At Capital Weekly 27 July 2008

AT CAPITAL RESEARCH

27 July 2008

Weekly News Update

AT Capital Weekly Update Key themes in this issue are: Bangladesh: •

• •

• •

With the prospects for the global economy remaining negative, political uncertainty in the run-up to the elections and stretched valuations relative to other equity markets in the region a defensive stance on the DSE is justified. The proposed valuation of USD 3.2bn for the Grameenphone IPO appears at the upper end of expectations. The key to its success will likely be foreign investor interest. Although we have yet to see the move to book building for IPO pricing, if Grameenphone achieve its price targets then we believe this will encourage other large companies to come to market in addition to other telcos. We believe that a move to book building, that had also been anticipated as a likely part of the Grameenphone IPO, will yield more effective and transparent price discovery. The monitoring mechanism for the regulators needs to be strengthened and the SEC needs to have its budget, headcount, and IT infrastructure increased substantially.

Asian Tiger Capital Partners

Global Markets:

•

US equity markets ended down by 1.1% last week as the positive news on durable goods, home sales and soft oil prices failed to offset the ongoing unease about the prospects for housing.

•

Nerves increased given sharply rising foreclosures, further bank failures and the likelihood of the recessionary pressures intensifying in several European economies.

EDITORS

DSE – no bear market for now 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

AT CAPITAL RESEARCH

27 July 2008

Ifty Islam, Managing Partner [email protected]

publishing research with price targets either for individual stocks or for the market as a whole. The monitoring mechanism for the regulators needs to be strengthened and the SEC needs to have its budget, headcount, and IT infrastructure increased substantially.

Overview - Bangladesh A significant week for Bangladeshi equities with three main questions for investors: 1) 2)

3)

Is the 3.5% jump in the DSE reversing the sharp declines of the previous week a sustainable stabilization in the market? How significant is the long-awaited IPO announcement by Grameenphone that they will issue USD 300mn of their USD 3.2bn estimated market capitalization? Is it good for the DSE? Will it do well? Finally, is the Grameenphone decision likely to act as a catalyst for a significant number of other privately held companies to come to market?

It is fine for Bangladesh to aspire towards greater integration into global capital markets and increased depth, liquidity and foreign investor participation. But we need greater acknowledgement of the importance of a better-resourced regulator. This was a lesson the largest capital market in the world, the US, learned not so long ago after the Enron/Worldcom accounting scandals in 2002. The US SEC had their budget expanded dramatically. Even that failed to prevent the current credit crisis.

Defensive stance on DSE remains justified

There is currently an ADB funded project to support the SEC and we would encourage other multilateral investment in both the SEC’s and the Bangladesh Bank’s market monitoring capacity.

A combination of broad-based positive statements about the prospects for the DSE by senior market figures coupled with the announcement of the much-anticipated Grameenphone IPO announcement underpinned Thursday’s strong 3.5% rebound in the market.

The debate on the Grameenphone IPO prospects

Table: Number of times DGEN has changed by 2% or more Change

2003

2004

2005

2006

2007

2008(YTD) 2008(YTD)

≥+2%

7

15

≤-2%

4

7

9

11

17

6

12

10

9

6

Total

11

22

21

21

26

12

Source: Dhaka Stock Exchange & Bloomberg

Importance of open dialogue/research on equity market fundamentals From the perspective of Bangladesh moving to a more mature and developed capital market, it is important that investors and market commentators can talk openly about the negative as well as the positive prospects for both the market overall as well as individual issues. It is encouraging that the SEC is pushing brokers and banks to provide greater investor education, especially for retail buyers of stocks, so they have a greater understanding and awareness of the fundamental drivers of the market. Stocks can go down as well as up but the key is to provide both professional and retail investors with enough fundamental research to form a balanced and informed judgement about if, how much and in what they choose to invest. A strategy of biasing news towards the positive runs risks of social tensions when, as is inevitable, markets correct. Again Pakistan was a recent illustration of that.

SEC needs greater investment and resources Clearly the risks of market manipulation, insider trading and dishonest practices increase with any move towards brokers

While the knee-jerk market response to the Grameenphone IPO announcement was positive, the prospects for the issue are harder to evaluate. On the one hand, there is little doubt it is the marquee issue that all investors, both domestic and foreign, have been waiting for. It seems likely that much of the USD 150mn pre-IPO issue will go to overseas buyers given the prospective appetite among some for exposure to Bangladesh in a liquid stock that has critical mass. The approx USD 1bn+ implicit valuation of AKTEL on the basis of the USD 350mn sale of 30% of the issue to NTT Docomo to some extent validates the USD 3.2bn valuation of Grameenphone given AKTEL’s 7.45mn subscribers versus around 20.31mn for Grameenphone. However, it seems pricing, at least on this basis, is on the aggressive side. Grameen profits were also down sharply between 2006 and 2007, albeit partly on the VOIP fines. Telenor Pakistan has a subscriber base of 16.7 million as of March 2008, compared to Grameenphone's 20.31 subscribers as of June 2008. However, Grameenphone employs 4973, whereas Telenor Pakistan employs only 2500. This suggests there remains scope for improved operation efficiencies that might enhance future earnings The Grameenphone network now covers more than 99% of the country's population, up from around 50% two years ago. Grameenphone has greatly benefited from being part of Telenor Group's, with its twelve mobile operations worldwide, aggregated purchasing power. This has enabled the company to rapidly extend its network coverage and upgrade its network. Group cost-saving initiatives have also allowed Grameenphone to reduce tariffs substantially, thus making mobile communication affordable for a wider community in Bangladesh, especially those who have little to spend on

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27 July 2008 communication. Over the years, the shareholders have reinvested nearly all of their earnings to expand coverage and increase capacity of the network.

