturn looks like it is accelerating and while the Obama Administration bargaining chips to secure rapid passage of the stimulus package looks to have increased, the effects on the US economy may not be felt in a meaningful way until 2010.

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08 February 2009 As the chart below from Paul Swartz of CFR also illustrates, things seem to be getting worse in the current US downturn. The fall in industrial production in the current cycle is already worse than the fall in an average post World War 2 recession.

AT CAPITAL RESEARCH unemployment rises, that consumers in developed markets cut back on all discretionary expenditure, even in lower priced products which might outweigh the substitution benefits for Bangladeshi garment exports. Anecdotal evidence from textile producers as well as cotton importers we have spoken to in Bangladesh suggest dramatic declines in raw material imports which in turn suggest a scaling back of future RMG production. Secondly, although RMG is nearly 80% of exports, the other 20% is showing significant signs of slowdown. Ceramics export demand is falling sharply as is that for Agro-products, especially frozen food exports. Between July and December the country's exports of goods such as shrimps, jute, vegetables and cut flower have declined by more than five per cent to US$488.23 million, or a 20 per cent drop from the target. Shipment of frozen food, the second biggest export item after apparel, dropped by four per cent, but exporters said the decline would be steeper in the coming months due to fall in shrimp consumption in Europe and America.

What does rising protectionism mean for Bangladesh? It can be argued that Bangladesh’s performance in 2008 leaves it as one of the few EM economies that can claim to be “decoupled”. The much documented economic resilience where GDP growth in FY 2008/9 might come in at around 5.5% versus expectations of 6.5% contrast with the truly breathtaking collapses in GDP growth and industrial production seen in the rest of the region. Even India and China are seeing a dramatic slowing in growth from expectations of 9% and 12%, respectively, for 2009 from a year ago to sub-6% now. But Bangladesh is actually a more “open” economy than either India or Pakistan. The chart below shows the “openness” of economies in Asia on the basis of exports and imports as a percentage of GDP. Clearly Bangladesh is far less dependent on exports than a number of other economies in the region - Malaysia and Vietnam stand out as being especially vulnerable to the global downturn. The contrast between China and India with the former being much more open is also noteworthy.

Thus rising protectionism, the collapse in global trade and the substantial retrenchment by global banks is likely to have an increasingly negative impact on Bangladesh. While RMG exports have been somewhat insulated via the so called “Walmart effect” that is a substitution towards cheaper products, there is a growing risk as the US and European downturns persist and

Kazi Belayet Hossain, president of frozen food association was quoted in a Feb 8 interview in the Financial Express as stating that "Restaurant and hotel business are the worst victims of the global recession. Shrimp is a rich people's luxury in the western hotels and in this time of crisis there have been fewer orders for such luxuries….The precipitous decline has resulted in a huge stockpile of shrimps at dozens of processing plants. I don't think the situation will improve this year. He went on to say that the ultimate victims would be the coastal districts' millions of fry catchers, farmers, ice workers, traders and processing workers who make their living on the BDT 40bn industry. The FE report went on to say that other raw jute and jute goods such as yarn, hessian and sackings have been faring worse since the economic crisis gripped the developed nations in the latter half of 2008. Shahidul Karim, secretary general of Bangladesh Jute Spinners Association, stated that "Jute spinners have shut down three factories, shed some 25,000 jobs and cut raw jute purchases to cope with ebbing demand caused by the global economic crisis.” Export of jute goods --- the fourth biggest export item of the country --- slumped a 17.86% in the first six months while raw jute fell by 9%. Karim said declining orders from key markets such as Belgium and Turkey meant that the chances are bleak for a jute rebound in the next six months and he underlined that Bangladesh’s 20 million farmers who grow jute as a cash crop during the rainy season will bear the brunt of the crisis as the prices of raw jute have already nosedived in local markets.

Thirdly, there is likely to be a substantial reduction in available trade finance on two fronts. As we highlighted earlier, global

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08 February 2009 banks have been cutting back international lending including trade finance partly due to balance sheet pressure and in part from moral suasion by governments who have bailed them out. This is already being reflected in terms of tougher Letters of Credit (LC) terms for Bangladeshi exporters. In addition, domestic banks, some of whose clients have lost substantial amounts due to the dramatic collapse in commodity prices in the second half of 2008 are also more risk averse. All these factors suggest Bangladesh policymakers need to increase their policy ammunition in terms of having fiscal, and potentially monetary stimulus measures ready to counteract the lagged prospective slowdown in Bangladesh this year. Indian Foreign Minister arrives in Dhaka this week Indian External Affairs Minister Pranab Mukherjee arrives in Dhaka Feb 9 for a one day visit. The Times of India stated Feb 3 that Bangladesh is as yet 'undecided' about acceding to India's long-pending plea for transit facility to the latter's northeastern region and Bangladesh might offer a trade concessions-for-transit when Mukherjee visits. Media reports have also indicated that while Delhi wants a bilateral anti-terror pact with Dhaka, the latter wants to talk of a regional task force that would include other South Asian nations. The report went on to state that “During Mukherjee's visit, Bangladesh and India may sign two key agreements on bilateral trade, and investment promotion and protection. The trade agreement needs to be signed as the existing three-year bilateral trade agreement will expire in March this year and be renewed through a fresh accord.” Manik Sarkar, Chief Minister of Tripura, told a Bangladeshi business delegation recently that transit and trans-shipment facilities can help both India and Bangladesh promote business and investment enormously, especially in seven northeastern Indian states, including Tripura. To say the relationship between Bangladesh and India is complex is the height of understatement. This has accurately summed up in the following quote: “Bangladesh’s relations with India are multi-dimensional ideological, political and also economic. An extreme sense of distrust, insecurity and perceived domination by India has shaped Bangladesh’s foreign policy in recent years. It at the same time, hesitant and finds it uncomfortable to function within a bilateral parameter. Whether it is trade, export of gas, provision of transit or the water issue, Bangladesh has argued for multilateral arrangements. Though India played an important role in the creation of Bangladesh, it is primarily seen by the political class in Dhaka as a concern due to its overwhelming size and presence but more importantly because of the nature of domestic politics of the country. A divided polity polarized on ideological lines and an extremely sensitive political atmosphere has made Bangladesh’s relations with India subject to domestic dynamics.” (Smruti S Pattanaik, 2005) Below we reproduce the Feb 5 Daily Star Column “India as an Opportunity not a Threat”. With apologies to our domestic audience who may well have read the article already,, many international readers of the AT Capital Weekly may not have seen it. In addition, we have expanded the discussion.

