At Capital Weekly 22 September 2008

22 September 2008

AT CAPITAL RESEARCH

Weekly News Update

AT Capital Weekly Update Key themes in this issue are: Global Markets: • Another extraordinary week in global financial markets. The worst crisis since the 1930s prompted: 1) the US Treasury to temporarily extend insurance, similar to that on bank deposits, to money-market mutual funds. 2) The Securities and Exchange Commission banned short-selling of 799 financial stocks for at least 10 days. 3) Decision to create a new entity to purchase impaired assets from financial firms.

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Secretary Paulson said that the plan would cost at least USD 500bn but the limit he has formally requested of Congress was USD 700bn. Some estimates are as high as USD 1trillion but to the extent the government purchases such as Fannie/Freddie/AIG appreciate in price, the bailout costs could be much lower. The markets reacted with euphoria with the Dow Jones Industrial Average finished up 368.75 points, or 3.4%, at 11,388.44, off just 0.3% on the week. A bailout of USD 700bn - USD 1tr, if it ends up being as high as this, will undoubtedly steepen the US yield curve substantially further. Higher long term interest rates will add a further twist to the housing downturn.

Bangladesh: • Bangladesh’s markets have been an island of stability in an ocean of unprecedented

Asian Tiger Capital Partners

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EDITORS

Ifty Islam Managing Partner [email protected] Syeed Khan Partner [email protected] Professor Jahangir Sultan Senior Advisor [email protected]

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

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volatility. This is not the result of clever policy decisions. In fact it actually reflects the lack of successful integration of Bangladesh into the global capital market. We discuss some of the potential implications of the global crisis for Bangladesh. Pressure on exports from a further slowdown in US and European growth is likely to intensify. But this may be offset by a weaker US dollar and a fall in oil prices. The Bangladesh election dates have finally been announced – Dec 18 for the National elections and Dec 24/28 for the Upazila. We discuss the need for a clear economic strategy by the main political parties as they formulate their election manifestos..

The end of the cult of Free Markets and the return of regulation?

22 September 2008

Contents

AT CAPITAL RESEARCH Page

Overview – Global Markets

3

The next phase of the credit crisis and what it means for Bangladesh

3

Risks to the bailout – price uncertainty and budget deficit surge

4

The crisis of capitalism

5

Risks remain from higher bond yields, tighter credit, lower house prices and weaker USD

5

Morgan Stanley and Goldman Sachs become banks: the end of an era?

6

Overview – Bangladesh

7

What does all of this mean for Bangladesh?

7

National and Upazila election dates announced

8

Has Grameenphone cut its IPO offering?

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Appendix

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Stock Market Weekly

10

Weekly Stock Market Commentary

11

Stock Market News

11

Economics

14

Economic News

15

Sector News

17

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22 September 2008

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

Overview – Global Markets Markets

The markets reacted with euphoria with the Dow Jones Industrial Average finished up 368.75 points, or 3.4%, at 11,388.44, off just 0.3% on the week.

The next phase of the credit crisis and what it means for Bangladesh

Change in global equity equity markets between September September 18 low and September September 19 high

A volatile week on Wall Street as Sheriff Paulson rides to the rescue The “Perfect Storm” in financial markets as a result of the Lehman bankruptcy and the AIG “Conservatorship” we discussed in the September 15 issue of the AT Capital Weekly continued to gather momentum of the course of last week. The collapse in Morgan Stanley on Wednesday led the meltdown in financial stocks. This was followed Thursday by massive outflows from money market mutual funds as a number were trading below pars as a result of their losses from exposure to Lehman. Stock markets around the world were in free fall and the prospects for a seizing up in the global financial system triggered a USD 180bn liquidity injection Thursday from global central banks and an emergency response from Treasury Secretary Paulson on Friday. Treasury Secretary Paulson stated that “lax lending practices earlier this decade led to irresponsible lending and irresponsible borrowing" and that for Wall Street, toxic mortgage-backed securities had become "frozen on the balance sheet of banks and financial institutions." He added, "The inability to determine their worth has fostered uncertainty about mortgage assets and even about the financial condition of the institutions that own them." While short on details, the highlights of the plan announced Friday was that the Treasury would temporarily extend insurance, similar to that on bank deposits, to money-market mutual funds and the Federal Reserve said it would buy commercial paper from the funds. The Securities and Exchange Commission also banned short-selling of 799 financial stocks - a financial bet that they will fall in price - for at least 10 days. The Treasury said it - along with mortgage giants Fannie Mae and Freddie Mac, recently taken over by the government - would step up their purchases of mortgage backed securities to help keep the housing market afloat. The most ambitious part of the government plan is to create a new entity to purchase impaired assets from financial firms. Secretary Paulson said that the plan would cost at least USD 500bn, but the limit he has formally requested of Congress was USD 700bn. Some independent analysts suggested the cost could be as high as USD 1 trillion, but this seems unduly pessimistic.

Source: Bespoke Investment Twenty-three of its 30 components, including all its financial names, advanced. Citigroup was the strongest of the group, rallying 22.7%. The table below illustrates that the net change in the Dow and many other stock markets was modest, but this masks tremendous volatility. The Dow's gain was its fourth move of at least 350 points in five trading days this week. The only clear winner in the week was gold.

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22 September 2008 The smallest daily move last week in 2Y US treasury yields was 29 basis points. But perhaps the extreme illustration of the extraordinary events of last week is the chart below of US 3M Treasury-bill yields. At one stage interest rates on Treasury bills were negative on three-month bills. This did not even happen in the Great Depression. So this means you needed to pay the US government to hold your money underlining the extreme risk aversion and safe haven flows that dominated market sentiment last Thursday.

Oil Prices Jump Sharply

T-Bills normalize From Extreme Levels

Source: Bespoke Investment

Risks to the bailout – price uncertainty and budget deficit surge

Source: Bespoke Investment The biggest rebound was in Russia where stocks surged Friday, as a USD 120bn government rescue package and the rebound in global markets helped avert a financial calamity. But the Kremlin still has a long way to go to win back investors' confidence. After nearly two days of being closed by regulators because prices were in free-fall, Russian share markets re-opened Friday morning to buying so dramatic that trading had to be halted twice because of excessive gains. The dollar-denominated RTS index closed up 22% but was still short of its closing level in the prior week, before two days of panic selling swamped the market. It is still down 50% from the high seen earlier this year and foreign investor confidence in Russian equities is likely to remain fragile.

Crude oil prices rose as fears about the broader US economy waned. Crude futures for October delivery rose USD 6.67, or 6.8%, to USD 104.55 a barrel, the highest settlement in 11 days on the New York Mercantile Exchange. For the week, crude rose 3.3%. However, we doubt that oil prices can sustain a rally for much longer in light of the lingering threats to the global economy aside from Wall Street's credit crisis. Demand for oil products is down over 4% from a year ago, according to the latest US Energy Information Administration data, with the year-on-year gap widening even as prices come off from mid-summer records. Several major European economies are in recession, though growth in the developing world remains strong.

For the last few weeks, a growing chorus of voices has called for the establishment of a new Resolution Trust Corporation, the entity the government devised in the wake of the savings and loan crisis to take over, and eventually sell off, the assets of failed S. & L.'s. On Wednesday, Paul Volcker, a former Federal Reserve Chairman, co-authored an op-ed article in The Wall Street Journal, adding his support. However, that crisis however, was very different from this one. Most of the assets in the S. & L. crisis were real estate — which are always going to have value. The government did not have to acquire them; it simply took them over and over time, sold them. This time, the assets are complex derivatives of uncertain value that the big firms will actually be selling to the government.

But Joe Nocera of the New York Times highlighted the tightrope the US Treasury is walking most succinctly. In a September 19 article highlighted the uncertainty about how

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22 September 2008 government is going to assess these securities — and what price will it pay for them? He stated that, ”In many cases, these securities aren't being sold because they are still overvalued on a firms' books. That is, their mark-to-market price is unrealistically high. Will the government buy it at the too-high price? If it does, the firms won't have to take additional write-downs — but it will constitute a huge, unjustified bailout of Wall Street (more moral hazard). But what if the government drives a hard bargain, and gets the securities for what they are really worth — 20 cents on the dollar, say, instead of 50 cents? In that case, the firms would have to take yet more enormous writeoffs, which would further damage their balance sheets, and they would have to raise billions more in capital. Maybe the removal of these bad assets would allow the firms to raise the capital. But maybe not — meaning one or more could conceivably have to file for bankruptcy, creating yet another spasm of financial turmoil. It's a huge roll of the dice by the government.” The crisis of capitalism Looking more broadly, what we are seeing is a return to a tradition of regulation and state control and a move away from the free market ethos that has dominated much of the past three decades. As noted by The Wall Street Journal in March, the Federal Reserve shattered a half-century of tradition in which it had lent money only to banks whose deposits were insured by the government. Declaring circumstances to be "unusual and exigent," as required by a little-used statute, it lent to investment bank Bear Stearns and eventually risked USD 29bn of taxpayer money to induce JPMorgan Chase to buy Bear. It seemed a very big deal at the time. But in the past two weeks, the US government, keeper of the flame of free markets and private enterprise, has: -- nationalized the two engines of the US mortgage industry, Fannie Mae and Freddie Mac, and flooded the mortgage market with taxpayer funds to keep it going;

AT CAPITAL RESEARCH attention must be paid to behaviour that may appear rational for each institution, but cannot be rational if all institutions are engaged in it at the same time. “Financing house-price bubbles with loans equal to 100% of the barely appraised value, because prices only go up, comes to mind. He goes on to note when considering what went wrong? The short answer: Minsky was right. A long period of rapid growth, low inflation, low interest rates and macroeconomic stability bred complacency and increased willingness to take risk. Stability led to instability. Innovation – securitisation, offbalance-sheet financing and the rest – has, as always, proved a big part of the story. As Minsky warned, undue faith in unregulated markets proved a snare. Another of his FT colleagues, John Gapper, notes that since the formulation of the derivatives market with the invention of the Black Scholes Options pricing formula in 1973 “Over the ensuing three decades, banks and insurance companies got addicted to complexity. One reason for this is that it skews the odds in favour of those who hold the technology. Trading in markets is essentially a zero sum game, in which you have an equal chance of winning or losing. But banks have been able to shift the odds by using computer models that others lack, to trade in volatility, for example.” Risks remain from higher bond yields, tighter credit, lower house prices and weaker USD Beyond the uncertainty behind the price the US Government pays for the toxic assets, there is additional political opposition likely from those who believe taxpayers should not be bailing out wealthy Wall Street professionals who bet the bank gambling and speculating and lost. The news that Barclays Capital would be honouring a USD 2.5bn bonus allocation to failed Lehman bankers will only fan the flames of discontent. Such political waves should not be dismissed a few months before the US Presidential elections and amid the growing opposition to UK PM Gordon Brown within his own party.