Will Grameenphone act as a catalyst for more stocks to come to market? One of the reasons both the SEC and BTRC have been pushing Grameenphone to come to market is the belief the move would act as a catalyst for not only the other Telecom providers but also other leading privately held companies in Bangladesh to also list their shares. Although we had suggested the issue has been aggressively priced, one encouraging aspect of the valuation decision is that it shows a greater willingness of the SEC to move away from an asset or book value based method of assessing the issue price to a more balanced one that combines a fair assessment of the growth prospects, market position and goodwill in assessing how much a company should be sold for. This will almost certainly encourage more companies to come to market, especially if there is strong demand for the Grameen phone issue.

One basis for arguing that the Grameenphone IPO is attractively priced is the future potential growth in the mobile market in Bangladesh. In May 2008, there were approximately 42mn mobile subscribers (27% mobile penetration) and 1.1mn fixed line subscribers in the country. Given the large population of the country and the low telecom penetration, the growth trend is expected to continue in the coming years.

One of the gripes many private companies in Bangladesh we have talked to in recent months is their complaint that they do not want to sell their assets at undervalued or unfair levels because of previous valuation methods which was reflected in very large jumps in share prices on the first day of trading. This is illustrated in the chart below. Chart: IPO performance performance on First trading day since 2003

Source: BTRC & AT Capital projection Finally, as the chart below illustrates, the premium to face value of the Grameen issue is the most aggressive seen in Bangladeshi IPOs. The key variable remains the appetite of foreign investors for the issue as well as the optimism among local and global investors in terms of the growth prospects for the Bangladesh Telecoms market. Proposed Grameenphone IPO

We believe, however, that a move to book building, that had also been anticipated as a likely part of the Grameenphone IPO will yield more effective and transparent price discovery. We are encouraged that the SEC has announced it will hold a seminar on book building to take feedback from market participants on the way forward. We will publish a more detailed analysis on the pros and cons of the book building process in Bangladesh as well as lessons from other IPO mechanisms in the region in the next issue of the AT Capital Weekly.

Jamuna Bank Limited Mutual Trust Bank Limited Export-Import (EXIM) Bank Limited Summit Power Limited Trust Bank Limited BRAC Bank Limited IPDC DBH ILFSL Berger Paints Bangladesh Limited 0%

600%

1200%

1800%

Premium as % of Face value

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27 July 2008

AT CAPITAL RESEARCH

And Finally... Bullish on Telecoms?

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27 July 2008

Global Markets Remain Bearish on Global Equities and the US Dollar; Oil still at risk US equity markets ended down by 1.1% last week as the positive news on durable goods, home sales and soft oil prices failed to offset the ongoing unease about the prospects for housing in light of sharply rising foreclosures, further bank failures and the likelihood of the recessionary pressures intensifying in several European economies such as the UK, Ireland, Spain and Germany. The easing off of oil prices will come as a welcome relief to Asian central banks facing sharply increasing inflationary pressures. But the prospects for a lagged wage-price spiral still argues for upwards pressure on interest rates in the region. We remain bearish on global equities, see further USD weakness and also more downside on oil prices as weak US growth becomes the dominant driver of commodity trends and speculative flows become less significant. The USD 3.2bn bankruptcy of US Oil trading house Semtech as well as the worst month for Macro hedge funds in 2008 also argues for greater caution in risk-taking in commodity markets by leveraged players.

AT CAPITAL RESEARCH There were some rare glimmers of optimism for the US economy on Friday as durable goods rose 0.8% headline and 2% ex transports versus consensus estimates of a decline of 0.3% and 0.2% ex transports. Leading the gains was an increase in orders for electrical equipment, machinery, vehicles and parts, primary and fabricated metals.

...but jump in US foreclosures argue further down pressure on housing But the bigger news was the latest RealtyTrac foreclosure data: Almost 740,000 properties were in some stage of the foreclosure process, the most since they began tracking this data in January 2005. That represents one in every 171 U.S. homeowners that either 1) lost their house to foreclosure; 2) received a default notice or 3) was warned of a pending auction. This is an increase of 121% from a year earlier, and is a 14% rise quarter over quarter. Falling home values have prompted RealtyTrac to almost double the projected number of foreclosures this year to about 2.5 million. It has been estimated that 25 million U.S. homeowners might soon be underwater -- risk owing more than the value of their homes. That would make it nearly impossible to negotiate better loan terms or sell their property without some additional cash contribution. As the chart below illustrates the number of properties with some sort of foreclosure action against them (default notice, auction notice, bank repossession) has risen for the past eight consecutive quarters.