AT CAPITAL RESEARCH With the author having received 120+ emails of feedback, it is fair to say that the India issue draws strong reactions on both sides. However, overall, the author was encouraged that a majority of the feedback agreed with the need for a constructive dialogue to work through the areas of disagreement while staying focused on the opportunities to achieve a mutually beneficial outturn. As one of the more compelling pieces of feedback noted” what is also important to realize from the point of view of a policy-maker/ diplomat is that we have to deal with India not from a belligerent standpoint (in retaliation to their past and on-going bully attitude) but more from the point of view of extracting maximum mutual benefits through carefully crafted diplomatic efforts.” We are working on a more detailed analysis on India- Bangladesh Relations but in the interim, please see an expanded version of the Daily Star Column reproduce below: India an Opportunity not a Threat With the upcoming visit of Indian Foreign Minister Pranab Mukherjee, it is important to discuss a mutually beneficial regional integration strategy. India- Bangladesh relations might be characterized, simplistically, of one of relative indifference on the India side to one of fears of being overwhelmed by the much larger “big brother” on the Bangladesh side. At the beginning of October 2008, I participated in an Indian Private Equity seminar in Mumbai. I was surprised at the lack of awareness of recent trends in the Bangladesh economy among many of the 300 attendees I had a chance to speak to. Many were focused on “Incredible India” companies buying up assets in Europe and the US. Bangladesh appeared an after-thought. However, a re-newed interest by India in their neighbor is justified given what one might argue has been a disastrous strategy of over-rapid globalization by a number of Indian companies. Tata’s purchase of Corus and Jaguar sees them sitting on billions of dollars of paper losses and an extremely challenging operational environment in the developed economy steel and auto sectors respectively. By contrast, Bangladesh offers a relatively stable Island of stability in a global sea of extreme volatility for prospective Indian corporate investors. What is needed on the Bangladesh side is to form a clear consensus among not just businessmen and policy makers, but critically the broader general public, that India is an opportunity, not a threat. A number of valuable themes emerged. For us to see greater FDI will require a number of changes. Firstly a focused and proactive strategy by Bangladesh, both the government and the private sector, to market sectors and specific JV opportunities to Indian companies. There needs to be a quarterly series of seminars held alternatively in Dhaka and Mumbai/Delhi attended by the respective foreign and commerce ministers and secretaries along with leading corporate sector representation by the FICCI and FBCCI. Secondly, greater encouragement of higher level interaction can come about through easing up visa restrictions and also establishing direct flights between Dhaka and Mumbai + NE Indian cities. Thirdly, we may want to extend the Special Economic Zones initiative to offer affirmative action or incentives for Indian FDI.

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08 February 2009 At the time of Indian Independence, intra-regional trade was 19%, which fell to 2% in the 1990s and has since risen to around 4%. On reducing the trade deficit, one school of thought was that we import cotton and yarn from India and our RMG creates valueadded products that go to the west so our Indian deficit is a necessary side-product of our surplus with the US. But I also feel that a focused policy of industrial and export diversification will also help reduce the India-Bangladesh trade deficit. Simply put, if we made more of the goods India wanted to import, we could reduce our trade deficit. Other practical steps we could take include warehouses at the land stations and more staff on both sides of the border to reduce delays in the passage of goods. The adoption of a Free-Trade Area will also help, but the impact will be limited in the absence of progress in Bangladesh’s industrial diversification strategy. Composition of India’s Trade with Bangladesh India has a large number of exportable goods. The composition of India’s exports to Bangladesh is diversified with cereals, cotton, and vegetable products accounting for a quarter of India’s exports to Bangladesh in 2004–2005. Next in importance comes textile and textile products, followed by base metals and related articles. Over five years starting in 2000-01 while the share of vegetable products increased, that of textile and textile article declined. The shares of most of the remaining product group increased, reflecting greater product diversification. The top 10 export commodity groups (at HS 2-digit level) from India to Bangladesh account for about 70% of India’s total exports to Bangladesh. The degree of trade complementarity between Bangladesh’s imports and India’s exports was quite high during 1980 to 2004. The trade complementarity index for India’s exports to Bangladesh was 59% on average for the period 1980–2004, whereas the same for Bangladesh’s exports to India was 28%. In other words, estimated indices indicate that India’s exports to Bangladesh enjoyed comparatively higher complementarity than Bangladesh’s exports to India. Supply constraints make it difficult for Bangladesh to take advantage of the Indian market. Nevertheless, India’s tariff concession has been helping Bangladesh expand its export baskets to India, the results of which were reflected in higher exports in 2005–2006.

Source: World Bank

Another major opportunity is for Bangladesh to be a regional transport hub. There has been a great deal of sensitivity to the issue of transit rights. But if we think more broadly about integrating into the regional network for not only India, but also Nepal, Bhutan and indeed China, then we can away from some of the security sensitivities. One transportation expert at the seminar underlined the fact that the proposed $ 6bn Chittagong deep sea port is not economically viable on the basis of Bangladesh trade flows, but would be a compelling proposal if we could act as a hub for countries in the region including even Kunming in China. We could charge for transportation services to foreign companies that would effectively subsidize faster port facilities that would also enhance Bangladesh competitiveness. Trade and transaction costs The Petrapole crossing in India handles by far the largest share of the recorded India-Bangladesh land border trade. Petrapole is on a major road 95 kilometres from Kolkata. The neighbouring town on the Bangladesh side of the border is Benapole, which in turn is linked by a highway to Jessore and Dhaka. The infrastructure deficiencies and procedural hazards at Petrapole include inadequate and congested roads, absence of government bonded warehouses, irregular power supplies, inadequate sanitary facilities and drinking water, prevalence of theft and other crimes, frequent strikes, prevalence of speed money, a single border gate which handles all truck and other traffic as well as individual travelers and which is wide enough for only one truck at a time to pass through. Investments need to be made for improving the infrastructure and facilities at Petrapole and at the other land border Customs stations. For Bangladesh the present system involves substantial terms of trade losses, since the landed costs of imports from India of products such as wheat, rice, fruit, cattle feed, bauxite and other products appear to be much higher than they would be if the congestion were removed. Bangladesh exporters and potential exporters also have an obvious interest in faster and less expensive commodity movements across the border. If the required investments are not made, congestion will increase with the general growth of trade, and would largely cancel or offset

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“India+1”: Bangladesh attracting diversification investment from India

economic benefits that would otherwise occur if tariffs or other trade barriers were to be reduced. Without very substantial investments in infrastructure and administrative capabilities, increases in trade would be slowed down or blocked by increases in congestion and the associated increases in economic rents, and an FTA would become ineffective.

Another major opportunity for Bangladesh is to pursue an “India+1” strategy in the same way that Vietnam has attracted $ 40bn of FDI in 2008, in part by being an effective “China+1”. By this, I mean that Bangladesh can be an alternative manufacturing hub for global companies and investors who already have overreliance on India for a wide range of services and products, from IT outsourcing to truck assembly and auto parts. The government should commission a detailed analysis of which companies and investors have entered India in the past 5 years and then have a targeted strategy to persuade them to consider setting up similar facilities in Bangladesh in industries where we have, or can develop, a competitive advantage. “

Hence, both countries will need to improve the infrastructure – physical and administrative-at their land border Customs posts. This would need to be done in a coordinated way-there would no point if the infrastructure were improved on one side of the border but bottlenecks were to remain or even increase on the other side of the border. Energy Cooperation The last caretaker government had decided to initiate talks with India on interconnecting the national power grid of Bangladesh with the north-eastern power grid in India based on the feasibility study of the USAID, Asian Development Bank (ADB) and SARIEnergy co-operation. Bangladesh could bring 200 MW of electricity from Tripura or Assam, where India has hydroelectric plants. India has also offered to link Bangladesh to its electricity grid and sell it power to help it overcome persistent shortages in peak demand periods. At the DCCI 50th Anniversary conference held in November, Indian State Minister for Power, HE Jai Ram Ramesh stated that Bangladesh could buy electricity from plants in Tripura, where generation capacity exceeds demand, and other north-eastern Indian states bordering Bangladesh. "India is ready to pen a deal with Bangladesh to sell up to 1,000 MW of electricity."