-- crafted a deal to seize the nation's largest insurer, American International Group Inc., fired its Chief Executive and moved to sell it off in pieces. -- extended government insurance beyond bank deposits to USD 3.4 trillion in money-market mutual funds for a year; -- banned, for 799 financial stocks, a practice at the heart of stock trading, the short-selling in which investors seek to profit from falling stock prices; -- allowed or encouraged the collapse or sale of two of the four remaining, free-standing investment banks, Lehman Brothers and Merrill Lynch; -- asked Congress by next week to agree to stick taxpayers with hundreds of billions of dollars of illiquid assets from financial institutions so those institutions can raise capital and resume lending. As FT commentator Martin Wolf has noted: “A shift in the psychology of supervision away from the presumption that institutions know what they are doing. In particular, far more

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22 September 2008 But the economics of the bailout are also far from clear. A bailout of USD 700bn - USD 1tr, if it ends up being as high as this, will undoubtedly steepen the US yield curve substantially further. Higher long term interests will add a further twist to the housing downturn. The chart above, courtesy of the Financial Times, illustrates the problems most effective. The US housing collapse is mid-phase but that in the UK, Spain (and indeed other European countries such as Ireland) the housing downturn has a long way to go. The collapse in US commercial paper outstanding seen in the second chart below is a graphic illustration of the rapid contraction in credit available not only to Wall Street, but also Main Street or non-financial corporate America. The price of borrowing is also rising, as a result of wider credit spreads seen in the third chart. Finally the collapse in Wall Street banking stops will reduce their ability to borrow.

As the IHT noted on September 22, “As bank holding companies, the two banks, which have seen their shares lose about half their value this year, will have to reduce the amount of money they can borrow relative to their capital. That will make them more financially sound but will also significantly limit their profits. Today, Goldman Sachs has USD 1 of capital for every USD 22 of assets; Morgan Stanley has USD 1 for every USD 30. By contrast, Bank of America's has less than USD 11 assets for every USD 1 of capital.”

Morgan St Stanley and Goldman Sachs become banks: banks: the end of an era? In the latest twist to the rapidly evolving saga of the greatest financial crisis since the 1930s, Goldman Sachs and Morgan Stanley have been converted into bank holding companies, which on the one hand will make them safer by allowing them to access depositors and also borrow from the Fed’s discount window. But will also curtail their potential profitability and subject them to far greater regulatory scrutiny. On Sunday Evening, Sep 21, the US Federal Reserve, announced the following: “The Federal Reserve Board on Sunday approved, pending a statutory five-day antitrust waiting period, the applications of Goldman Sachs and Morgan Stanley to become bank holding companies. To provide increased liquidity support to these firms as they transition to managing their funding within a bank holding company structure, the Federal Reserve Board authorized the Federal Reserve Bank of New York to extend credit to the US broker-dealer subsidiaries of Goldman Sachs and Morgan Stanley against all types of collateral that may be pledged at the Federal Reserve's primary credit facility for depository institutions or at the existing Primary Dealer Credit Facility (PDCF).” It was reported that the firms requested the change themselves, even though they ought to have received reassurance from Congress and the Bush administration’s hurried efforts to a USD 700bn rescue of the financial system. Despite the “Avoiding Armageddon” rally of Friday in financial stocks, it was a clear acknowledgment that their model of finance and investing had become too risky and that they needed the cushion of bank deposits that had kept big commercial banks like Bank of America and JPMorgan Chase relatively safe amid the recent turmoil.

The most fundamental problem is how to generate profit growth in a world that no longer tolerates high leverage. At Merrill Lynch, the leverage ratio soared to 28 last year, from 15 in 2003, according to UBS. Morgan Stanley's leverage ratio climbed to 33, while Goldman's hit 28. The profit upside isn't as high as it is on Wall Street, but the downside isn't as steep. If a bank loses USD 1bn on a loan, it has twice the capital an investment bank might have to absorb it. The ascendancy use of customer Retail depositors turbulent times, insurance.

of commercial banks largely reflects their deposits to fund much of their business. tend not to pull their money out, even in thanks to backing by federal deposit

But US commercial banks are likely to face their own problems as ongoing economic weakness in the household, corporate and real estate sectors sees the further rise in traditional defaults that are normal at this point in the economic cycle in the face of the sharp increase in unemployment.

But it is important to realize that such a cushion comes at a significant cost. By becoming bank holding companies, the firms are agreeing to significantly tighter regulations and much closer supervision by bank examiners. Now the firms will look more like commercial banks, with more disclosure, higher capital reserves and less risk-taking.

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Overview – Bangladesh What does all of this mean for Bangladesh? Well as the chart below illustrates, Bangladesh’s capital markets have been an island of stability in an ocean of unprecedented volatility. This is not the result of clever policy decisions by government regulators and officials here. In fact it actually reflects the lack of successful integration of Bangladesh into the global capital market. If our past efforts to attract more foreign investors had been more successful, they undoubtedly would have rushed to withdraw capital in this time of global market turmoil and would have dragged the DSE down with other emerging markets. The prospects for Bangladesh going forward can be thought of in the following terms: 1)

2)

Risk appetite falls: falls: If global risk aversion persists then this might reduce appetite for developing and EM equities which might be negative for Bangladesh. Merrill Lynch’s most recent survey of fund managers found that they are now holding more bonds than normal for the first time in a decade (indicating a flight to safety). They also have smaller positions in emerging-market equities than at any time since 2001. In the past three months emerging-market funds have seen an outflow of USD 26bn, compared with an inflow of USD 100bn in the previous five years.

Source: AT Capital Research

4)

USD weakens again: A renewed downturn in the US dollar seems likely as global investors worry about the fiscal implications of the US bailout and the reduced creditworthiness of the US government as a result of a massive rise in bond issuance. This is likely to offer some offset for Bangladeshi exporters since the taka is tied with the USD and more of the country’s exports go to Europe than the US.

5)

Oil prices reverse recent gains: If oil prices continue to rise then this is bad news for Bangladesh growth and inflation. Higher energy prices will take more money out of consumer pockets although the impact will come through with a lag given the subsidies paid by the state towards energy costs. But we believe the current uptrend in energy markets reflects wishful thinking in terms of the bailout triggering global economy recovery.

Diversification attractions: However, the volatility of the BRICs (Brazil, Russia, India and China) in 2008 may actually trigger a greater hunt for alternative investments in more frontier markets like Bangladesh which are less correlated with developed markets and hence offer diversification benefits.

Index Performance: DGEN vs. vs. S&P 500 (rebased (rebased to 100)

Source: AT Capital Research

3)

Economic slowdown: If the US and European economies continue to move into recession then Bangladeshi exporters will see a further decline in demand and hence weaker GDP growth here.

The US bailout will not reverse the fundamental drag on US growth from the fallout of the bursting of the US housing bubble and the process of credit deleveraging. But looking beyond the prospects for a further near-term slowdown in Bangladeshi growth, we believe turmoil in the developed and BRICs markets, and the relative stability of the DSE, will potentially increase interest in Bangladesh’s attractions as a

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22 September 2008 diversification destination further. The stock market authorities need to continue to encourage more large IPOs to attract foreign investment along with the necessary reforms to encourage liquidity. The next elected government in 2009 also needs to remain focused on re-energizing the Board of Investment to maximize the chances of translating greater interest into frontier markets into a substantial increase in Bangladesh FDI. National and Upazila election dates announced In a televised address to the nation on Saturday evening, Chief Adviser Dr. Fakhruddin Ahmed announced that the ninth parliamentary elections would be held on December 18 and upazila polls on December 24 and 28. He said certain emergency measures could either be lifted or relaxed to help the electoral process. There was some opposition from the two leading parties, Awami League and BNP, on the reluctance of the Caretaker Government to lift the state of emergency fully. In addition, there were some criticism of the decision to hold the upazila and national elections so close together. However, we believe that international investors generally will be encouraged by the fact that an election date has finally been agreed. There were concerns about how tight the schedule had become with no announcement. The key issues in the near-term will be the confidence level among investors that the elections will be held without major disruption in the political process from the two major factions. But from a longer-term perspective, as we highlighted in last week’s ATC weekly in our analysis of the Better Business Forum, the key challenge is to ensure that the next elected government takes ownership of the economic reform agenda to deliver tangible results. We need to see greater focus and discussion in the parties’ respective manifestos in terms of their strategies for overcoming the power shortages and relieving the traffic congestion that has hampered growth. Also, continuing reforms to strengthen the BOI to ensure Bangladesh can attract FDI flows. In that context, the iftar party September 20 held by the Federation of Bangladesh Chambers of Commerce and Industry for both parties is to be welcomed. Annisul Hq, FBCCI President made the following noteworthy comments: “We are passing through a critical juncture and people are no more willing to recall the horrifying memories of general strikes and violence. The announcement of the election dates has brought to us another chance to bring about qualitative changes in politics. Let us not miss this train. Everyone is now worried about how the next elections would be as the political parties have become people-centric, but they become simply rulers soon after assumption of office. The prime need of the time is the practice of a democratic culture and mutual understanding among politicians on national issues. Shrug off conflicts and anarchy, please! Feel the pulse of the people. We want a transparent, active and conscientious parliament. We want a clear stand against corruption, accountability in the administration and an assurance of end to general and other forms of strike. It is high time the parties initiated changes in politics if we want to do so.” He said the Federation would come up with a charter