US Durable Goods Jump Higher

US Housing Legislation Bill Passed by Congress awaiting Bush’s Signature The US Congress passed important legislation that takes several approaches to curing the slumping housing market. It aims to spare an estimated 400,000 debt-strapped homeowners, many of whom owe more than their houses are worth, from foreclosure by allowing them to get more affordable mortgages backed by the Federal Housing Administration. The FHA could insure USD 300bn in such mortgages, which would be available to homeowners who showed they could

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27 July 2008 afford a new loan. Banks would first have to agree to take a large loss on the existing loans in exchange for avoiding an often-costly foreclosure. The plan also is designed to relieve a broader credit crunch that has taken hold because of rising defaults and falling home values. To free up safer and more affordable mortgage credit, the bill permanently would increase to $625,000, the size of home loans that Fannie Mae and Freddie Mac can buy and the FHA can insure. They also could buy and back mortgages 15 percent higher than the median home price in certain areas. The measure tries to prevent blight in areas hardest hit by the housing crisis, where waves of foreclosures have left properties sitting abandoned, dragging down property values and ruining neighborhoods. It sends USD 3.9bn to such neighborhoods to buy and fix up foreclosed properties. It goes far beyond addressing the current crisis, however. The legislation overhauls the Depression-era FHA. It requires lenders to show how high a borrower's payment could get under the terms of his mortgage. It provides USD 180mn in pre-foreclosure counseling for struggling homeowners. The Treasury Department gains unlimited power, until the end of 2009, to lend money to Fannie Mae and Freddie Mac or buy their stock should they need it. The Federal Reserve takes on a new "consultative" role overseeing the companies.

AT CAPITAL RESEARCH SemGroup creditors said this week they had little idea of the extent of the firm's losses and were surprised by the much larger than expected size of the hedging program. Moody’s Ratings Agency suggested that due to the larger than expected hedging losses, SemGroup creditors will likely recover only half of the more than $7 billion they are owed. It seems likely that this bankruptcy will reduce the amount of speculative capital in the commodities market. Added to this was news that Hedge funds are having their worst month in eight years after popular bets against banks and in favour of rising commodity prices went badly wrong. Hedge Fund Research's daily index said hedge funds were down 2.77% for the month to Wednesday. If that is sustained to the end of the month, it will make July the worst since the dotcom bubble burst in April 2000. Many hedge funds have been betting that bank stocks would fall further as the credit crunch continued to bite, and that oil and other commodity prices would keep rising - a trade which generated big profits this year, helping offset losses in other areas. But over the past fortnight the trade has been hit by one of the most vicious falls in commodity prices on record and a leap in financial stocks. Clearly, the renewed slump at the end of last week in financial stocks will have reversed some of the declines. Nonetheless, one can expect reduced risk appetite from hedge funds, especially in commodity space.

The measure includes USD 15bn in tax cuts, including a significant expansion of the low-income housing tax credit and a credit of up to USD 7,500 for first-time home buyers for houses purchased between April 9, 2008, and July 1, 2009.

Semtech bankrupt with USD 3.2bn of losses; hedge funds suffer in July US oil trading firm Semtech became the latest victim of the wild swings in oil prices and the sharp pullback seen in the last few weeks. Semtech filed for bankruptcy last Tuesday after suffering USD 3.2bn in losses on energy futures and derivatives trades that SemGroup says were designed to protect its physical oil trading business.

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AT CAPITAL RESEARCH

27 July 2008

Ifty Islam, Managing Partner [email protected]

Special Focus ocus The Growth Prospects for Islamic Banking in Bangladesh and the Role of Private Equity

Also, four Islamic insurance companies (Islamic Insurance Bangladesh Limited, Islamic Commercial Insurance Limited, Takaful Insurance Company Limited, and Far East Islamic Life Insurance Company Limited) are functioning as Islamic financial institutions in Bangladesh.

Global growth in Islamic finance remains strong The Islamic Banking sector continues to grow globally at a rapid pace. In a report, earlier this year, US investment bank, Morgan Stanley (2008), highlighted that the 22 Islamic banks in the Gulf have in excess of USD 300bn of Shariahcompliant assets and are set for double-digit growth over the next ten years. They noted that there are a number of reasons why the sector is growing, and will continue to grow, strongly. A buoyant macro economic backdrop in the Middle East and increased infrastructure spending, and continued diversification from oil economies are driving the banking sector generally. Especially noteworthy was their observation that 'In terms of factors behind the growth in Islamic finance, a greater focus on Islamic identity, government backing for the development and promotion of Islamic banking, low penetration, competition among conventional banks makes Islamic banking more attractive and more favourable industry dynamics are all likely to fuel the growth.' The report suggests that, while the outlook for the sector remains strong, there are a number of potential hurdles to growth. Most Islamic banks lack scale, products are complex, there is no single regulatory body, there are operational limitations, such as not being allowed to hedge, and there is often less transparency and financial disclosure than conventional banks. However, despite these potential setbacks, the underlying growth drivers will likely more than offset these structural impediments. South Asia alone has 47 Islamic banks accounting for nearly a quarter of total assets and a third of the deposits of the 144 Islamic banks in the world. Apart from the 47 units in South Asia, 22 in the Middle East, 17 in the six-nation Gulf Cooperation Council (GCC), and four in Europe and North America (Source: International Association of Islamic Banks). The Islamic Financial Services Board are even more optimistic in their outlook for the growth of the global Islamic banking industry. They forecast that total asset value will expand to $ 2.8 trillion in 2015 compared to $ 1.4 trillion in 2010. Bangladesh’s Islamic Banking Industry The six Islamic banks operating in the private sector in this country are Islami Bank Bangladesh, ICB Islamic Bank, AlArafah Islami Bank, Social Investment Bank, Exim Bank, and Shahjalal Bank. In addition to these Islamic banks, a number of other private banks (Prime Bank and Dhaka Bank, Jamuna Bank, Southeast Bank, City Bank, Arab Bangladesh Bank and Premier Bank) and foreign commercial banks (Standard Chartered and HSBC) have Islamic banking wings to deal with the Islamic banking business parallel to their conventional interest-based banking operations.