CountryCountry-wise distribution of India’s outward FDI in the SAARC Region (US$ Mn) Total Outward 1996-02 2002-03 2003-04 2004-05 2005-06 2006-07

6353.6 1334.3 1191.2 2262.9 2136.3 5370.7

South Asia 2.6 1.2 4.5 0.7 1.0 0.1

Bhutan 0.0 0.0 0.0 0.0 0.0 0.9

BD 9.1 7.4 7.6 11.1 5.9 11.1

Maldives 12.8 0.0 0.0 0.0 5.4 0.9

Nepal 40.7 35.6 9.9 24.9 3.9 2.1

Pakistan 0.0 15.7 0.0 0.0 0.0 0.0

Sri Lanka 37.4 41.3 82.6 64.1 84.9 85.0

Source: Computed from the Ministry of Finance Database

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Stock Market Weekly DSE performance: 52 weeks

Market news •

Government to strengthen securities market, activate bond market

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ACI to introduce 'zero coupon bond'

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Market turnover decreased by 13.2%

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"Investment" sector rose by 10% driven by ICB

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"Insurance" sector continued to perform strongly

DSE performance: 30 days

Regional stock market performance (last week))

Market summary

Valuation snapshot

Index performance Opening of this week Closing of this week Change within a week (%) Change within a week (Point) Capitalization and turnover Number of Trading Days Market Capitalization (USD bn) Total Turnover (USD mn) Daily avg. Turnover (USD mn) Total Volume (mn) Daily avg. Volume (mn) Weighted avg. P/E Ratio* This Week Last Week % Change *Weighted on Market Cap.

16.88 16.94 -0.4%

DSE General Index

DSE 20

2649.49 2634.48 -0.6% -15.0

2,175.1 2,153.6 -1.0% -21.6

This Week

Last Week

5 14.75 174 34.73 98

5 14.87 200 40.03 119

20

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Issues Advanced Declined Unchanged Not Traded

This Week 145 127 3

% Change

-0.79% -13.2% -13.2% -17.2% -17.2% Last Week 161 111 4 21

Banks Cement Ceramic Engineering Food & Allied Fuel & Power Insurance Investment IT Jute Miscellaneous Paper & Printing Pharmaceuticals Service & Real Estate Tannery Textiles

Sep-08 18.24 10.34 43.93 41.36 19.44 20.2 24.77 55.48 45.64 16.16 33.95 8.08 28.45 22.87 19.89 15.45

Sector P/E Oct-08 Nov-08 Dec-08 15.62 15.62 16.62 10.32 8.91 10.26 41.76 32.17 47.80 40.8 31.94 30.24 17.09 14.77 16.93 19.14 16.29 15.83 23.12 17.69 21.81 28.93 21.42 20.37 47.89 33.96 46.52 14.18 14.18 12.15 32.2 23.32 34.43 9.97 7.32 9.36 30.25 26.26 30.96 23.55 18.74 22.66 18.44 14.87 16.43 14.55 12.43 13.85 Source: Dhaka Stock Exchange

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Weekly Stock Market Commentary The DSE General Index was down by 0.6% this week - the fifth consecutive weekly fall. Turnover was also down 13.2%, with average daily turnover at USD 34.7mn. Among the 297 issues, 145 advanced, 127 declined, 3 remained unchanged and 22 were not traded.

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Increase of paid up capital from BDT 200mn to BDT 400mn for general insurers, and from BDT 90mn to BDT 300mn for life insurers

The reduction in turnover has been driven by a decrease in institutional activity - additionally, it has been reported that due to year end provisioning for loans, the merchant banks have set aside funds, leading to a temporary liquidity squeeze. Investors and market participants are also increasingly starting to question, the impact of the global recession in Bangladesh. While the DSE fared much better than its EM counterparts in 2008 - the DSE was truly one of the most decoupled stock markets in the world falling by only 7% versus around 38% for the US S&P 500, 50% in India, 65% in China, and more than 70% in Dubai - the risk in 2009, is that the Bangladesh economy and exports will likely slow to a greater extent than in 2008, given that the global recession is getting worse. In the fourth quarter of 2008, real GDP fell by an annualised rate of 21% in South Korea and 17% in Singapore, leaving output in both countries 3-4% lower than a year earlier. Singapore’s government has admitted the economy may contract by as much as 5% this year, its deepest recession since independence in 1965. The US and Europe also see a deepening slowdown with Japan in even worse shape. Given this backdrop, some modest correction in the stock market, as we have seen in the past few weeks, should not come as a major surprise. Stock prices, to the extent they are fundamentally driven, should reflect expectations of future earnings. If the economy slows then corporate may also adjust lower. So it seems unlikely that the DSE will see the sorts of price appreciation we have seen in recent years. The “Investment” sector increased by 10% this week, which was mainly driven by the Investment Corporation of Bangladesh (ICB) which accounts for 57.3% of the sector’s market capitalization. The ICB rose by 21.7% while most other investment funds were down. The Insurance sector continued to perform strongly, increasing 6.7%. The market is anticipating the expected adoption of the New Insurance Ordinances (2008) to replace the 77-year-old Insurance Act 1938. As we have already discussed in the special th focus section of our weekly on 12 October, some of the major developments with the implementation of these ordinances include: − − −

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Approval of foreign ownership in insurance companies Emergence of brokers as intermediaries. Formation of an independent insurance regulatory authority which will regulate all the insurance companies, including the 2 state owned corporations Prohibition of concurrent operation of Islamic and conventional insurance by a single insurer Introduction of mandatory solvency margin

With the minimum capital requirements, listed insurance companies will have to raise capital through bonus and rights issues, while unlisted companies are compelled to list with a minimum 50% of paid up capital free float. We expect this will amount to more than BDT 2bn of capital issues by 17 private life insurers and more than BDT 6bn by the 43 general insurers. Industry consolidation may also be a consequence of the requirements – clearly something the regulator had in mind to ‘professionalise’ a sector, which has operated been loosely regulated. Monno Jutex, Janata Insurance and National Polymer were the top gainers from A - category shares. While the gains ware significant in percentage terms, these are low cap stocks with limited free float.