AT CAPITAL RESEARCH on a national consensus and hoped the political parties would do so. Global investors are ultimately likely to come to Bangladesh if they feel that a more favourable economic and enabling environment in terms of stability and infrastructure. Cheap labour costs are an important attraction. But given the competition Bangladesh faces from Vietnam, India, Pakistan and others in the region, the next elected government and parliament needs to formulate an effective economic strategy if the country is to maximize its opportunities. Has Grameenphone cut its IPO offering? offering? The drama surrounding the country's largest mobile phone company Grameenphone continues with the news, albeit from the press and market sources, that it is likely to halve its proposed initial public offering size as an NBR directive denies it a 10% tax benefit if it makes any pre-IPO placement, according to sources. The National Board of Revenue (NBR) cuts corporate taxes of a company by 10% if it goes public, but it is not applicable to the companies which raise money in pre-IPO placements. "The NBR does not believe that pre-IPO money is a part of public subscription. As a result, GP which intends to raise USD150mn in pre-IPO placement, will not get the corporate tax benefits," a market source said. "Grameenphone has therefore moved to reduce its IPO size to USD 150mn including pre-IPO placement from the proposed USD 300mn," he said. When contacted, company spokesman Yamin Bakht refused to comment on the latest development. However, a source associated with Grameenphone's proposed new IPO size said there might be no foreign placement. Meanwhile, the weighted average share prices for pre-IPO placement have already been fixed at BDT 11.58 per share after bidding from local financial institutions. It may be that GP’s plans have not been changed and what we are seeing is a public negotiation between GP and NBR on their tax benefits. No tax benefit will see GP threaten to reduce their IPO size. But the ongoing confusion in the GP IPO listing and the suggestion there will be no foreign placement is clearly a negative development as far as the deepening of Bangladesh’s capital markets is concerned. Foreign investors will, justifiably in our view, be reluctant to invest a lot of time and energy in the midst of the global market turmoil if Bangladesh’s flagship capital markets issue continues to suffer some extreme volatility. It is important that the company agrees a clearly defined IPO strategy with the capital markets authorities and sticks to it. Whether it likes it or not, GP’s issue remains the bellwether in terms of the transition of Bangladesh towards a more institutionally dominated market – both foreign and local. We might argue that the recent global turmoil reduces the attractions of foreign capital. But let us not forget that in an economy that is as capital starved as Bangladesh, the benefits of substantially greater foreign investment still, in our view, outweighs the costs in terms of potential market volatility and sensitivity to global financial market trends.

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Appendix Evolution of the Global Credit Crisis

Merrill Lynch CEO saw the writing on the wall; Richard Fuld of Lehman Brothers did not

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Stock Market Weekly DSE performance: 52 weeks weeks

Market news • GP may halve IPO size due to NBR directive on pre-IPO placement • DSE wants GP share face value at BDT 10 • SEC approves IPOs of BDT 455mn and a new asset management company • SEC fines directors of Saleh Carpet and Rose Heaven Ball Pen • Share trading of First Security Bank likely from Sept 22 • Dhaka Bank signs deal with IDLC on issuance of bonds

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 20.51 Last Week 20.63 % Change -0.58% *Weighted on Market Cap.

DSE General Index

DSE 20

2,850.2 2,838.5 -0.4% -11.6

2,442.3 2,383.7 -2.4% -58.6

This Week

Last Week

5 14.47 235 47 130

5 14.52 253 51 126

26

25

-0.3% -6.9% -6.9% 2.9% 2.9%

This Week 65 172 8 43

Last Week 121 118 12 37

Issues Advanced Declined Unchanged Not Traded

% Change

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

Sector P/E Apr-08 May-08 22.2 22.6 14.7 17.6 43.7 42.7 38.9 41.4 28.2 28.5 25.8 26.2 28.1 32.4 64.9 65.2 18.4 17.6 16.4 16.0 23.0 25.9 9.2 9.5 26.7 29.8 20.5 19.5 25.1 23.1 14.9 14.4

Jun-08 21.7 12.4 42.0 39.1 13.2 23.6 26.9 53.1 20.0 16.0 23.2 9.2 28.1 20.8 19.8 15.2

Jul-08 19.2 11.2 50.3 38.4 19.3 16.1 22.8 33.5 20.3 16.3 25.2 7.9 25.6 20.5 21.3 16.3

Source: Dhaka Stock Exchange

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22 September 2008 Weekly Stock Market Commentary

decision to change the denomination from BDT 1,000 to BDT 100 prompted a huge rally in the stock.

Bangladesh remained completely unaffected by the turmoil in the financial markets globally. The benchmark DGEN index remained almost unchanged. The intra-week volatility was low. The average trading volume was down by 7%.

Stock Stock Market News DSE wants GP share face value at BDT 10 The Daily Star, Thursday, September 18, 2008

The banking shares, which account for more than 50% of the country’s market capitalization, remain subdued. Prices of most of the bank share are now at the lowest in the last six months. None of the banks featured among top 30 gainers last month. The bank shares have been largely unaffected during the 11-week downturn that started on June 1 and the subsequent recovery. Some market players believe that the volatility of the banking shares is low because, due to relatively large free floats of bank shares, it is difficult for speculators to manipulate their prices. National Bank Limited (NBL), a first generation commercial bank, has decided to acquire 30% of LR Globlal Asset Management Company Limited, one of the four private sector asset management licensees in Bangladesh. NBL also holds a brokerage license from Dhaka Stock Exchange Limited. The involvement of the Banks and Non-bank financial institutions (NBFIs) in the Capital market have increased greatly in the recent months. The banks are the major institutional investors in the capital market. The stockmarket, once dominated by family owned brokerages, is now dominated by the banks and NBFIs. Recently, Premiere Leasing, an NBFI, has started a brokerage operation. Banks are also getting into merchant banking. BRAC bank limited has acquired the controlling stake of GSP Finance Company, an NBFI that holds a merchant banking license. First Security Bank, a relatively small private commercial bank, starts trading on September 22. Though the bank is one of the poorest performing private commercial banks in the country in terms of profitability, it succeeded in raising BDT 1035mn (USD 15mn), a large IPO by Bangladesh standard. After the listing of First Security Bank, Bangladesh Commerce Bank Limited is the only private commercial bank that remains unlisted. Dhaka Bank Limited has declared that it will raise tier II capital from the public market by issuing corporate bonds. The corporate bond of Dhaka Bank will be the second corporate bond traded on the stock exchange. To support their high asset growth (the asset base of the commercial banks of the country is growing by about 35%) and to comply capital adequacy norms under Basle II, a number of other commercial banks are actively considering issuing corporate bonds. The drama involving the Grameen Phone (GP) IPO continues. This time the DSE has added to the confusion by suggesting GP increase the proposed denomination of its shares from BDT 1 to BDT 10. DSE mentioned that the denomination of BDT 1 will result in very high number of shares and will strain the capacity of DSE’s trading platform. DSE also mentioned that such a small denomination may fool the retail investors who may confuse the small denomination with the share price being cheap. Though the face value or denomination of shares should be irrelevant in a rational market, it can sometimes be a very important price determining factor in Bangladesh. Recently, Islami Bank’s

The Dhaka Stock Exchange has recommended to the Securities and Exchange Commission that the face value of the shares (i.e. excluding any proposed premium) of the Grameenphone IPO be fixed at BDT 1 rather than BDT 10, due to constraints in the trading system – the proposal would mean that the number of shares issued would be reduced by a factor of ten. With a BDT 10 face value one would expect GP to issue 1.48 billion shares at IPO, while the DSE is able to handle 0.1mn trades per day, with this expected to increase to 0.25m shares a day in 6 months time following completion of a trading platform upgrade project. When GP makes its debut, the number of trades may cross 0.25mn a day, the DSE official said. The DSE added their concerns over the risks of retail investors inappropriate evaluation of the GP IPO of BDT 1 shares: “besides, there will be another problem with the face value of BDT 1. The retail investors may evaluate the Grameenphone shares wrongly, as they are used to deal with shares with face value of BDT 10 and BDT 100,” he said. “Considering investors' interest and to avoid any untoward situation in the trading system, we have sent a letter to the commission requesting it to fix the face value of each Grameenphone share at BDT 10,” the DSE official said. http://www.thedailystar.net/story.php?nid=55322

SEC approves IPOs of BDT 455mn, 455mn, a new asset management co The Financial Express, Wednesday, September 17, 2008

This week the SEC approved two new IPOs with combined value of BDT 455mn (USD 6.6mn) and issued a license to a new asset management company, Race Management Private Company Limited. BSRM Steel Co Ltd plans to raise BDT 200mn (USD 2.9mn) through issuing 2,000,000 shares of BDT 100 (USD 1.4) each to meet the working capital requirements of the company which is already in commercial operation. BSRM Steel has an authorised capital of BDT 2.0bn (USD 29.2mn) and paid up capital of BDT 1.25bn (USD 18.3mn). The company auditor certified that the company's net asset value (NAV) would be BDT 100 per share. Bay Leasing and Investment Company plans to raise BDT 255mn (USD 3.7mn) through issuing 1,020,000 shares of BDT 250 per share, including a premium of BDT 150 each, to meet the regulatory requirement of increasing their paid up capital. The company which has paid up capital of BDT 102mn (USD 1.5mn), is authorised to raise capital up to BDT 500mn under the merchant banking license that it holds. The company auditor certified its net asset value at BDT 370.30 per share and earnings per share of BDT 77.30.

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22 September 2008

AT CAPITAL RESEARCH

Race Management Private Company Limited has been issued an asset management licence by the SEC – the sixth licence issued to date. Farhad Ahmed of the SEC, said they prefer small investors to invest through asset managers to reduce risks for investors. He added that the company plans to launch mutual funds.

First Security Bank will be the 30th listed bank and it is the first private commercial bank that offered largest number of primary shares to the general investors. The bank which began its operation in 2000 issued 11.5 million shares with the face value of BDT 100 per share raising BDT 1.15bn (USD 16.8mn) through initial public offering

http://www.thefinancialexpressbd.info/search_index.php?page=detail_news&news_id=45728

http://www.thefinancialexpressbd.info/search_index.php?page=detail_news&news_id=45817

SEC fines directors of two two companies

Dhaka Bank signs deal with IDLC on issuance of bonds

The Daily Star, Tuesday, September 16, 2008

The Financial Express, Sunday, September 21, 2008

The SEC has fined 10 directors of two listed companies on charges of violating securities laws. The Securities and Exchange Commission imposed a BDT 0.1mn fine on four directors of Saleh Carpet Mills each, for not submitting audited financial statements for the year ended December 31, 2007 to the SEC.