What is Islamic Banking? The Organization of Islamic Conference (OIC) defined an Islamic bank as “a financial institution whose statutes, rules and procedures expressly state its commitment to the principles of Islamic Shariah and to the banning of the receipt and payment of interest on any of its operations.” The payment of “Reba” or unfair interest for the cost of lending money without a sharing of financial risks is prohibited. The following explanation draws heavily on Alam (1994). In terms of the specific evolution of Islamic Banking, on the liabilities side, banks have both deposit accounts that pay money back instantly but without any profit share and savings accounts that Islamic banks accept saving deposits from customers under Al-Wadia and Al-Mudaraba Shariah principles. The word Al-Wadia means ‘Trusteeship’. In this case the bank acts as a trustee for its customers. The word ‘Al-Mudaraba’ originates from the word ‘Mudarib’ and means ‘The Manager’ of the fund. The bank in this case acts as a manager of customers’ funds. The depositors on the other hand are known as ‘Sahib-Al-Mal’ meaning the owner of the fund. Deposits accepted on savings under the profit and loss sharing agreement are invested by the bank on its own risk. Customers give authorization to the bank to invest funds and share profit or loss on agreed proportions. Account holders of this type of account are required to maintain a minimum balance in the account. Further to the above, Islamic banks accept deposits from customers under an investment account on a profit and loss sharing basis. The saving account of such a nature in an interest-free banking system is also known as a participatory account or a profit or loss sharing (PLS) account. Depositors of this type of account receive share of profits at the agreed ratio from their funds invested by the bank. The profit and loss sharing also depends on the total amount deposited and the length of period the money is held by the bank. Depositors in an investment account are required to give prior notice to the bank if they withdraw their invested funds under any special

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27 July 2008 circumstance. In such a case no share of profit is given for the amount withdrawn. Based on Shariah principals, two fundamental techniques or modes of investment are advocated under Islamic Shariah principles: - Mudaraba (Capital Financing) - Musharaka (Partnership)

Mudaraba (Capital Financing) Capital Trust financing is a contract between at least two parties in which the bank as the investor supplies the entire capital of the business forming a relationship between the supplier of capital and the user of capital. These two parties work together and share profits and losses. Under ‘Murabaha’ financing the investor is known as ‘Rab-Al-Mal’ which means the owner of the property and the entrepreneur is called ‘Mudarab’, meaning the manager of capital. When the venture ends, the manager of capital (i.e. the entrepreneur) returns the entire capital to the bank, along with an agreed proportion of profit. If there is any loss, it is borne by the bank. The main advantage with this type of partnership is that it combines the efforts of participants and their skills with the capital, which contribute greatly towards development activities in a society and also assists to solve unemployment problems by utilizing manpower resources in a productive way.

Musharaka (Partnership) The word ‘Musharaka’ means a profit sharing joint venture, designed for limited production or commercial activities of a long duration. In this case the bank and the customer contribute capital jointly. They also contribute managerial expertise and other essential services at agreed proportions. Profit or losses are shared according to the contract agreed upon. An individual partner does not become liable for the losses caused by others. In addition to the above two financial arrangements, Islamic Banks currently in existence are also engaging in or actively considering several other financial practices usually acceptable in Islamic Law. These are: · Murabaha (Mark-up or Cost-Plus-based Financing) · Ijara (Leasing) and · Quard- E- Hasan (Interest-Free Loan)

Murabaha (Cost plus profit) The word ‘Murabaha’’ means a cost-plus profit contract. In this system of financing the bank agrees to purchase for a client who will then reimburse the bank in a stated time period at an agreed profit margin. The mark-up price that the bank and the buyer agree to is mainly based on the market price of the commodity. Thus the bank earns a profit without bearing any risk.

Ijara (Leasing) The word ‘Ijara’’ refers to leasing. The leasing purchase is another technique followed by Islamic banks in financing customers. This system is almost similar to the leasing activity provided in traditional banking. Leasing is a contract between the bank and the customer to use particular assets. In this case the bank is called a lessor and the customer is

AT CAPITAL RESEARCH called a lessee who wants to use the assets and pays rent. The leasing agreement is based on profit sharing in which the bank buys the movable or immovable property and leases it to its clients for an agreed sum by installments and for a limited period of time into a saving account held with the same bank. These installments are invested in Mudaraba investments (Venture) for the customer’s account. The accumulated profit generated from the payments, and the payments themselves are invested in the bank’s investment ventures over the time period of the lease, contributing to the eventual purchase of the leased assets. According to the Western leasing system the lessee pays specific rentals and a fixed rate of interest over a given period for the use of specific assets. But in the Islamic banking system of leasing, the risk related to leasing has to be shared between the bank and the lessee, in case of any damage to the leased assets. The contract is called ‘ijara-wa-iqtina’ i.e. leasing purchase, when the ownership of the assets is transferred to the clients after the completion of the leasing contract. How does Islamic Banking differ from Conventional Banking? As Haniffa and Hudaib (2007) have noted, there are five distinctive features that differentiate Islamic Banks (IBs) from their competitors (conventional banks): (a) underlying philosophy and values; (b) provision of interest-free products and services; (c) restriction to deals acceptable under Islamic principles; (d) focus on developmental and social goals; and (e) subject to additional reviews by the Shariah Supervisory Board (SSB). Islamic banking is much more than offering interest-free products. IBs should only finance projects or support practices and products that are permissible (halal) and avoid financing or investing in activities considered abhorrent in Islam, such as gambling, alcohol, drugs, etc., or in short, those that bring harm to society and the environment. IBs must also avoid speculative transactions or excessive risks (gharar), such as investments in futures markets, since the consequence is not known. As Hassan has noted “Under the Islamic system, banking operations will undoubtedly be more varied and complex, as compared to the traditional banking system. The criterion of creditworthiness of the borrower that underlies the conventional banking system will have to be changed to place more emphasis on viability and profitability of the specific project being proposed.” He notes that in addition to term structure of rates of return, there will be structures of returns for different economic activities that banks have to consider. Project evaluation and appraisal, determination of profit sharing ratios, and the establishment of a procedural frame work for the processing, monitoring, supervision, and auditing of various projects will create new demands on commercial banks. On the liability side, banks would have to attract depositors on the basis of profits and dividends, rather than through interest rates. In short, commercial banks in an Islamic system would have to be transformed into institutions that would closely resemble investment banks in western financial systems. Islamic Funds and Socially Responsible Investing There has been a dramatic growth in ethical and socially responsible investing. As of 2007 some estimates suggest that about one out of every nine dollars under professional