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Stock Market News Government to strengthen securities market, activate bond market The Financial Express, Sunday February 8, 2009 The country’s finance minister, AMA Muhith, has assured that the government will take all necessary steps to strengthen the country’s securities market, which can be a vital source for industrialisation of the country. The minister stated, "About 92% scrip less shares are now being traded, indicating that the market is developing.” He also pledged to activate the bond market, and stated that measures will be taken to increase the number of beneficiary owners' (BO) accounts from the existing 1.9mn to 5.0mn. Furthermore, the long awaited book-building method, scientific price fixing mechanism for IPOs (initial public offering), will be finalised this month in order to attract large private companies in the stock market. The book building method will encourage the big companies to go public as they will get a fair price of the issues. http://www.thefinancialexpressbd.com/search_index.php?page=detail_news&news_id=58315 ACI to introduce 'zero coupon bond' The Financial Express, Wednesday February 4, 2009 ACI Limited will raise BDT 1.0bn (USD 14.5mn) by issuing convertible Zero Coupon Bonds (ZCB) worth BDT 1.36bn (USD 19.7mn), the first of its kind in Bangladesh’s capital market. ACI signed an MOU with Industrial and Infrastructure Development Finance Company Limited (IIDFC) and Alliance Financial Services Ltd regarding this recently. Under the agreement, IIDFC will act as a facility arranger and Alliance Financial Services will act as an issue manager of the bond. The ZCB will be listed and publicly traded in the country’s stock exchanges. The investors will have the option of converting 20% of the face value upon each maturity of outstanding bonds at a predetermined Conversion Strike Price into common stocks of ACI Ltd. http://www.thefinancialexpress-bd.com/2009/02/04/57874.html

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DGEN Performance YTD

Turnover leaders (All figures in mn) BDT 1177 Delta Life Insurance Renata Ltd. 804 Beximco Pharma 744 Summit Power 558 1st ICB M.F. 519 BEXIMCO 514 Uttara Bank 488 Dutch-Bangla Bank 448 Shinepukur Ceramics 392 Limited Square Pharma 391

DGEN Performance LTM

Best performers* USD 17.1 11.7 10.8 8.1 7.6 7.5 7.1 6.5 5.7 5.7

Worst performers* % Change

% Change

Alpha Tobacco 138.5% 36.8% 33.4% 33.2% 30.4% 30.2% 28.1% 26.4% 25.9% 23.7%

Monno jutex Amam Sea Food Janata Insurance Maq Paper Sreepur Textile Mithun Knitting Lexco National Polymer Bd. Autocars

Source: Dhaka Stock Exchange

Maksons Spinning Mills Limited Quasem Textile Meghna Condensed Jute Spinners Quasem Silk Al-Haj Textile Meghna PET 5th ICB M.F Saleh Carpet Rahim Textile

*By closing price Source: Dhaka Stock Exchange

Market cap. by sector* Banks Pharmaceuticals Fuel & Power Insurance Investment Miscellaneous Engineering Textile Foods Tannery Service & Real Estate IT Cement Ceramics Paper & Printing Jute Total

-18.1% -14.9% -14.3% -13.0% -12.77 -12.4% -10.5% -10.1% -9.9% -8.9%

45.77% 11.49% 14.40% 5.54% 4.29% 3.13% 2.36% 1.91% 2.0% 1.09% 1.38% 0.59% 4.75% 0.86% 0.06% 0.03% 100%

Correlation with other indices* S&P500 S&P500

Sensex

NIKKEI225

KSE100

SSECI

FTSE100

Hangseng

DSE

1

Sensex

0.609533

1

NIKKEI225

0.479296

0.57751

1

KSE100

0.137983

0.245628

0.136849

1

SSECI

0.315464

0.411735

0.245613

0.09449

1

FTSE100

0.843726

0.610483

0.494904

0.238387

0.431538

1

Hangseng

0.704434

0.677905

0.526227

0.110829

0.509843

0.786434

DSE

0.161589

0.193995

0.103366

-0.05588 0.035032 0.131261 0.143725 * Based on the last 86 months’ USD returns Source: AT Capital Research

1 1

*As of December 30, 2008

Research Team Ifty Islam Managing Partner [email protected]

Syeed Khan Partner [email protected]

Mohammad Emran Hasan Senior Associate [email protected]

_______________________________________________________________________________________ AT Capital Weekly Update

12

AT CAPITAL RESEARCH

08 February 2009

Economics Selected macroeconomic indicators 03-Feb-08

Market news 29-Jan-09

03-Feb-09

Forex reserves (USD mn)

5352.84

5577.12

5571.51

USD-BDT average rate

68.5800

68.9000

68.9587

10.51

9.29

9.40

Call money rate

Dec-07 Remittances (USD mn) Annual %age change

Dec-08

Imports (USD mn) Annual %age change

Recession to hit Bangladesh: CPD

•

Capital machinery import plummets amid global recession, textile woes

•

FDI rises 101% in July-November

•

Intervention in forex market ruled out

2007-08

635.34

765.79

7,914.78

14.46

20.53

32.39

Nov-08P

Nov-07

•

2007-08

1,661.80

1,816.50

21,629.00

7.91

9.31

26.07

Latest Bangladesh Inflation Rates Oct-08

Exports (USD mn)

1329.70

Annual %age change

Jul-Dec FY 09

Dec -08P

Dec -07

1195.83

13.18

-10.07

7754.70 19.38

General Inflation Food Inflation

Sep-07 Current A/C Balance (USD mn)

Sep-08

20.00

P

2007-08

46.00

672.00

Non-food Inflation

Nov-08

Dec-08

209.31

207.14

7.26

6.12

204.90 6.03

226.88

223.98

220.64

8.08

6.68

6.83

186.13

184.95

184.29

5.95

5.25

4.76

Source: Bangladesh Bureau of Statistics Dec-08P

Dec-07 Tax revenue (USD mn) Annual %age change

2007-08

524.12

538.81

6,868.43

26.59

8.96

27.06

Source: Selected indicators by Bangladesh Bank, 4 February 2009

In December 08 total exports fell by 10.07% from the previous month

LCs opened for capital machinery imports declined by 20% in Jul-Dec FY09 from a year ago

L/COpening and Settlement (million US$) (a)FoodGrains (Rice & Wheat) (b)Capital Machinery (c)Petroleum (d)Industrial RawMaterials (e)Others Total

July-Dec.2007-08

July-Dec.2008-09

Percentage Change [July-Dec.2008-09]

Opening

Opening

1018.79

448.42

-55.99%

792.83 1000.87 4086.31 3823.29 10722.09

628.87 1163.49 4587.58 4348.29 11176.65

-20.68% 16.25% 12.27% 13.73% 4.24%

Source: Bangladesh Bank

Source: Bangladesh Bank Jisha Sarwar Senior Research Associate [email protected]

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08 February 2009

Economic News Recession to hit Bangladesh: CPD The Daily Star, Sunday February 8th, 2009 The global financial crisis will certainly affect Bangladesh as the country is exposed to global economies, said Prof Mustafizur Rahman, executive director of Centre for Policy Dialogue (CPD). The Bangladesh economy is worth USD 84bn, with USD 21bn imports and USD 14bn exports. Any event in the global economy will certainly affect the country, said Rahman, while speaking as the chief guest at a seminar in Dhaka called "Global Financial Crisis: Are We Ready". Rahman added that as a safeguard measure, the country should strengthen its institutions, as several countries, including the US, have undertaken steps to reform their institutions. Prof Mahmood Osman Imam, chairman of the finance department, also spoke at the seminar and stated that the global financial crisis is likely to affect remittance earning.