Dhaka Bank Limited (DBL) has signed an issue management agreement with IDLC Finance Limited for the forthcoming Repeat Public Offering (RPO) of the former. The RPO is aimed to raise Tier 2 Capital of the Bank through issuance of Subordinated Convertible Bonds in the capital market.

The fined Saleh Carpet directors are Chairperson Dilara Begum, Managing Director Shamim Ara Begum and directors Rezaul Karim and Badrul Huq. Earlier on September 10, the DSE suspended the trading of Saleh Carpet, a Z-category company, for a day on finding some irregularities in the company.

http://www.thefinancialexpressbd.info/search_index.php?page=detail_news&news_id=46088

A DSE probe found that 90 percent of the company's machinery are out of order. The company has not been running any corporate office since 2003 and not submitting financial reports to the DSE or SEC since 2002. Saleh Carpet owes BDT 3bn to Bangladesh Shilpa Rin Sangstha, Investment Corporation of Bangladesh and Sonali Bank. Saleh Carpet, which now runs with only 5% of its machinery in operation, sells its products only in Chittagong. The SEC also fined six directors of Rose Heaven Ball Pen BDT 0.1mn each, for not submitting accounts for the halfyear to December 31, 2007. http://www.thedailystar.net/story.php?nid=54983

Social Investment Bank changes name; Approves 17 pc stock div, 1:1 right share The Financial Express, Tuesday, September 16, 2008

Social Investment Bank Ltd (SIBL) has been renamed as Social Islami Bank Ltd. The approval came at the 5th EGM of the bank where an allocation of 1:1 right shares was also approved. Following the EGM, the 13th AGM was held where a 17 per cent stock dividend, was approved for the 2007 financial year. http://www.thefinancialexpressbd.info/search_index.php?page=detail_news&news_id=45644

Share trading of First Security Bank likely from Sept 22 The Financial Express, Thursday, September 18, 2008

Share trading of the First Security Bank Limited is likely to commence from 22 September 2008, subject to approval of the DSE board. The DSE listing sub-committee, approved the listing application and recommended it to be placed before the DSE board for final approval.

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AT CAPITAL RESEARCH

22 September 2008 DGEN Performance LTM

Turnover leaders (All figures in mn) BDT 1,842 Titas Gas 1,005 BEXIMCO 948 ACI Limited. 934 ICB AMCL 2nd NRB M.F. 916 Grameen One: Scheme2 598 Lankabangla Finance 495 Aims 1st M.F. 455 Beximco Pharma S. Alam Cold Rolled 440 Steels Ltd. 409 Union Capital

DGEN Performance YTD

Best performers* USD 26.9 14.7 13.9 13.6 13.4 8.7 7.2 6.6 6.4

% Change 25.1 22.6 21.9 19.7 18.3 15.9 15.7 15.2 13.5 13.5

BEXIMCO Shinepukur Holdings BDFINANCE Beximco Fisheries Bangladesh Online Aims 1st M.F. Delta-Brac Housing Aramit 1st BSRS Grameen One: Scheme2

Worst performers* % Change B.Monospool Paper -22.5 Saleh Carpet -20.9 Bd.Thai Aluminium -15.4 Dulamia Cotton -8.6 Sajib Knitwear -7.7 Reliance Insurance -7.5 Libra Infusions Limited -7.2 Rangamati Food -7.1 Samata Leather -7.1 Wonderland Toys -7.0

6.0 *By closing price Source: Dhaka Stock Exchange

Source: Dhaka Stock Exchange

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

52.6% 12.2% 10.4% 5.7% 5.7% 3.0% 2.6% 2.4% 2.1% 1.5% 1.0% 0.5% 0.1% 0.1% 0.03% 100%

Correlation with other Indices*

S&P 500 S&P500

Sensex

NIKKEI 225

KSE 100

SSECI

FTSE 100

HangSeng

DSE

1

Sensex

0.49

1

NIKKEI225

0.40

0.50

1

KSE100

0.13

0.31

0.10

1

SSECI

0.28

0.41

0.22

0.04

1

FTSE100

0.81

0.48

0.41

0.21

0.38

1

Hangseng

0.65

0.58

0.46

0.09

0.50

0.73

1

DSE

0.10

0.14

0.09

0.06

0.03

0.13

0.11

1

* Based on the last 80 months’ USD returns Source: AT Capital Research

*As of July 31, 2008

Research Team Professor Jahangir Sultan Senior Advisor [email protected]

Shahidul Islam Investment Manager [email protected]

Rashed Hasan

Syed Najibullah

Research Associate

Research Assistant

[email protected]

[email protected]

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AT CAPITAL RESEARCH

22 September 2008

Economics Selected macroeconomic indicators

1616-SepSep-07 Forex reserves (USD mn) USD-BDT average rate Call money rate (%)

Annual percentage change

Imports (USD mn) Annual percentage change Exports (USD (USD mn) Annual percentage change Tax revenue (USD mn) Annual percentage change

3030-JunJun-08

1616-SepSep-08

4,963.54

6,148.82

5,322.70

68.7037

68.5297

68.5200

6.95

4.78

13.81

AugAug-07 Remittances (USD mn)

Market news

AugAug-08

•

Bangladesh Bank pulls out of risky foreign ventures

•

Exports set new record in July

•

Food price hike forces dropouts to work reveals Shamunnay research

•

Credit demand fuels inflationary pressures

•

Bangladesh Bank back to a tightened monetary policy again

•

ADB backs fuel price cut on zero subsidy

•

IMF finds Bangladesh Bank's rate hike timely

20072007-08

470.95

732.98

7,914.78

-0.06

55.64

32.39

JunJun-07

JunJun-08

20072007-08

1,521.00

2,156.60

21,629.00

9.67

41.79

26.07

1,218.03

1,469.51

14,110.80

9.52

20.65

15.87

438.06

541.77

6,906.54

22.55

23.67

27.06

Latest Latest Treasury yields Source: Selected Indicators by Bangladesh Bank, 17 Sep 2008 Auction date

Top exported items (USD mn) JulJul-07

JulJul-08

Change

Tenor & security type

Weighted average yield

14-Sep-08

91-day T-bill

7.78%

14-Sep-08

182-day T-bill

8.05%

7-Sep-08

364-day T-bill

8.51%

16-Sep-08

5-year T-bond

10.60%

2-Sep-08

10-year T-bond

11.72%

Total domestic credit

30.1

36.8

22.4%

Credit to government

5.4

7.1

30.6%

9-Sep-08

15-year T-bond

12.14%

22.1

28.1

26.9%

26-Aug-08

20-year T-bond

13.07%

Credit to private sector

Source: The Daily Star

Source: Bangladesh Bank

S Adeeb Shams Research Associate

[email protected]

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22 September 2008

AT CAPITAL RESEARCH

Economic News News Bangladesh Bank pulls out of risky foreign ventures

Food price hike forces dropouts to work reveals Shamunnay research

The Daily Star, Monday September 22, 2008

The Daily Star, Monday September 22, 2008

Bangladesh Bank has pulled its foreign currency investments out from different risky ventures, in the wake of a looming financial crisis in the US and some other parts of the world. A high-profile FX investment committee of the central bank monitors the situation every day according to a senior official of the central bank. The committee headed by a Deputy Governor of the BB started monitoring the situation on a daily basis instead of every 15 days after the recent developments crippled some of the leading players in the financial services industry.

The June-August issue of Bangladesh Economic Outlook, the quarterly of research organization Shamunnay, has revealed that the food price hike has led to an increase in school dropouts and in many cases in order to earn money. Dropout rates are higher in rural areas compared to the urban areas. 84% of the female-headed households responded that their children had to quit schools because of surging food prices. The report also stated that 19% and 11% of rural and urban households respectively lost their capabilities to meet their children's educational expenses because of falling real incomes.

The central bank's forex investments are estimated at around USD 5bn, according to Yasin Ali, Executive Director of Bangladesh Bank. He also mentioned that the central bank has already withdrawn investments from a few institutions affected by the US downturn. BB has investments in some institutions such as Wachovia and a few mortgage companies in the US. BB also has an investment worth USD 5mn in Bear Stearns, which was purchased by JPMorgan, adding that it has no investments in Lehman Brothers, the Wall Street investment bank that filed for bankruptcy last week.