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27 July 2008 management in the United States is involved in socially responsible investing—11 percent of the $25.1 trillion in total assets under management tracked in Nelson Information’s Directory of Investment Managers. Research estimates by financial consultancy Celent predict that the SRI market in the US will reach USD 3 trillion by 2011. The European SRI market grew from EUR 1 trillion in 2005 to EUR 1.6 trillion in 2007. Shariah compliant lending is clearly a subset of socially responsible or ethical investing. However, it is important that this message is more effectively communicated so that those investors who want to support ethical investing see the consistency with Islamic based lending. Islamic Banking Regulatory Framework needed As Ahmad and Hassan (2007) have noted in a recent article, unlike Bangladesh, in most Muslim countries a special law is passed prior to the establishment of an Islamic bank that specifies the rules and regulations for the institution willing to engage in banking businesses based on Islamic principles. In Malaysia, for example, the Islamic Banking Act 1983 was passed by Parliament prior to the establishment of the Bank Islam Malaysia Berhad in 1983, with this law applying to any form of Islamic banking. For institutions wishing to operate in Bangladesh, there is no separate Islamic banking act or any specific laws or independent regulations that control, guide, and supervise the functions of Islamic banks. However, there have been some positive developments including the decision of Bangladesh Bank to set up an Islamic economics division under the Department of Research of Bangladesh Bank. Another development is the special provision that has been made by Bangladesh Bank for the Statutory Liquidity Reserve (SLR) requirement of Islamic banks. Bangladesh Bank, as the lender of last resort, may place funds in Mudarabah accounts with Islamic banks and share profit in line with the principles of the distribution of profits to Mudarabah depositors. Conclusions – Challenges and Bangladesh’s Islamic Banking Industry

Opportunities

for

As Ahmad and Hassan have noted “The future of Islamic banks hinges on their ability to find a viable alternative to interest for financing all types of loans.” Islamic banks need to improve their managerial capabilities by training their personnel in project appraisal, monitoring, evaluation, and performance auditing. The future of Islamic banks in Bangladesh also depends on developing and introducing practices such as accounting standards that provide timely and reliable information of the type that the Islamic banks would require for profit sharing, rent sharing, or cost-plus financing. These standards are yet to be developed. As far back as 1989, the World Development Report from the World Bank noted that: “Islamic banks offer savers risky open-ended mutual fund certificates instead of fixed-interest deposits. (This is not unlike cooperative banks in the west, where deposits earn variable interest and double as equity.) Difficulties arise on the lending side. Arrangements to share profits and losses lead to considerable problems of monitoring and control, especially in lending to small business”.

even for large businesses but especially so for Small and Medium Sized Enterprises (SMEs). A greater shift away from conventional interest based lending to Islamic Financing is likely to be a powerful engine of growth. Private Equity and Venture Capital investing, whereby the financing institution takes both equity and provides strategic advice to businesses, shares both risks and rewards between the borrower and the lender and is completely in tune with Shariah-based lending. So the evolution of the Private Equity Industry in Bangladesh will go hand-in-hand with expanding the capabilities of genuine Islamic based financing. The greater encouragement of PE funds like AT Capital, Brummer and LR Global that have recently come to Bangladesh is a positive development in developing the skills and capacity to manage Islamic investments in businesses. This can clearly be extended and leveraged by Islamic Banks to help them develop their own risk management and corporate strategy systems to move away from “cost-plus” (Murabaha) and leasing (Ijara) to one that one might argue is a more “genuine” or Shariah consistent form of lending based on partnership (Musharaka). Bangladesh can also export Islamic Banking products to other Muslim countries around the world. Malaysia has been extremely effective in leveraging its place as a major Islamic banking centre with leading research institutes and the development of Islamic inter-bank money market as well as research institutes. Bahrain has developed a similar role in the Middle East. There is no reason why Bangladesh, the third largest Muslim country in the world after Indonesia and Pakistan, cannot also grow its global competitiveness in this area. The development of a globally competitive Islamic Banking software product by local IT House Millenium that has been attracting attention in Malaysia and the Middle East is a pointer to how Bangladesh can position itself in the global Islamic Banking Market. As Bangladesh’s capabilities in this sector expand, there is no reason why it should not be well placed to benefit from excess capital in Middle Eastern based Islamic Funds. Given where oil prices are, the rapid growth in this potential source of development capital for EM countries like Bangladesh is unlikely to reverse any time soon. In conclusion, encouraging the growth of the Islamic Banking Industry in Bangladesh has broader economic attractions as well. References Mohammed Nurul Alam, “Islamic Banking In Bangladesh: A Case Study of IBBL”, International Journal of Islamic Financial Services, Vol 1, No. 4 Ahmad and Hassan, Hassan “Regulation and Performance of Islamic Banking in Bangladesh”, Thunderbird International Business Review, Vol. 49(2) 251–277 • March–April 2007 Marwa A Elsheikh, Elsheikh “MENA Islamic Banks - Structural Growth Story”, Morgan Stanley, 2008 M. Kabir Hassan, Hassan “Islamic Banking in Theory and in Practice: The Experience of Bangladesh” Managerial Finance, Volume 25 Haniffa and Hudaib, Hudaib “Exploring the Ethical Identity of Islamic Banks via Communication in Annual Reports”, Journal of Business Ethics (2007)