AT CAPITAL RESEARCH FDI rises 101% in July-November The Daily Star, Thursday February 5th, 2009 In the first five months of the current fiscal year foreign direct investment (FDI) rose by 101%, although portfolio investments declined. The country's external balance sheet witnessed a deficit of over USD 500mn because of the global currency market volatility stemming from the ongoing financial crisis. The balance of payment had a surplus of USD 77mn during July-November, 2007. According to Bangladesh Bank (BB), FDI inflow was USD 480mn during July-November 08, compared to USD 238mn during the same period a year earlier. According to the central bank, the purchase of AKTEL's 30% stake at USD 350mn by a Japanese company was a major factor contributing to the surge in Bangladesh's FDI inflow. On the contrary, during July-November 08 portfolio investment dropped by USD 34mn, compared to an increase of USD 45mn during the same period in 2007. http://www.thedailystar.net/newDesign/newsdetails.php?nid=74421

http://www.thedailystar.net/newDesign/news-details.php?nid=74932

Capital machinery import plummets amid global recession The Daily Star, Friday February 6th, 2009 Import of capital machinery declined sharply by 32% in January from a year ago, as the global economic crisis has started to impact the country's manufacturing sector. Machinery worth USD 95.36mn was imported during Jan 09, which is about USD 45mn lower than that of January 2008, according to Bangladesh Bank (BB) provisional data. The central bank does not foresee any immediate improvement in machinery imports - a vital indicator of the country's near-term manufacturing activities - as opening of letters of credit (LCs) against imports of capital equipment has been low in the past seven months. In the current fiscal year investors opened LCs worth USD 628.87mn during the July-December period, averaging USD 107mn a month, compared to USD 792.83mn during the corresponding period in FY08. In January LCs for machinery import plunged, falling by more than 36% to USD 64.4mn. According to Zaid Bakth, research director of the Bangladesh Institute of Development Studies (BIDS), a 'massive fall' in demand for local yarn has also affected machinery import, as the textile and garment sectors alone account for more than 50 % of the country's machinery import. During the first six months of the current fiscal year, LCs opened for textile machinery imports dropped by 38% to USD 145.64mn from the same period in FY 08.

Intervention in forex market ruled out The Financial Express, Wednesday February 4th, 2009 Finance Minister AMA Muhith ruled out the possibility of any government intervention in the country's foreign currency market. The existing free-floating exchange rate mechanism will remain, he stated. The finance minister told the media that exchange rate movements -- depreciation or appreciation of the local currency -would depend on the overall state of the situation relating to the cross-rates of currencies that are included in the country's trade weighted currency basket that sets the real effective exchange rate (REER). Mr. Muhith said: "I never said the BDT would be devalued. I am still saying the value of local currency may not remain inflexible or intact in the backdrop of the emerging global perspectives… we are still trying to keep our currency value stable, despite the fact that the currencies of some neighbouring countries like India and Pakistan have depreciated in value, particularly in relation to the US dollar." http://www.thefinancialexpress-bd.com/2009/02/04/57919.html

http://www.thefinancialexpress-bd.com/2009/02/06/58125.html

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AT CAPITAL RESEARCH

08 February 2009

Sector News Agriculture & Food

start exporting processed agro products to Papua New Guinea, East Timor, Brunei, Mauritius, Algeria and some other countries soon.

Tea output slightly below target The Daily Star, Sunday, February 8, 2009

http://www.thedailystar.net/story.php?nid=74944

The tea industry failed to meet its production target last year, owing mainly to a delay in the supply of fertilizer by state-run Bangladesh Chemical Industries Corporation (BCIC). Total tea output stood at around 58.75mn kg against the target of 60mn. Industry insiders and a number of tea scientists, however, said a good yield of tea was possible because of comparatively favorable weather conditions throughout the year. In 2007, production stood at 57.96mn kg, and in 2006 it was 53.41mn kg. Tea Production in Bangladesh Year Production (mn kg) 1997 50.83 1998 55.83 1999 47.19 2000 52.64 2001 56.82 2002 53.62 2003 58.30 2004 56.00 2005 60.14 2006 53.41 2007 57.96 2008 58.75 According to producers, tea is a very sensitive crop, which needs uniform rainfall and sunshine, especially from March to October. The region experienced good rainfall from the beginning of March and the temperature was favorable. However, a delay in supple of fertilizers resulted in a low output of tea. Potash and NPK fertilizers are very important for tea plants during the March-April period; however, tea gardeners did not receive these imported fertilizers on time. Furthermore, most of the gardeners failed to apply the second installment of urea as the BCIC supplied it much later than its required time. There are 160 tea estates. Roughly, two third of the productions is consumed at home, while the remaining is exported. http://www.thedailystar.net/story.php?nid=74930

Pran signs deal on USD 1.5mn exports to Somaliland The Daily Star, Sunday, February 8, 2009 Pran Export Ltd, a local company, will export processed agro-food products worth USD 1.5mn to Somaliland over the next year. An agreement was signed between Pran Export Ltd, a concern of the Pran-RFL Group, and Hadrawi Trading Establishment at the National Press Club in Dhaka. According to Hadrawi Trading Establishment, there is a huge demand for Bangladeshi processed agro-food products in African countries. Pran products are being exported to 70 countries across the globe and the company will

Aviation RAK Airways shuts operation The Daily Star, Thursday February 5, 2009

UAE-based carrier RAK Airways has shut down its operation in Bangladesh as the global recession is causing a decline in air travel. Resultantly, 15 employees at the Airline’s Dhaka office have lost their jobs. However, according to the carrier's General Sales Agent (GSA), the airline will suspend its operations in Bangladesh only on a temporary basis. Earlier, Singapore Airlines declared that it will reduce its flights from Dhaka to five days a week from seven days a week presently. Slowing demand for air travel also prompted Thai Airways to suspend operations from Chittagong earlier and cut the number of flights from Dhaka. http://www.thedailystar.net/newDesign/news-details.php?nid=74420

Banking Islami Bank total deposit reaches BDT 202.89bn The Daily Star, Saturday February 7th, 2009 The total deposit of Islami Bank Bangladesh Limited (IBBL) reached BDT 202.89bn (USD 2.94bn) in January 09, growing by 22% since Jan 08. Total investments of the bank grew by 15% in January from a year ago, reaching BDT 205.55bn (USD 2.98bn). http://www.thefinancialexpress-bd.com/2009/02/07/58174.html

Bankers fear slow loan payback from spinners The Daily Star, Thursday February 5th, 2009 Bankers are concerned that the import of low-cost yarn from India will affect them as this will increase the rate of defaults among their clients. According to the CEO of Eastern Bank, loan repayments from spinning millers have already slowed. He added that banks are at risk as they have a large exposure to spinning mills, which are capital-intensive industries. According to industry insiders presently the BDT 270bn spinning mill industry of the country is struggling with an inventory of 250,000 tonnes of yarn worth BDT 25bn that could not be sold due to a decline in demand and an influx of comparatively low cost yarn from India. Manufacturers are now importing Indian yarn at 15 to 20 cents per pound lower than locally produced yarn. http://www.thedailystar.net/newDesign/news-details.php?nid=74418