Selim Raihan, Associate Professor of Economics at Dhaka University, presented highlights of the research released at a function, organised by Shamunnay and Manusher Jonno Foundation, a local NGO. The research especially focused on the impact of food price hike on school enrolment and dropout in the poor and vulnerable households. http://www.thedailystar.net/story.php?nid=55904

Credit demand fuels inflationary pressures pressures The Daily Star, Friday September 19, 2008

http://www.thedailystar.net/story.php?nid=55900

Exports set new record in July The Financial Express, Monday September 22, 2008

Bangladesh's exports started the financial year with a fresh all-time monthly record, spurred by an impressive show by knitwear and woven garments, according to industry officials. They said the country shipped goods worth around USD 1.5bn in July with garments contradicting expectations that the financial market meltdown in the US and the EU Bangladesh's major markets - would drag down exports. Shipments are nearly 35% more than the figures of last July and at least USD 73mn more than that of June, when the previous highest exports recorded in a month. However, it might also be noted that the country's exports fell by 5.37% in the July-September period last year, as garment exports nose-dived, owing to protracted impact of the emergency and labour unrest in garment factories. But shipments staged a comeback in the last nine months, as top global garment buyers increased their orders to Bangladesh, finding its products relatively cheap when compared to surrounding markets. It was reported that the export of agri products, footwear and frozen food have also been better than expected. Shahab Ullah, Vice Chairman of the Export Promotion Bureau said that the export data will be made public after the government sets a target for the current fiscal year and he is optimistic that this will be done by the end of September. The country exported goods worth USD 14.1bn against a target of USD 14.5bn in 2007-08, which is more than 19% higher than the shipments of the 2006-07. http://www.thefinancialexpressbd.info/search_index.php?page=detail_news&news_id=46230

The central bank has identified excessive credit growth over the last few months in both the public and private sectors as the probable reason for current inflationary worries and rising food prices, according to officials. Bangladesh Bank has also found commercial banks to have become increasingly dependent on the central bank to meet growing credit needs for financing investment ventures. Bangladesh Bank has hiked the repo rate after more than three years, as a means to discourage banks to borrow from the central bank. The central bank through repo auctions, injected over BDT 21bn (USD 307mn) at 8.75% last week, up from 8.5% which prevailed in the past three years. According to Bangladesh Bank data, credit growth in the 2007-08 fiscal was 26.1% and 30.4% in private and government sectors respectively. The central bank found that banks are financing more deals, getting involved in risky lending and in the process, crossing the limit set by Bangladesh Bank. Central bank statistics have revealed that a lot of private commercial banks have had a credit-deposit ration in excess of 82%. The regulator has started making a list of banks that are violating the limit that has been set for lending, http://www.thedailystar.net/story.php?nid=55484

Bangladesh Bank back to a tightened monetary policy again The Financial Express, Thursday September 18, 2008

Bangladesh Bank has raised interest rates after a period of over three years, aiming to curb inflationary pressures on the economy, according to officials. The interest rate on repurchase agreement (repo) auction was re-fixed at 8.75% from 8.50% for lending fresh funds to commercial banks and non-banking financial institutions (NBFIs).

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22 September 2008 Bangladesh Bank's move indicates that it is going back to its policy of tightening monetary measures, treasury officials of commercial banks observed. BDT 21bn (USD 307mn) was injected on Wednesday by the central bank through a Repo auction, aiming to ease pressures on liquidity within the inter-bank money market ahead of Eid-ul-Fitr. Bangladesh Bank's move came after the Asian Development Bank suggested that Bangladesh increase bank interest rates and initiate a tighter monetary policy in order to tame inflationary pressures on the economy. Market operator shave commented that Bangladesh Bank's latest move would influence interest rates on both lending and deposits within the banking system. A senior treasury official at a commercial bank said that the rise in interest rates might discourage credit flow to the private sector in the near future. Credit growth to the private sector recorded a significant 25% increase in the 2007-08 fiscal to BDT 379.6bn (USD 5.5bn).

AT CAPITAL RESEARCH IMF finds Bangladesh Bank's rate hike timely The Financial Express, Thursday September 18, 2008

The central bank's hike in interest rates after three years was timely and would help rein in runaway inflation in the country, according to Jonathan Dunn, the International Monetary Fund representative in Bangladesh. He said year-on-year credit growth shot up to 26%, fuelling inflation, which stands at around 10% since it broke through double digits in July 2007. According to Dunn, the change in the policy rate is fully consistent with ensuring that the inflation expectations are anchored. Bangladesh Bank's dramatic u-turn came a day after the Asian Development Bank strongly suggested that the caretaker government should increase the interest rates and tighten money supply to tame inflationary pressures. http://www.thefinancialexpressbd.info/search_index.php?page=detail_news&news_id=45852

http://www.thefinancialexpressbd.info/search_index.php?page=detail_news&news_id=45850

ADB backs fuel price cut on zero subsidy The Daily Star, Wednesday September 17, 2008

The Asian Development Bank has suggested the government consider a reduction in petroleum prices, in an attempt to cut inflation, if Bangladesh no longer requires to subsidise all prices should global oil prices continue to fall. It also said the accommodative monetary policy, currently being executed by Bangladesh Bank, might trigger higher inflation if credit expansion is not followed by any quick or substantial supply response. The ADB official's recommendation came at a press conference organised at its office in Dhaka marking the release of its report titled 'Asian Development Outlook 2008 Update'. The ADB expects the Bangladesh economy to grow at 6.5% in 2008-09, as agriculture and industry output could grow, buoyed by farmers' response to high food prices and improved business confidence. According to Paul Heytens, the ADB Country Director, the Bangladesh economy was remarkably resilient in the last fiscal year, due to a positive factors such as a rebound in exports, consistent remittance growth and improvement in revenue collection. The ADB however said some downside risks remains such as higher oil and commodity prices, political uncertainty in the run up to the promised parliamentary elections in December and natural disasters. It said high prices of oil are likely to stay despite a recent declining trend. It also predicted Bangladesh's average inflation to stand at roughly 9% in 2008-09, up from its previous forecast of 8% percent, partially owing to a 34-50% increase in fuel prices on the domestic market since July 1. http://www.thedailystar.net/story.php?nid=55140

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22 September 2008

Sector News Agriculture

Banking

ACI eyes UK curry industry

ATC Comment: Comment:

The Daily Star, Friday, September 19, 2008

ACI, a branded company in Bangladesh, has planned to grab a slice of about USD 6.4bn curry industry in the United Kingdom (UK) with its spices. The company will enter the British market through sponsoring the British Curry Awards (BCA), due in London next month, under its spice brand ACI Pure. About 9,500 Indian restaurants are operating in the UK employing about 100,000 people, with about 25 percent or around 24 million people in the UK consuming the Indian cuisine. These restaurants are the main target of ACI’s promotion. http://www.thedailystar.net/story.php?nid=55497

Aviation GMG hits rough patch The Daily Star, Thursday September 18, 2008

GMG Airlines has sent 150 employees (out of a total pool of over 1,000 employees), including senior and mid level officials, on leave without pay for up to four months in order to cut costs amidst high fuel prices and acute shortages of aircrafts. The country's largest private carrier however promised to bring back the employees after it resolves its problems. The terms of leave in many cases are effective from September 15. Employee affected include those working in different wings such as customer services, ground handling, traffic, sales and reservations and some senior officials in administration, including some expatriates. GMG Airlines had earlier set a very ambitious revenue target of BDT 13.5bn (USD 197mn) for the year. Faced with an increase in fuel costs and a looming price war in the local market, the carrier started incurring operational losses, according to a GMG official. http://www.thedailystar.net/story.php?nid=55317

Biman eyes Singapore Airlines for partnership New Age, Thursday September 18, 2008

Biman Bangladesh Airlines, which lost billions of BDT in recent years due to chronic inefficiencies, plans to target Singapore Airlines to become its strategic partner to run and manage the national flag carrier, according to a top official. Ziaul Huq Mamun, who sits on the Board of Directors, said the state-owned airline would also target Emirates, British Airways, Qatar Airways and Thai Airways. However, to form an alliance with either Singapore Airlines or Emirates would be Biman's priority. According to Mamun, the foreign airline could opt for a stake in Biman, or just take responsibility for its management. http://www.newagebd.com/2008/sep/18/busi.html

This week we have seen couple of news items on the Nonbank Financial Institutions (NBFIs) in the country. Unfortunately, none of them is good news for the sector. First, some NBFIs are facing liquidity problems. Second, the asset quality of some of the NBFIs has deteriorated in the recent months. The NBFIs have a competitive disadvantage vis a vis the banks due to their business model and some regulatory environment. The NBFIs compete with the banks for retail deposits. But the NBFIs have certain restrictions. They cannot offer savings accounts and cannot take fixed deposits for a tenor of less than one year. Therefore, though some leading NBFIs have succeeded attracting significant amount of retail deposits, the NBFIs in general depend heavily on the banking sector for their funding. Their borrowings from the banks are not cheap. Typically, the banks ask for interest rate equivalent to their lending rates to large corporates. In the interbank overnight call money market, the NBFIs are generally on the borrowing side and their cost of borrowing is significantly higher than that of the banks. Therefore, the cost of funds of the NBFIs is generally higher than that of the banks. And, due to their net borrowing position in the interbank call money market, when there is a liquidity crunch, the NBFIs take the first hit. On the lending side, the NBFIs need to compete with the banks. As the cost of funds of the NBFIs is higher than that of the banks, they normally charge higher rate of interest. Therefore, they end up booking riskier loans. The NBFIs are not allowed to offer services related to international trade and remittance, the major sources of revenue for the commercial banks. Commercial banks can offer lower lending rate to corporate customers by charging higher commissions for Letter of Credit and Guarantee issuance transactions and higher spreads on foreign exchange transactions, rendering the NBFIs uncompetitive. Some of the NBFIs are facing this competitive threat by diversifying into capital market related activities such as merchant banking, broking and asset management. This trend has become stronger in the recent months. The NBFIs such as IDLC, Lanka Bangla and Prime Finace that made early foray into capital market activities have already assumed dominant positions in the NBFI sector. The rest of the NBFIs need to look for greener pastures to be able to survive in this competitive environment. BB moves to make farm loan mandatory The Daily Star, Wednesday, September 17, 2008

Bangladesh Bank (BB) has announced that it will make disbursements of agriculture loans to farmers mandatory for all banks, including the foreign banks, to ease farming activities in the country. The BB would first ask the banks to disburse loans to farmers, said the BB Deputy Governor Nazrul Huda, adding that if the banks do not comply with this, the central bank will

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22 September 2008 force them to place a certain percentage of their annual credit aside for agriculture loan disbursements. The BB took the decision at a meeting of its Agriculture Credit Monitoring Committee. The meeting also decided that the banks should introduce a Revolving Crop Credit facility, to distribute loans to farmers and to disburse collateral-free loans to fishermen and share croppers. "More investment in agriculture sector is inevitable in the wake of high food prices on the international market. That is why we took the initiative to increase the amount of agriculture loans," Nazrul Huda told newsmen after the meeting. He said directed lending practices to the sector have not been in place since the inception of the Financial Sector Reform Programme in 1990.

Bank remittance remittances emittances in August (USD mn) Islami Bank

174

Sonali Bank

101

Agrani Bank

58

Janata Bank

58

National Bank

43

Uttara Bank

41

Brac bank

39

Source: Bangladesh Bank

http://www.thedailystar.net/story.php?nid=55192

Strong remittances by expatriates help Bangladesh offset the impact of the trade shortfall and keep the overall balance of payments in surplus. Bangladesh received USD 7.9bn in remittances in fiscal 2007-08, nearly 30 percent higher than the previous fiscal year's. Remittance may reach USD 10bn this fiscal year, Bangladesh Bank officials said. Banks are increasingly adopting modern technologies and delivery channels to render fastest remittance services to its clients.