In terms of opportunities, Bangladesh is clearly an economy that suffers from a lack of access to risk capital. This is true

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27 July 2008

Stock Market Weekly Market News

DSE Performance: 52 Weeks

• • • • • • • •

Margin lending limits relaxed Grameenphone plans to raise USD 300mn from IPO and private placement SEC changes in mutual fund rules; Small investors’ protest Brokerage houses need permission for new branches DSE announces listed companies should submit financials every three months UCB share trading resumes, tops the turnover list on the that day SEC asks merchant banks to play due role Trading of ICB AMCL Second NRB Mutual Fund shares begin Sunday

DSE Performance: 30 Days

Return of regional indices 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 22.14 Last Week 23.00 % Change -3.7% *Weighted on Market Cap.

DSE General Index

DSE 20

2,889.4 2,878.1 -0.4% -11.3

2,602.2 2,636.1 1.3% 34.0

This Week

Last Week

5 14.12 242 48 109

5 14.16 203 41 94

22

19

Issues Advanced Declined Unchanged Not Traded

This Week 94 151 4 37

% Change -0.2% 19.1% 19.1% 15.5% 15.5% Last Week 75 170 6 35

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

Sector P/E Feb-08 Mar-08 24.8 21.9 12.8 14.7 28.1 43.2 30.2 33.7 22 24.5 28.1 28.3 22.1 23 22.4 40.5 16.6 18.3 8.8 18.6 20.1 22.3 6.9 11 20.2 25 8.8 10.8 15.3 19.9 11.8 14.6

Apr-08 22.2 14.7 43.7 38.9 28.2 25.8 28.1 64.9 18.4 16.4 23 9.2 26.7 20.5 25.1 14.9

May-08 22.6 17.6 42.7 41.4 28.5 26.2 32.4 65.2 17.6 16 25.9 9.5 29.8 19.5 23.1 14.4

Source: Dhaka Stock Exchange

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27 July 2008 Weekly Stock Market Commentary The market started the week in similar vain to the prior week, falling in the first few days on trading, after it rebounded by the weekend, buoyed by regulators encouraging investment by loosening lending. However sentiment remains fragile, following concerns as to whether the Bangladesh market would emulate regional performance in the last few months, with India, Vietnam and, most recently, Pakistan falling sharply. The bearish trend which started in the previous week continued till Tuesday when the benchmark DGEN index fell to 2,765, down 8.4% since the beginning of the year and 16% lower than the recent peak in May this year. The market broke from its seven-day losing streak with a modest gain on Wednesday. The benchmark DGEN gained 3.8%, the second highest one-day gain in the year on Thursday, ended the week at 2,878. The market has been experiencing high intraday volatility. With concerns mounting over the recent falls, the SEC convened a meeting with other major stakeholders including both stock exchanges, merchant bankers and leading brokerage houses. Officials placated investors and merchant banks by increasing margin lending limits.

days, as bid prices were lower than the lower limit of the circuit breaker. Finally, trading resumed with only one trade. The price fell by 7.5%. Mutual fund shares experienced very high volatility during the week. The SEC formalized their earlier decision not to allow the mutual funds to issue right and bonus shares. The mutual funds shares fell sharply earlier in the week but gained some ground later. With half yearly results season well underway, AB Bank released results, seemingly below market expectations, with a 70% rise in net profits and a subsequent 7.5% share price decline following announcement. ACI fell 0.2%, after announcing a 51% increase in net profit while BRAC Bank was up 5.25% after reporting a 97% increase in net profit. An interesting week - cynics may say that lending interventions have artificially supported the market injecting further risk through leverage, while pragmatists feel this has helped steady irrational retail nerves. Time will tell, but we continue to watch in anticipation.

On Wednesday, market sentiment was bolstered when the country’s largest telco, Grameenphone announced it would raise USD 150 million from pre IPO placements and an additional USD 150 million from an IPO. The USD 300mn capital raising represents, just under 10% of its USD 3.2bn proposed valuation. The IPO is expected to be 5 times as large as the ongoing Titas IPO, the country’s largest to date. Investors’ response to the Titas IPO remains subdued with only 1% of shares being taken up since its market debut on 2 July. The Social investment Bank, a Shariah-based bank, has decided to raise BDT 1.1bn (USD 16mn) from its existing shareholders through a right issue. Using the same route, BRAC bank is raising BDT 1.2 billion (USD 17.5 million) and Trust bank will shortly raise BDT 513 million (USD 7.2 million). With impending Basel II capital adequacy compliance on the horizon, Tier II capital raising is yet to become popular among many banks, with many opting to strengthen Tier 1 capital ratios in the short-term. Almost all of them are issuing bonus shares (instead of giving cash dividends) to support their 20% plus credit growth.