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08 February 2009 IBBL projects BDT 10.47bn operating profit in 2009, 50% increase in remittance The Daily Star, Thursday February 5th, 2009 The country's largest private bank IBBL has projected an ambitious BDT 10.47bn (USD 0.15bn) operating profit in 2009 (an increase of 26% from 2008), but sees over-investment in the garments and textile sector as a risk. IBBL’s operating profit of BDT 8.30bn (USD 0.12bn) last year was almost double the amount of Prime Bank, and at least 30% more than Sonali Bank. In 2009 the bank with 196 branches expects to handle at least BDT 211bn (USD 3.06bn) in remittances, or about 30% of the country’s total remittances. IBBL also projects a 45% growth in its import business, 40% in export and a 28% increase in deposits. The bank expects to increase its deposit by 28% to BDT 256.5bn (USD 3.72bn) and increase investments by 29% to BDT 255.5bn (USD 3.71bn). http://www.thefinancialexpress-bd.com/2009/02/04/57872.html

Infrastructure & Energy Hopes high for new gas discoveries as Total to share Bay survey results The Financial Express, Sunday February 8, 2009 French energy giant Total will share its offshore gas survey results with Bangladesh authorities later this month, with the officials expecting discoveries of new reserves in the country's southeastern region. Total, the world's fourth largest energy company conducted surveys in the offshore blocks no. 17 and 18 in Cox's Bazar and Teknaf areas, hoping to strike major natural gas fields close to the hydrocarbon rich Myanmar border. If gas is discovered, Total will make a work-plan for field development and submit it to Petrobangla for approval; it will take four to five years to produce gas from the structures. Total E &P conducted a two-dimensional (2D) seismic survey in an 830 square kilometre-long area in 2007 and a three-dimensional (3D) survey in March last year in Saint Martin's and Shahporir Dwip areas in the Bay. Total E&P holds a 30% stake in the two blocks. Irish oil company Tullow has 32% stake, while Thai energy giant PTTEP owns 30% stake 0and US companies Oakland and Rexwood have 8% stakes. State energy corporation Petrobangla rented the two blocks to US joint venture Rexwood-Oakland in January 1997, but the companies did not carry out any exploration work due to poor gas demand in the country during the time. http://www.thefinancialexpress-bd.com/2009/02/08/58317.html Government starts reviewing draft coal policy The Financial Express, Saturday February 8, 2009 The government has started reviewing the draft national coal policy in order to make a final decision regarding the policy. A top government official said, "On completion of the review the draft of the national coal policy will be placed to the Prime Minister, who is also the minister for energy, for consent before placing it

AT CAPITAL RESEARCH to the cabinet for a final nod." During the previous caretaker government the energy ministry had finalised the draft of the coal policy and had placed it twice to the council of advisers, but did not receive a final approval. Investment proposals in the coal sector worth several billion US dollars from a number of foreign companies have long been pending with the Board of Investment (BoI). The UK-based Asia Energy, South Korean Luxon Global and US-based Global Vulcan Energy are among the foreign companies that are now eagerly waiting for the national coal policy and subsequent government decisions to develop and extract coal from the coalmines. Indian business conglomerate Tata group that had made investment proposals worth USD 3.0bn for projects including development of a coalmine and setting up a coal-fired power plant, recently pulled back after waiting for over two years due to the indecisiveness of the government. The draft national coal policy does not allow foreign companies to develop coalmines independently - foreign companies must have joint venture with local partners to develop and extract coal. Like elsewhere in the world coalmines in Bangladesh can be developed by either open pit or underground method. But the mining method should be determined on the basis of geological structure and reserve potentials, the draft policy recommended. The draft policy has not kept any option for coal export other than 'cocking coal' from the country. http://www.thefinancialexpressbd.com/search_index.php?page=detail_news&news_id=58213 Petrobangla asked to raise gas production The Financial Express, Thursday February 5, 2009

The energy ministry has asked Petrobangla to increase gas production to meet the growing demand for fuel in the country. The energy ministry's instruction to raise gas production came after Petrobangla failed to initiate gas supply of around 40mn cubic feet per day (mmcfd) from two fields. According to Petrobangla's existing work-plan, the country has established sources for fresh supply of only 155 mmcfd from five gas fields by 2011. But the overall gas supply might not increase to that extent as the supply from existing fields might decline. For producing gas beyond that level Petrobangla needs to conduct exploration and discover new gas reserves. Petrobangla's subsidiary, Bangladesh Petroleum Exploration and Production Company Ltd (BAPEX), has planned to conduct explorations in seven new gas fields by 2011. At present, around 1800 mmcfd of gas is supplied against the demand for over 2050 mmcfd. Half of the produced gas comes from gas fields operated by Petrobangla subsidiaries, and the remaining half is supplied from fields run by international oil companies (IOCs). The government stated that the country needs at least USD 7.7bn (USD 111.7mn) worth of investment in gas exploration and development to sustain a moderate annual economic growth of 7.0% until 2025. http://www.thefinancialexpressbd.com/search_index.php?page=detail_news&news_id=58044

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AT CAPITAL RESEARCH

08 February 2009 BDT 3.4bn (USD 49.3mn) boost for Bapex The Daily Star, Thursday February 5, 2009

The Executive Committee of the National Economic Council (Ecnec) approved a BDT 3.4bn (USD 49.3mn) project that will help Bapex increase its oil and gas exploration capability, and will help Bakhrabad Gas Field Company increase its gas supply to Chittagong within two years. Ecnec also approved a BDT 2.75bn (USD 39.9mn) district road development project in Barisal and a BDT 2.25bn (USD 32.6mn) district road development project in Rajshahi.

“The cost of production of quality leather shoes is lower in Bangladesh than in China and India, and this is the main reason for receiving more orders from European countries,” said Tipu Sultan, former chairman of Bangladesh Finished Leather, Leather Goods and Footwear Exporters Association. China, India and Vietnam were the largest leather shoe exporters in the world, but in recent years these countries are failing to make and sell quality low-cost leather shoes. According to Sultan, Bangladesh is now getting more orders from Germany, Italy, France, Japan and Canada.

Under the project, Bakhrabad along with Bapex will build a 65km 10-inch pipeline from the recently developed Semutang gas field up to Chittagong. This pipeline is expected to increase gas supply to Chittagong by 20mn cubic feet per day by June 2010.

http://www.thedailystar.net/story.php?nid=74580

http://www.thedailystar.net/story.php?nid=74306

BDT 2000mn (USD 29.01mn) in apartment orders placed during Chittagong REHAB fair The Daily Star, M9onday February 2, 2009

Gas development fund to be set up

Real Estate

The Financial Express, Wednesday February 4, 2009

The government has decided to establish a 'gas development fund' with the proceeds from gas sales to facilitate hydrocarbon exploration and production to meet the mounting energy demand across the country. Stateowned Petrobangla will be in charge of managing and disbursing the proposed fund to local gas exploration and production companies. http://www.thefinancialexpressbd.com/search_index.php?page=detail_news&news_id=57931

Energypac Confidence Power begins commercial operation The Financial Express, Tuesday February 3, 2009 Energypac Confidence Power Venture Ltd., a subsidiary of Confidence Cement Ltd, has started operating an 11MW natural gas power plant in Habiganj, Sylhet, and is selling electricity to the Rural Electrification Board (REB). According to the managing director of Confidence Cement Ltd., the new business of the company with an investment of BDT 500mn (USD 7.3mn) is expected to earn around BDT 200mn (USD 2.9mn) annually. Confidence Cement Ltd. was incorporated as a public limited company on May 2, 1991.The main activities of the company were manufacturing and marketing cement. Later, it diversified its business in power and paint.