Foreign banks cautious over farm credit

http://www.thedailystar.net/story.php?nid=55142

“I think that the banks will comply with the Bangladesh Bank directives for disbursing loans in agri sector because they have realised that agriculture loan is profitable," Nazrul Huda said.

The Daily Star, Thursday, September 18, 2008

NBFIs' default loans climb to 8pc in June Foreign commercial banks seem cautious to make comments on Bangladesh Bank's (BB) decision to make farm loans mandatory for all banks operating in the country. “We are aware of the news, but have not received the circular from Bangladesh Bank as yet,” said Mahbub-urRahman, head of corporate banking of HSBC. Standard Chartered Bank (SCB), another major foreign bank operating in the country for long, also echoed HSBC. “We have been informed about the news through media. We are now waiting for detailed direction from Bangladesh Bank in this regard,” said Sarwat Ahmad, senior manager of SCB's corporate affairs. A Citi NA official said the bank authority would not make any comment before receiving the BB guidelines on mandatory credit to the farmers.

The Financial Express, Tuesday, September 16, 2008

http://www.thedailystar.net/story.php?nid=55319

The total classified loans of all NBFIs stood at BDT 7.9bn (USD 115.4mn) against their total outstanding loans of BDT 96.7bn (USD 1.4bn) in June this year, according to the central bank statistics.

Eid to push remittance 20pc up The Daily Star, Wednesday, September 17, 2008

Banks are expecting a 20 percent rise in overseas remittance inflows by Bangladeshis over the Ramadan and Eid period. Inward remittance inflow, which was USD 733mn in August, may exceed USD 900mn in September. Remittances normally increase over this period. “We expect over USD 50mn remittance in this month, which is USD 7mn more than the amount sent home by expatriates last month,” said Shamsul Huda Khan, executive vice president and head of international division of National Bank Limited (NBL). Islami Bank, the current leader in remittance transaction in Bangladesh with USD 174mn transaction only in August, also expects a 20 percent increase this month. BRAC Bank, claiming to be the country's fastest growing private commercial bank, expects a 25 percent increase in its remittances.

The rate of overall default loans in the non-banking financial institution sector climbed to 8.0 per cent in June this year from 6.0 per cent in the previous three months, officials said. The non-performing loans (NPLs) have increased by 2.0 percentage points mainly due to poor recovery by some nonbanking financial institutions (NBFIs) during the period. The central bank has already instructed at least seven NBFIs out of 29 for taking necessary steps to reduce the amount of classified loans immediately. This is against a backdrop of a rising trend in NPLs that are now range between 10 per cent and 26 per cent of the total outstanding loans of the NBFIs.

http://www.thefinancialexpressbd.info/search_index.php?page=detail_news&news_id=45705

Sonali Bank earns 'Best Brand Bangladesh 2008' award The Financial Express, Tuesday, September 16, 2008

Sonali Bank has earned "Best Brand Bangladesh 2008" award in the financial category. Bangladesh Brand Forum distributed the award to the bank. This year the award has been given among the best performers in seven different sectors. Brac Bank and AB Bank Limited were other nominated banks for this award. http://www.thefinancialexpressbd.info/search_index.php?page=detail_news&news_id=45649

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22 September 2008 Liquidity shortage hits NBFIs The Financial Express, Sunday, September 14, 2008

Liquidity issues have become a major problem for the country's non-banking financial institutions (NBFIs) which are finding it difficult to mobilise deposits from the market, and is now seriously affecting the business operations of the NBFIs which are mainly engaged in lease financing. Reduced rates of the implementation of the annual development programmes (ADPs) and higher interest rates offered on deposits by banks have been major hurdles to the flow of funds to the NBFIs, market operators said. Additionally, commercial banks are charging higher interest rates when lending to NBFIs, demanding rates between 14 per cent and 15.50 per cent compared to previous rates ranging between 12.50 per cent and 14.00 per cent, due to banks paying higher deposit rates. "Fund is a big problem for the NBFIs to run their business smoothly," Chairman of the Bangladesh Leasing and Finance Companies Association (BLFCA) Anis A Khan told the FE in an exclusive interview. Mr. Khan, who is also Chief Executive Officer (CEO) and Managing Director of the IDLC Finance Limited, the country's largest NBFI, said that the overall deposit of his company recorded lower growth during the past few months. A senior official of the Bangladesh Bank (BB) while admitting the fund crisis in the NBFIs said the overall deposits with the NBFIs might have declined due to higher interest rates being offered by commercial banks on deposits in recent months.

the government take steps to excavate superior quality clay found in the coalmining regions of north Bengal. http://www.bdnews24.com/details.php?cid=4&id=62420

Infrastructure Infrastructure & Energy ATC Comment: Bangladesh is now facing a severe power crisis with a supply shortfall of around 1,500MW. One of the major reason of this current power crisis is the shortage of primary source of energy which is mainly natural gas in Bangladesh. At present, 1,800mmcft gas is produced everyday where the demand is 2,000mmcft per day, resulting in a shortfall of around 700MW of power generation. Furthermore, gas will start depleting after 2012 unless gas fields are discovered. Due to the current gas shortage, the government has planned to suspend the implementation of eleven large and medium power projects with their total production capacity of around 3,200MW. Bangladesh recently has taken a number of initiatives including inviting a third offshore bidding round to augment its gas production. However, it will take around 5 years to get

the benefit from this project when the power crisis will be more severe. We believe that, ensuring the primary energy source for the country for longer term should be the primary target of the energy sector of a country.

The country's commercial banks currently offer deposit rates from 5.25 per cent to 13.50 per cent on fixed deposit schemes, depending on the duration, while the rates for saving accounts vary between 2.50 per cent and 8.00 per cent, according to the central bank statistics. http://www.thefinancialexpressbd.info/search_index.php?page=detail_news&news_id=45510

Ceramics Ceramics sector eyes USD 100m export bdnews24.com, Monday 15 September, 2008

The Bangladesh Ceramic Ware Manufacturers' Association (BCWMA) has estimated that the country can export ceramic wares worth USD 100mn by 2012. The growth of the sector has been remarkable in recent years. In FY 2006-07, 21 Bangladeshi manufacturers exported ceramic ware worth USD 38.3mn to over 50 countries, up by 28% from the prior year. The domestic ceramics industry has invested USD 292mn so far and employs around 100,000 workers. The BCWMA members said that if the government ensures uninterrupted energy supply and expedites the refund of import duties upon execution of exports, Bangladesh could become one of the three largest global ceramics exporters. They added that Bangladeshi manufacturers use the most advanced 'Bone China' technology and labor costs here are relatively low. Additionally, as an LDC and member of the WTO, Bangladeshi ceramic wares enjoy tax exemptions in developed countries. The BCWMA also recommended that

Source: Bangladesh Power Development Board

Bangladesh has a proven-probable coal reserve of 3.3bn tonnes. Sixteen mn MT of coal can generate 5,000 MW power for one year. In this Limited Gas Scenario, we assume that 5,000 MW of new power plant capacity could be developed using domestic coal that can generate power for up to 66 to 90 years. In the FY 2006, only 1.7% power was generated using domestic coal while 88.5% of power was generated by natural gas. In terms of heating value, coal reserves of Bangladesh is much higher than the current gas reserves. It is of no economic benefit to Bangladesh to keep coal or other conventional non-renewable energy unused under the earth for an indefinite period of time. Bangladesh should diversify its’ dependency on another fossil fuel from natural gas and therefore, should utilize its coal resource immediately.

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22 September 2008 Policies on merchant power plants, renewable energy soon The Financial Express, Monday September 22, 2008

The government will adopt a couple of policies relating to merchant power plants and renewable energy by October next to encourage private sector investments in the country's ailing power sector. Besides, Energy Conservation Ordinance is expected to be adopted within this period. Once approved, the policies and the act would help mitigate the country's electricity crisis. A good number of industries are now closed or operating partially mainly due to power crisis. The power ministry has already drafted the policies and the act and sought necessary comments from the stakeholders to quicken its implementation. An inter-ministerial meeting would be arranged soon to finalise the drafts of these policies and act. Under the proposed merchant power policy, the sponsors of power plants would be free to arrange fuel on their own to set up power plants and select their customers. The private entrepreneurs would be allowed to fix electricity tariffs through negotiations with their respective clients. They would also be allowed to have access to transmission and distribution lines of utilities in exchange for payment of agreed wheeling charges to the state-owned Power Grid Company of Bangladesh (PGCB). The renewable energy policy would help tapping of the ample potentials to generate electricity from renewable energy resources. Several public, private and nongovernment organisations installed a good number of renewable energy units using solar, wind, bio-gas sources across the country with financial assistance from donor agencies. Generation from renewable energy could be increased significantly through smooth growth and expansion of their renewable energy projects under the policy. http://www.thefinancialexpressbd.info/search_index.php?page=detail_news&news_id=46225

Gas crisis to put a stop to 3, 3,200MW new projects The failure to overcome persistent gas crisis is now resulting in suspension of 11 large and medium power projects with their production capacity totalling around 3,200MW, pushing the country towards a deeper power crisis in the coming years. Petrobangla said recently it would not be able to supply gas to these projects in the next three years. Gas may be given to some of these after 2011 on completion of certain other gas related projects. Power System Development Plan up to 2020 20042004-05

20062006-07

20082008-12

20132013-20

Installed capacity (MW)

5,025

6,441

9,666

17,765

Peak demand (MW)

3,743

5,368

7,887

14,600

242,832

266,375

345,530

477,558

Consumers (mn)

8.84

9.03

12.75

20.76

Per capita generation (KWh)

158

190

260

450

38%

47%

65%

100%

0

115

307

575

Access to Electricity Investment Requirement (BDT bn)

http://www.thedailystar.net/story.php?nid=55651

Government to raise domestic coal price The Financial Express, Saturday September 20, 2008