GP plans to raise USD 300mn from IPO and private placement

Square Pharmaceutical, DSE’s largest company by market cap, declared their results for year ended March 31, 2008. The company's profit growth of 5% and declaration of 35% bonus shares did not meet the expectation of the investors. Its shares lost 17% in two trading days since declaration before rebounding modestly by week close.

According to sources, the number one mobile phone company took the decision after revising its valuation to USD 3.2bn last month. Earlier an independent firm valued the company at USD 3.75bn.

Islami Bank, DSE’s fourth largest company by market cap, saw a rise of 23%, the maximum permitted under the current DSE circuit breaker, following bank's decision to split the shares 1:10, before it fell back slightly in the latter half of the week. The trading of the state owned bank, Rupali Bank, another large cap stock, was supposed to recommence on Sunday. But no trading took place on the DSE in first four trading

Stock Market News

The Daily Star, Thursday, July 24, 2008

Grameenphone, the country's largest mobile phone operator, has finalised its plans to raise USD 300mn (BDT 20.58bn) -USD 150mn from the stock market and the rest through private placement or pre-IPO.

Grameenphone yesterday said a formal application for the IPO with expected gross proceeds of up to USD 150mn is expected to be filed with the Securities and Exchange Commission (SEC) and other authorities by the end of this month. The company also said it intends to conduct a prepublic offer of its shares with expected gross proceeds of up to USD 150mn. Sources said Grameenphone will offer each share at BDT 18 (USD 0.26) which represents a premium of BDT 17 (USD 0.24) over the BDT 1 face value of the share.

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Proceeds of the offering will be used for the company’s network development programme.

times and the NRB allocation of 6mn shares was oversubscribed by six times.

http://www.thedailystar.net/story.php?nid=47143

At a board meeting at the Dhaka Stock Exchange, it was resolved that mutual funds would have to declare their net asset value (NAV) positions every week. Currently, mutual funds declare their NAV once every month.

SEC okays changes in mutual fund rules; Small investors’ protest The Daily Star, Wednesday, July 23, 2008

The Securities and Exchange Commission (‘SEC’) has approved the proposed changes in Mutual Fund rules whereby no close-end mutual fund can offer bonus shares as dividends or offer rights issues in a bid to increase their capital base. Mutual Funds will also not be able to issue pre-emptive rights shares or placement shares to the existing unit holders. Preemptive rights or placement of shares is the sale of a security to selected investors rather than offering the security to the public through a group of dealers. Before finalising the new rules, the SEC published the proposed changes in newspapers for public opinions in June 2008, after which shares in the mutual fund sector witnessed significant falls. This led to many retail investors taking to the streets to protest against the proposed changes. http://www.thedailystar.net/story.php?nid=46981

Brokerage houses need permission for new branches

It was also announced that listed companies would have to submit their financial accounts to both bourses and the SEC once every quarter as well as the current half year and annual reporting regime. http://www.thefinancialexpressbd.info/search_index.php?page=detail_news&news_id=40618

DSE proposes proposes to submit financials in every three months for listed companies The Daily Star, Monday, July 21, 2008

The Dhaka Stock Exchange has proposed to make it mandatory for listed companies to submit quarterly financial statements in an attempt to improve disclosure and reporting. Presently, listed companies are required to report half year and full year results. The DSE also proposed that Mutual Fund managers report net asset values and portfolio positions every week. At present, they report on a monthly basis.

The Daily Star, Wednesday, July 23, 2008

http://www.thedailystar.net/story.php?nid=46667

The Securities and Exchange Commission (‘SEC’) has announced that brokerage houses will now need to take permission to open new branch offices, to bring branches under a uniform framework.

SEC asks merchant banks to play due role

“The main objective of the move is to bring the branch offices of any brokerage house under a policy frame work,” SEC Executive Director Farhad Ahmed said after the meeting. He added, any brokerage house with BDT 7.5mn (USD 0.11mn) of paid up capital will be allowed to open a maximum of 15 branch offices. Before applying for the SEC's permission to open branch offices, the brokerage houses will need to provide a recommendation from the Dhaka Stock Exchange (DSE) authorities. The brokerage houses will have to regularise branch offices that are already in existence by obtaining permission from the SEC to continue branch operations within the next four months.

The Daily Star, Friday, July 25, 2008

The SEC has requested merchant banks and brokerage houses to play their role in ensuring market stability. "The merchant banks and brokerage houses should advise the investors on the fundamentals of the stocks so that the market does not behave abnormally," a joint meeting held in the SEC was told on the day. The regulator, bourses and merchant banks also agreed to arrange programmes twice a month to create awareness among investors to make investment decisions based on company fundamentals. http://www.thefinancialexpressbd.info/search_index.php?page=detail_news&news_id=40705

UCB share trading resumes, tops the turnover list http://www.thedailystar.net/story.php?nid=46985

The Financial Express, Tuesday, July 22, 2008

Trading of ICB AMCL Second NRB Mutual Fund shares begin Sunday

Share trading in the United Commercial Bank (UCB) Limited resumed on Monday following a suspension of nearly 6 weeks, following significant price volatility before its proposed AGM. The SEC lifted the ban after considering investors interests, while the Bangladesh Bank has asked the company to hold its AGM by this October.