Apartments worth BDT 2000mn (USD 29.01mn) were sold during a three-day housing fair in Chittagong organised by REHAB. The organisers and participants are expecting to earn an additional BDT 1000mn (USD 14.7mn) from potential customers. A total of 69 firms, including three financial institutions, from the Dhaka and Chittagong took part in the fair, which was visited by around 13,000 visitors. Visitors said apartment prices should come down as prices of construction materials have been declining. However REHAB’s president said that among construction materials only the price of rods declined, but the price of land has been appreciating, which has pushed up overall prices of apartments. http://www.thedailystar.net/newDesign/news-details.php?nid=73973

Shipbuilding BB set to form BDT 5bn (USD 72.5mn) fund for shipbuilding The Financial Express, Saturday February 7, 2009

The central bank is planning to form a BDT 5.0bn (USD 73.5mn) fund for the country's emerging shipbuilding industry, in an attempt to make it a significant export earning sector.

http://www.thefinancialexpress-bd.com/2009/02/03/57784.html

Leather Goods Footwear a bright spot in dim exports The Daily Star, Thursday February 6th, 2009

The country’s leather footwear manufacturers are optimistic about the industry’s future, after an increase in exports by 39 % in the July-November period of FY 09. During the period export earnings from footwear stood at around USD 85mn, an increase of 39% from a year ago, according to Export Promotion Bureau (EPB) statistics.

The central bank will create the fund under a "refinancing scheme". The commercial banks will take money from the proposed "fund" and lend it to shipbuilders. "If the fund is created, one of our major problems will be solved," shipbuilder Abdullahel Bari of Ananda shipbuilding said adding, "Funding is a major obstacle in expanding our shipyard to secure more export orders." The country's booming shipbuilding industry has so far earned nearly USD 800mn worth of export orders for making around 50 ocean-going vessels and cargoes. Three companies -- Ananda, Western Marine and Highspeed - have received these orders. Until 2008 Ananda Shipyard received 40 orders worth USD 450mn

_______________________________________________________________________________________ AT Capital Weekly Update

17

08 February 2009 for making ships and ferries from different European and African countries. http://www.thefinancialexpress-bd.com/2009/02/07/58215.html

Telecoms Illegal VoIP trade makes a comeback The Daily Star, Thursday February 5, 2009

The illegal business of voice over internet protocol (VoIP) has revived after the new government came into power. This illegal telecom business has been eroding the market for new legal international gateway (IGW) businesses. Industry insiders said VoIP based call termination businesses already captured 40% of the market of all incoming and outgoing international calls. The three new IGWs were handling 12mn minutes of calls a day while BTCL was handling 20mn, till December 2008. But the numbers rose significantly in January as illegal VoIP operators returned. BTRC recently awarded six licenses to the private sector to handle international voice and data traffic. Among the six call handlers, three IGWs are mainly responsible for handling international voice calls.Two other legal interconnection exchanges (ICXs) transmit the calls between the IGWs and telecom operators.

AT CAPITAL RESEARCH While the outlook for the sector is mostly positive, a number of negative news items were also reported last week. Local bankers are concerned of slow loan repayment from local spinners as the latter are facing production and revenue shortfalls due to high competition from imported Indian yarn. Resultantly, banks have decided to tighten their lending to the sector. Moreover, import of capital machinery declined by a sharp 32% in January compared to the same month last year. As the textiles sector is one of the largest importers of capital machinery in the country, a decline in import of machines indicates that manufacturing in the sector is declining, perhaps due to the global economic crisis. One of the important issues raised last week is the local textile sector’s inability to enter the Japanese market. According to the Head of Japanese External Trade Organization (JETRO) in Dhaka, the China + 1 Strategy adopted by the Japanese apparel buyers has encouraged Japan to import from low cost producers such as Bangladesh. Moreover, Japanese buyers are impressed with the quality of products from Bangladesh. However, the lack of foresight of Bangladeshi exporters who prefer to receive big orders from Europe or America than smaller orders from Japan has hindered exports to Japan. The exporters need to understand that Japanese companies usually start with small orders, but eventually increase their orders with quality assurance.

http://www.thedailystar.net/newDesign/news-details.php?nid=74477

Textiles ATC Comment During last week, there were both positive and negative news regarding the country’s textile sector. Exporters are quite optimistic about exceeding EPB’s tentative apparel export target of USD 25bn by 2013. Indeed there is reason for optimism - global apparel buyers are seeking cheaper sources such as Bangladesh for importing garments, as their purchasing power is declining due to the economic collapse. Hence, foreign buyers are increasingly shifting their orders from China and Cambodia to Bangladesh; furthermore, local textile companies have increased their productivity and have adopted new diversification strategies, which are also attractive factors for international buyers. In the July-December period of the current fiscal year, woven garment exports surpassed the target by 2.5%, knitwear by 2.2%, terry towel by 11%, and textile fabrics by 8.2%, according to data of Export Promotion Bureau (EPB).

RMG exporters upbeat on target The Daily Star, Sunday, February 8, 2009 Garments exporters are optimistic about meeting the current fiscal year’s export target, although exports of some other products from Bangladesh have declined during the JulyDecember period. Bangladesh exported woven garment worth USD 2.8bn against the target of USD 2.73bn, knitwear worth USD 3.24bn against the USD 3.17bn target, terry towel worth USD 66.39mn against the USD 59.83mn target, and textile fabrics worth USD 41.63mn against the target of USD 38.49mn in the July-December period of FY 09. However, during the same period exports of raw jute, handicrafts, jute goods, electronics, leather, frozen foods and ceramic products declined, according to the EPB data. The export trend of RMG products shows that the export target of USD 12.27bn for woven and knitwear products for FY 09 is achievable. http://www.thedailystar.net/story.php?nid=74879

The sector is also attracting significant investments – S&S Clothing Limited, a USA-Bangladesh joint venture company, has decided to set up a USD 2.67mn garments factory in the EPZ.

Exporters' lack of vision blamed for slow entry of Bangladeshi apparel to Japan The Financial Express, Friday, February 6, 2009

Other positive developments in the industry last week include the launching of a ‘Productivity Improvement Cell’ by BGMEA in collaboration with GTZ. The project was implemented under the 'BGMEA Competitiveness Enhancement Programme' managed by international experts from Rajesh Bheda Consulting (RBC), which increased the labor productivity of 10 factories by over 10%, and trained 80 middle managers in the industry. The project will undoubtedly be useful in enhancing performance in the sector.