The government is likely to raise the domestic coal price by nearly 20% at USD 71.5 from current USD 60 per tonne as a proposal is awaiting approval of the relevant authority. The new coal price will be applicable for the state-owned Bangladesh Power Development Board (PDB) alone. The price hike will reduce the losses of Barapukuria Coal Mine Company Ltd (BCMCL), the country's lone coal mining company, but it will raise electricity generation cost at Barapukuria 250 megawatt (MW) coal-fired power plant. The private sector will be able to purchase Barapukuria coal at a price to be determined through open tenders, but that will not be less than USD 115 per tonne. Production cost of the BCMCL coal stood at USD 84 per tonne as per the latest audit report for 2006-07. But the international price of similar quality coal now ranges between USD 190 to 195 per tonne, the BCMCL managing director claimed. The necessity of the price hike was felt when the BPDB purchased low quality Indian coal at USD 89 and USD 120 per tonne for importing two separate consignments last year to run the Barapukuria coal-fired power plant in absence of coal production at the BCMCL. http://www.thefinancialexpressbd.info/search_index.php?page=detail_news&news_id=46008

The Daily Star, Sunday September 21, 2008

Transmission line (km)

According to the power ministry, the country's installed power generation capacity should reach 9,666MW by 2012 against a peak demand for 7,887MW. To achieve this target, the nation must produce around 5,000MW more within that time where the present initiatives would ensure only around 1,100MW additional power in the next few years, leaving a shortfall of around 4,000MW. Petrobangla however assured gas supply to some rental power projects with a total production capacity of around 300MW and 450MW Bibiyana IPP scheme, Sylhet150 MW scheme, Siddhirganj 220MW peaking power (now nearing completion) and Bhola 150MW projects.

Source: Power Ministry

Government to amend policy for agencies to buy power from private sector New Age, Friday September 19, 2008

The government will amend the policy guideline for small power plant in private sector allowing the state-run power companies to buy electricity from such plants. The Power Cell in the past week sent a proposal for the amendment to the policy guideline, made in 1997, after a meeting at the division. Once the policy guideline is amended, private entrepreneurs will be able to sell electricity to power agencies from small plants such as captive power plants. The government in 2007 formulated a policy guideline for power agencies to buy electricity from the captive plants. The Rural Electrification Board (REB) has so far signed at least five agreements with private investors to buy up to 30MW of power from captive plants. The Bangladesh Energy Regulatory Commission (BERC) has recommended amending the policy guideline for small power plants to allow power agencies to buy electricity from small plants such as captive power plants. BERC officials said the commission had so far issued licences for the installation of captive and

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22 September 2008 small power plants with a combined capacity of more than 1,500MW. Some of the captive power plants have shown interest in selling electricity to power agencies.

http://www.thefinancialexpressbd.info/search_index.php?page=detail_news&news_id=45854

Summit Power keen to double generation from its 4 plants

http://www.newagebd.com/2008/sep/19/front.html#17

The Financial Express, Thursday September 18, 2008

USD 355mn power deal with World World Bank signed

The Summit Power Ltd. (SPL) will submit a proposal to the power ministry for approval to double the generation capacity from its four small power plants (SPPs). SPL is scheduled to initiate new electricity generation of 110MW from its four new plants shortly. Capacity from its existing plants is is 105MW. If SPL can double the capacity from its upcoming four plants (220MW), the company's electricity generation capacity would extend to a total of 325MW.

The Daily Star, Thursday September 18, 2008

The caretaker government on September 17 successfully completed its negotiation with the World Bank (WB) to raise funds for the USD 355mn for Siddhirganj 300MW peaking power project and associated gas pipeline construction. The World Bank will finance about USD 275mn concessional credit for the Siddhirganj Peaking Power Project (SPPP) and USD 80mn for the construction of a gas pipeline from Bakhrabad gas station to the proposed Siddhirganj plant through the International Development Association (IDA). The financing proposal now needs to be approved by the board of the WB which is expected to sit in October. The SPPP plant will be state-of-the-art, with two 150MW simple-cycle gas turbines. The Electricity Generating Company of Bangladesh (EGCB), a new and corporatized BPDB owned entity, will implement the project. EGCB will also implement another 240 MW to be built at Siddhirganj under a parallel Asian Development Bank project. The power transmission line will be owned and operated by the Power Grid Company of Bangladesh (PGCB). http://www.thedailystar.net/story.php?nid=55344

BangladeshBangladesh-India maritime boundary talks go barren The Financial Express, Thursday September 18, 2008

A three-day technical level meeting between Bangladesh and India over the maritime boundary delimitation ended in Dhaka on September 17 without any tangible outcome following disagreements over the midstream flow of the common coastal river Haribangha that determines ownership of the disputed South Talpatty Island. The next meeting to resolve the issue will be held in India. The additional foreign secretary said, "India was favouring the 'equidistant' or 'median-line' principle for the demarcation of maritime boundaries, but we favoured the 'coastal frontage'." India was arguing that it had demarcated the sea territory with the Maldives and Sri Lanka following the equidistant principle. However, Bangladesh has declined to accept the principle as the Maldives and Sri Lanka are located on the opposite side of India, while Bangladesh is located adjacently. International oil companies (IOCs) remain uneasy about investing in exploration in territories where maritime boundaries remain unsettled. According to UK-based firm Wood Mackenzie a total of five Bangladesh offshore gas blocks have been wholly or partly licensed by India. This

issue was not raised at the meeting with neither party discussing the issue of overlapping of gas blocks. Bangladesh recently invited bids for its 28 offshore blocks and received bids for 15 blocks. Of them, 9 blocks have been selected for awarding to the IOCs. According to the United Nations Convention on Law of the Sea, Bangladesh must demarcate its sea boundaries by 2011 while India and Myanmar by 2009.

The company, which initiated electricity generation in 2001 from three small plants at Savar, Narshingdi and Comilla, is the pioneering local enterprise to produce electricity for the national grid. Initial electricity generation capacities of the SPLs' three small plants were only 35 MW. But the company augmented electricity generation by three-fold to 105MW, following formal approval from the power ministry to augment electricity generation. http://www.thefinancialexpressbd.info/search_index.php?page=detail_news&news_id=45869

Errant power companies warned of no more time extension The New Age, Thursday September 18, 2008

The Power Division on September 17 warned two errant rental power companies saying their agreements for the installation of four plants would be cancelled if they failed to commission the plants by the extended deadline of October 31. The Energy Prima Consortium and GBB-Kaltimax doubt whether they would be able to put all the short-term power plants into operation by the extended deadlines. Energy Prima was scheduled to start operations at the 50MW Shahjibazar and the 50MW Fenchuganj plants by May 15, (ie within 120 days after the contract was signed), and the 20MW Bogra on May 23 while Kaltimax was scheduled to start operations at the 30MW Bhola plant in May. The chief adviser, Fakhruddin Ahmed, approved a division proposal earlier this month to allow the errant companies till extend the deadline to October 31, 2008 for the installation of plants by imposing additional penalties of USD 500 per MW for each day delay. The interim government in January 2008 initiated six shortterm rental plants to generate electricity on an emergency basis by 120 days to give people some relief from ongoing power outages during summer. Only two out of the six plants have so far come into operation. http://www.newagebd.com/2008/sep/18/busi.html#1

Real Estate ATC Comment: Comment: The need for high quality commercial real estate has started to have its effects in the Bangladeshi market. With industrialization constantly growing, commercialization of real estate is bound to pick up pace and it is a positive sign that the leading players are looking to get their foothold in this lucrative market. However, at present, the lack of good

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22 September 2008 quality real estate is leading to an increase in price and the shift of industrial Dhaka from Motijheel northwards to Banani, perhaps Uttara in the near future and Gulshan in particular has led to a sharp increase in commercial real estate prices in those areas. The attitude of the market is positive in general as people have already started to pick up modernized concepts like “intelligent buildings” and the players are definitely in favor of the government to increase official commercial areas. Commercial real estate is definitely more lucrative than residential estate as of now. Dhaka will need to distinguish its commercial hubs form residential areas in the future otherwise a mixture of office buildings and residential apartments might reduce the quality of both commercial and residential real estate. Cost of office space soars high

AT CAPITAL RESEARCH When contacted, company spokesman Yamin Bakht refused to comment on the latest development. However, a source associated with GP's new IPO size, he said there might be no foreign placement. Meanwhile, the weighted average share prices for pre-IPO placement have already been fixed at BDT 11.58 per share after bidding from local financial institutions. Trust Bank, Prime Bank, IDLC Finance Limited, Lankabangla Finance, AIMS of Bangladesh and AB Bank are the possible buyers in the on-going pre-IPO placement offer, the source said. http://www.thefinancialexpressbd.info/search_index.php?page=detail_news&news_id=45945

The Daily Star, Sunday September 21, 2008

Commercial buildings have recently been more in demand than residential structures, but still are short in supply as the government permits the establishments of commercial structures only in selected officially-declared commercial locations. Tanvirul Haque Probal, president of Real Estate and Housing Association of Bangladesh (REHAB) said that almost all the leading real-estate companies have multiple projects on commercial buildings to meet demand. Bay Developments Ltd, Concord Group, and Orion Group are among the list of major players that are concentrating on commercial buildings. The prices of commercial real estate are highest in areas such as Gulshan, Banani and Baridhara. Khalilur Rahman, deputy general manager of Concord revealed that the price of residential real estate in Gulshan is around BDT 10,000 (USD 146) per sq. ft. whereas the price for the same unit of commercial real estate is around BDT 25,000 (USD 365). The local players feel that the government should increase the number of official commercial areas.

BTCL earning drops 35pc The Daily Star, Thursday September 18, 2008 BTCL, the state owned landline operator, announced its earnings dropped by 35 percent to BDT 350mn (USD 5.11mn) in its second month of operations as a public limited company. The main reason behind this decline was the lowering of call tariffs. In July the company introduced the lowest tariff in the market offering BDT 0.10 per minute off peak and BDT 0.15 per minute peak, while the minimum tariff offered by private landline operators stands at BDT 0.25. While the mobile phone sector has grown at a CAGR of 99% between 2003 and 2007, the landline sector has hardly seen double digit growth. Apart from BTCL, all the other landline operators are in the red, with substantial capital investments, intense competition and a lack of demand for landline phones crippling the sector. http://www.thedailystar.net/story.php?nid=55354 BTRC unveils guideline on telecom infrastructure sharing

http://thedailystar.net/story.php?nid=55793

The Daily Star, Tuesday September 09, 2008

Telecoms

The Bangladesh Telecoms Regulatory Commission has finalized the guidelines for infrastructure sharing between telecom service operators. Under the guidelines, telecom operators can share or lease both physical and non-physical infrastructure (including spectrum) to other operators. This move should help to ease the capital expenditure burden on the 6 mobile and 12 fixedline telecoms companies. Spectrum constrained operators such as Grameenphone would benefit from leasing spectrum from other mobile companies while the likes of Teletalk, an operator with limited infrastructure, could take advantage of using base stations of other telcos.

GP may halve IPO size due to NBR directive on prepre-IPO placement The Financial Express, Friday September 19, 2008

The country's largest mobile phone company Grameenphone (GP) is likely to halve its proposed initial public offering (IPO) size for the reason described below. The National Board of Revenue (NBR) cuts corporate taxes of a company by ten per cent if goes public, but it is not applicable to the companies which raises money in pre-IPO placement. "The NBR does not believe that pre-IPO money is a part of public subscription. As a result, the GP, which intends to raise USD150mn in pre-IPO placement, will not get the corporate tax benefits," a market source said. "The GP has therefore moved to reduce its IPO size to USD 150mn including pre-IPO placement from the proposed USD 300mn," he said.

UAE-based Warid has recently signed an infrastructure sharing agreement with both Citycell and Banglaink. Under the deal, both companies are now sharing their base transceiver stations (BTS) and other infrastructure. The top three operators have already rolled out their network across the country. Grameenphone has 11,000 BTSs, followed by Banglalink's 5,000 and Aktel's 3,000. Grameen and Banglalink have also developed a fiber optic network. http://www.thedailystar.net/story.php?nid=53940

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22 September 2008 Textiles ATC Comment: Last week’s labour related circumstances improved slightly as Gazipur based garment factory owners are now optimistic in fulfilling this year's export target due to improved law and order situation near their factories. Moreover, some other industry insiders have linked this improved situation to down supply of gas and power. However, some disturbances are still there due to workers demand for Eid bonus. The Multi Fibre Arrangement Forum urges Chief Advisor to tighten limitations on trade union activities and to put into practice a framework for mature industrial relations based on tripartite agreements, ILO conventions and national labour laws. Most of the participants here are major buyers and NGOs including Oxfam, TESCO, Groupe Carrefour, Levi Strauss and Co, International Textile Garment and Leather Workers Federation and SBGSKF etc. From our point of view, such moves will help BD protect and extend its global position implementing consistent measures to push more manufacturers to reach international standards and ‘ethical sourcing initiatives’ demanded by foreign buyers will increase export competitiveness. Global players are also continuing to move to BD. Following the last weeks entrants, an Indian company, M/s Lenny Apparels Limited also announced plans to invest BDT 670mn in DEPZs. In the global market, China is facing depressing figures in export. One of the major reasons for such decreased exports is weak demand from euro zone and US due to recent economic turmoil. Other reasons are appreciation of RMB against the EURO and USD that made the Chinese apparels more costly to the major buyers. Moreover, China faced stagnation in investment growth for textile industry during this year due to low profitability among manufacturers. This situation in China is posing both positive and negative picture for Bangladesh. Such export losses of China can be viewed as an opportunity for Bangladesh. On the other hand, exporters of Bangladesh also fear fallout from the global financial turmoil. We, suggest the exporters to increase productivity and diversify both products and export markets to counter any future slowdown. Moreover, reduction of bank interest rate and enhancement of subsidy to make the RMG sector more competitive in the period of global economic recession may also help. We also believe that the recession may not be prolonged as the western world is working hard to solve the crisis. As an illustration, US Fed has proposed a USD 700bn bailout for the distressed financial sector over a two-year period. BKMEA urged to open chemical management cell The Financial Express, Monday, September 15, 2008

German Technical Cooperation’s (GTZ) Senior Business Adviser David Ambader urged Saturday the knitwear manufacturers of Bangladesh to open a special cell on chemical management while speaking at a workshop. He also added that implementation of the Registration, Evaluation, Authorization and Restriction of Chemicals (REACh) laws is very important in addressing the new

AT CAPITAL RESEARCH challenges for the RMG sector as EU wants to be confirmed through implementing REACh that no chemicals, used in their imported-products, will be harmful for the humans and the environment. http://www.thefinancialexpressbd.info/search_index.php?page=detail_news&news_id=45610

Growth Growth in China's textile exports continues to slow down The Financial Express, Monday, September 15, 2008

China continued to see a slowdown in export of textiles in the first eight months of this year due largely to lowering orders resulting from economic downturn in the euro zone and the US. In August when foreign sales of garments usually peaked, the country exported USD 12.54bn worth of garments and accessories, down 0.95 per cent from the same month of last year. According to Wang Rong, an analyst with Lianhe Securities, the halted appreciation of RMB against the USD and EURO failed to ease the pessimistic situation of China's export of textiles. Wang Qianjin, editor in chief of the leading textile information provider ‘Web Textiles’, predicted the euro depreciation and economic slowdown in the euro zone would cause the growth rate for China's textile exports decrease from 19.96 per cent in mid 2008 to 4.26 per cent at the end of 2009. http://www.thefinancialexpressbd.info/search_index.php?page=detail_news&news_id=45552

Textile sector investment slows down in China The New Age, Monday, September 15, 2008

China saw a slowdown in investment growth for textile industry over the first seven months this year, due partly to export slowdown and low profitability among manufacturers. From January to July, the textile sector enjoyed USD 22.4bn in fixed-assets investment, a growth of 13.14 per cent on the same period of last year. Moreover, the growth rate was 12.6 percentage points lower than that for the whole of last year. New projects started for the sector numbered 3,796 in the first seven months, down 10.47 per cent from last year. http://www.newagebd.com/2008/sep/15/busi.html

Indian co to invest USD 9.78mn 9.78mn in a garments manufacturing manufacturing industry at DEPZ The Financial Express, Tuesday, September 16, 2008

An Indian company, M/s Lenny Apparels Limited, plans to invest USD 9.78mn (BDT 670mn) to set up a woven and knit garments industry at the Dhaka Export Processing Zone. The companies will employ 1620 Bangladeshis and 61 foreign nationals. http://www.thefinancialexpressbd.info/search_index.php?page=detail_news&news_id=45651

Gazipur RMG units go back to production: production: Owners upbeat on achieving export targets The Daily Star, Tuesday, September 16, 2008

The Gazipur based garment factory owners, some of whom were affected by the month-long labour unrest in August, are now upbeat on fulfilling this year's export target, expressing their satisfaction over the government measures to keep law and order situation under control. They hope that they will be

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able to make up for the loss. However, the industry insiders have linked the political stability and smooth supply of gas and power to such achievement. Earlier, these factory owners threatened to close their units in the trouble-torn district for an indefinite period from the 25th of this month if the government fails to provide security for the industry within this stipulated time. http://www.thedailystar.net/story.php?nid=54980

MFA Forum for lifting curbs on TU activities The Financial Express, Wednesday, September 17, 2008

The Multi Fibre Arrangement (MFA) Forum, a global collaboration of RMG and textile buyers and stakeholders, sent a letter to the Chief Advisor to raise restrictions on trade union (TU) activities and to establish and implement a framework for mature industrial relations based on tripartite agreements, ILO conventions and national labour laws. They also urge to convene the Minimum Wage Board and to introduce an annual review of the legal minimum wage levels. The participants in the letter included Oxfam, TESCO, Groupe Carrefour, Levi Strauss and Co, tvmania, H & M, Marks & Spencer, BLGUF, International Textile Garment and Leather Workers Federation and SBGSKF. They reasoned the appeal by saying that International buyers require freedom of association as part of their ethical compliance codes and these requirements are directly related to the core conventions of the ILO that were ratified by Bangladesh in 1972, http://www.thefinancialexpressbd.info/search_index.php?page=detail_news&news_id=45761

Costly accessories erode RMG profit margin The Daily Star, Friday, September 19, 2008

Profit margins on the export of RMG items will erode further due to 50 percent price hike of garment accessories globally and 30 percent locally. local manufacturers spend 15-18 percent of total export value of their exportable RMG products on accessories. Local RMG manufacturers have no other way but to import capital machinery, raw materials, dyes, chemicals and fabrics for producing RMG items. As a result, the local RMG exporters can hardly compete with other RMG exporting nations which produce their own raw materials and capital machinery. Bangladesh spent almost a third of export value for importing accessories, raw materials, capital machinery, dyes, chemicals, fabrics, yarn and cotton. Textile machineries worth USD 145.8mn were imported in the last two and a half months. http://www.thedailystar.net/story.php?nid=55483

Global turmoil threatens RMG The Daily Star, Sunday, September 21, 2008

Exporters fear fallout from the global financial turbulence on the local garment industry as the country's major export destinations are hit hard by the economic turmoil stemming mainly from the US subprime crisis. More than 72 percent of the total export earnings from knitwear come from European countries and more than 20 percent from the USA. The other major destinations of knitwear products are Canada, Japan and Poland. http://www.thedailystar.net/story.php?nid=55792

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22 September 2008

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© Copyright 2008. Asian Tigers Capital Partners Limited, Level 16, UTC Tower, Panthapath, Dhaka – 1215, Dhaka, Bangladesh. All rights reserved. When quoting please cite “AT Capital Research”. The above information does not constitute the provision of investment, legal or tax advice. Any views expressed reflect the current views of the author, which do not necessarily correspond to the opinions of Asian Tigers Capital Partners or its affiliates. Opinions expressed may change without notice. Opinions expressed may differ from views set out in other documents, including research, published by Asian Tigers Capital Partners Limited. The above information is provided for informational purposes only and without any obligation, whether contractual or otherwise. No warranty or representation is made as to the correctness, completeness and accuracy of the information given or the assessments made.

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