Apparel exporters' lack of foresight has slowed RMG exports to Japan, according to the Head of Japanese External Trade Organization (JETRO) in Dhaka. He also said that Bangladesh's apparel export to Japan is poised to jump three-fold to USD 100mn in the current fiscal year. But the growth would have been several times more had not Bangladeshi manufacturers rejected some of the small orders placed by big Japanese retailers, he added. Japan is the world's fourth largest

_______________________________________________________________________________________ AT Capital Weekly Update

18

AT CAPITAL RESEARCH

08 February 2009 apparel buyer with its knitwear market alone worth over USD 10bn. The largest economy in Asia, however, buys some 90% of its apparel from its traditional source, China. In recent months Japanese yen's appreciation has prompted the companies to diversify their supply chains. Resultantly, top Japanese retailers, notably Fast Retailing, Seiyu, Ito-Yokado and Aoyama Trading have started to seek cheaper sources such as Bangladesh, Vietnam, Cambodia and Pakistan. Around five-six Japanese buyers have been visiting Bangladesh each week, and they are impressed with the quality of Bangladeshi products. The reason for poor export to Japan, Kinomoto, the Head of JETRO, explained, is due to the lack of foresight of Bangladeshi exporters who prefer big orders from Europe or America than smaller orders from Japan. Japanese companies usually start with small orders, and eventually increase the orders as they gain confidence in the quality of products. Kinomoto, however, is hopeful that the situation will change once Japanese companies set up trading posts here. At present, only a number of companies, including Fast Retailing, have a buying house in Dhaka. http://www.thefinancialexpress-bd.com/2009/02/06/58127.html

USD 2.67mn US-Bangla co to produce garments accessories The Financial Express, Thursday, February 5, 2009 S&S Clothing Limited, a USA-Bangladesh joint venture company, will set up an industry in the Karnaphuli Export Processing Zone in Chittagong, Bangladesh. The company will invest USD 2.67mn in setting up their plant and will produce garments accessories. The company is expected to create employment opportunities for 2,028 local people and two foreign nationals. http://www.thefinancialexpress-bd.com/2009/02/05/57974.html

BGMEA opens productivity improvement cell The Financial Express, Thursday, February 5, 2009 The Bangladesh Garment Manufacturers and Exporters Association (BGMEA) recently launched a 'Productivity Improvement Cell', in collaboration with GTZ. The project was implemented under the 'BGMEA Competitiveness Enhancement Programme' managed by international experts from Rajesh Bheda Consulting (RBC), which increased the labor productivity of 10 factories by over 10%, and trained 80 middle managers in the industry. http://www.thefinancialexpress-bd.com/2009/02/05/57980.html

Textile, garment machinery expo starts Sunday The Daily Star, Thursday, February 5, 2009 The sixth Dhaka International Textile and Garments Exhibition began at the Bangladesh-China Friendship Conference Centre in the capital on Sunday to showcase textile and garment machinery. The four-day exhibition will continue until February 11 where around 600 leading textile and garment machinery producers from 30 countries will exhibit products at 800 booths. Bangladesh Textile Mills Association (BTMA) and ES Event Management of Malaysia have co-organized the exhibition. The machinery used in

textile and garments, dyeing and finishing and embroidery and knitting will be put on display at the exposition. http://www.thedailystar.net/story.php?nid=74447

BTMA points to 'crisis' in primary textile sector The Daily Star, Monday, February 5, 2009 Spinning mills, apparently affected by the global financial crisis, have reported BDT 300bn (USD 4.37bn) worth of yarn in unsold stocks. Leaders of the Bangladesh Textile Mills Association (BTMA) sought a stimulus package from the government to overcome the situation. Most spinning mills are facing a serious liquidity crisis, as a huge amount of yarn remains unsold, according to the BTMA. As yarn could not be marketed, the mills cut their production by 30%. If the situation goes unchecked, a large number of workers will lose their jobs at the mills and the number of loan defaulters will increase, BTMA leaders said. There are 1150 mills under the BTMA, including spinning, dyeing and finishing factories, which have an investment of BDT 400bn (USD 5.83bn). The BTMA made a series of demands, including a hike in cash subsidy to 15% from 5%, deferring term loan repayment and freezing of interest for two years, the formation of a research and development fund and devaluation of the taka against the dollar. http://www.thedailystar.net/story.php?nid=73953

EPB eyes USD 25bn RMG exports by 2013 The Financial Express, Thursday, February 5, 2009 76 % of the country’s total export trade is attributed to the textiles sector - if the trend continues, the country is likely to earn up to USD 25bn by the year 2013, stated an EPB official during a seminar. Other speakers at the seminar pointed out that, international buyers have been seeking cheaper options for importing apparels as their purchasing power has been declining, As comparatively better quality goods are produced in Bangladesh at cheap rates, the demand for Bangladeshi products is on the rise in developed countries. http://www.thefinancialexpress-bd.com/2009/02/04/57878.html

Tourism Radisson’s profit increases The Daily Star, Sunday February 9, 2009

In 2008 the gross operating profit of Radisson Water Garden Hotel Increased by 8.9% to USD 7.33mn, driven by a high occupancy rate. The hotel earned USD 14.71mn in revenues in 2008, a 10 % rise from a year ago. Total foreign currency revenue earned in 2008 was USD 9.95mn (cash and credit cards). The hotel gained a 40% share of the total market of five-star hotels in the capital and achieved an occupancy rate of more than 80 % in 2008. According to Industry insiders, Radisson’s profits were partly driven by the fact that the hotel is located in the northern part of the city, which has better access to Zia International Airport and the garment belt in Ashulia-Savar. http://www.thedailystar.net/story.php?nid=74584

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Sheraton's star at risk The Daily Star, Thursday February 5, 2009

Sheraton is leaving its existing management contract as Bangladesh Services Ltd (BSL) has not agreed to renovate the country's first five-star hotel. Now instead of having a world-class company like Sheraton to run the business, the hotel may be operated by a local entrepreneur under a franchise from a second-grade international hotel operator. Situated in a prime location, close to the downtown business district and the Prime Minister's Office, Sheraton last year earned revenues of around USD 13mn, up from USD 11.27mn in 2007.The hotel made an operating profit of around USD 4.79mn in 2008, a 10% rise from a year earlier, amid intense competition from its new rivals in the hospitality sector. Despite such profitability, Sheraton is now leaving the hotel management because of BSL's refusal to renovate the hotel. Since last June, at least seven international hotel chains including InterContinental, Hilton, Carlson, Marriott and Wyndham expressed interest to take over the hotel management following Sheraton's exit. But all of them, except Wyndham, demanded immediate renovation of the hotel by the government, saying the hotel building and its interiors are too old. Wyndham is likely to strike the franchise deal under the name of Ramada Plaza in midFebruary, said a BSL official. Ramada is a three-star hotel chain owned by US-based Wyndham Worldwide. http://www.thedailystar.net/newDesign/news-details.php?nid=74463

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