The Financial Express, Thursday, July 24, 2008

Trading of the ICB AMCL Second NRB Mutual Fund, a closeend fund, will commence on both stock exchanges on Sunday, July 27. The ICB AMCL Second NRB Mutual Fund is the country’s largest Mutual Fund IPO ever with value of BDT 1bn (USD 14.6mn). The Resident Bangladeshi allocation of 2 million shares was oversubscribed by 15.5

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27 July 2008 The company topped the turnover list on Dhaka Stock Exchange with BDT 488.12mn (USD 7.13mn) traded with an 18.1% rise in its price. Stock prices of the bank closed at BDT 6,628.25 (USD 96.8) per share on the news that it will hold its AGM. The opening price of the issue on the DSE was BDT 7,800 (USD 113.92) per share and rose as high as BDT 8,100 (USD 118.30) per share. http://www.thefinancialexpressbd.info/search_index.php?page=detail_news&news_id=40447

NAV of 8 ICB mutual funds declared

The Financial Express, Monday, July 21, 2008 The Investment Corporation of Bangladesh (ICB) has declared the net asset values of its eight mutual funds, based on current market values. Name st 1 ICB Mutual Fund 2ndICB Mutual Fund rd 3 ICB Mutual Fund th 4 ICB Mutual Fund 5th ICB Mutual Fund th 6 ICB Mutual Fund 7th ICB Mutual Fund th 8 ICB Mutual Fund

NAV (BDT) 4,474.5 1,010.6 844.3 990.3 1,044.1 354.8 512.9 415.0

NAV (USD) 65.3 14.8 12.3 14.5 15.2 5.2 7.5 6.1

http://www.thefinancialexpressbd.info/search_index.php?page=detail_news&news_id=40358

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Turnover Leaders (All fig. in mn) BDT Beximco Pharma 1,318 Square Pharma 1,150 ACI Ltd 1,149 UCBL 1,055 Keya Cosmetics 714 BATBC 700 BEXIMCO 694 Lankabangla Finance 538 Com Apex Adelchi Footwear 456 Islami Bank 387

Best Performers* USD 19.2 16.8 16.8 15.4 10.4 10.2 10.1 7.9 6.7 5.6

Worst Performers* % Change 51.2 48.2 41.7 35.2 26.3 19.8 19.5 15.3 13.8 13.7

Bd.Thai Aluminium Wata Chemicals Rahman Chemicals BATBC Therapeutics Islami Bank Social Investment Bank Glaxo SmithKline Eastern Housing Rangpur Foundry

Sandhani Life Insurance 6th ICB M.F. Square Pharma 8th ICB M.F. 3rd ICB M.F. Aims 1st M.F. Libra Infusions Limited 5th ICB M.F. 2nd ICB M.F. Prime Islami Life

% Change -24.3 -18.5 -18.3 -18.0 -16.8 -16.5 -15.8 -15.3 -14.5 -14.5 *By closing price

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

55.1% 10.9% 10.4% 5.9% 5.6% 2.7% 2.7% 1.9% 1.8% 1.5% 0.9% 0.4% 0.1% 0.07% 0.03% 100%

S&P 500 DJIA FTSE 100 SENSEX NIKKEI 225 KSE 100 DSE

S&P 500 1.00 0.94 0.65 -0.09 -0.13 0.02 -0.14

Correlation Matrix with other Indices* FTSE NIKKEI DJIA 100 SENSEX 225 1.00 0.63 -0.13 -0.12 0.03 -0.22

1.00 -0.07 0.07 0.07 -0.12

1.00 0.53 0.24 0.17

1.00 0.29 0.12

KSE 100

DSE

1.00 0.16

1.00

* Based on the last 65 monthly returns

*As of May 31, 2008

Research Team Professor Jahangir Sultan

Shahidul Islam

Senior Advisor

Investment Manager

[email protected]

[email protected]

Rashed Hasan

Syed Najibullah

Research Associate

Research Assistant

[email protected]

[email protected]

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Economics Growth in nominal GDP across different sectors Sector Agriculture & forestry Crops & horticulture Animal farmings Forest & related services Fishing Mining & quarrying Natural gas and crude petroleum Other mining & coal Manufacturing Large & medium scale Small scale Electricity, gas & water supply Electricity Gas Water Construction Wholesale & retail trade Hotels & restaurants Transport, storage & communication Land transport Water transport Air transport Support transport services, storage Post and telecommunications Financial intermediations Monetary intermediation (banks) Insurance Other financial intermediation Real estate, renting business activities Public administration & defence Education Health & social works Community, social & personal services

Market Market News

FY06 5.23 5.03 6.15 5.18 3.91 9.26

FY07 4.69 4.43 5.49 5.24 4.07 8.33

FY08 3.47 3.44 2.41 5.42 4.11 8.61

9.52

8.03

8.11

8.84 10.77 11.41 9.21 7.67 7.45 9.37 7.55 8.31 6.75 7.45 7.98 4.14 1.95 5.25

8.80 9.72 9.74 9.69 2.10 1.08 7.37 7.08 7.01 8.04 7.52 8.03 4.18 1.73 2.01

9.41 7.42 7.22 7.97 4.88 4.29 7.95 7.29 5.93 7.20 7.58 8.69 4.24 1.93 5.01

6.13

8.93

8.02

26.70 8.50

23.29 9.18

23.41 8.97

8.19

9.34

9.02

9.16 10.94 3.69 8.15 9.05 7.79 4.09

8.21 11.62 3.76 8.41 8.96 7.64 4.58

8.31 11.54 3.59 7.15 7.88 7.50 4.64

Source: Bangladesh Bureau of Statistics

Per capita GDP, GNI & NNI at current prices (USD) FY06 Gross Domestic Product

447

FY07 487

FY08 (P) 554

Gross National Income

476

523

599

Net National Income

441

485

556

Source: Bangladesh Bureau of Statistics

•

Bahrain lifts ban on work permits

•

EU adopts new regulation for GSP

•

BB net profits increase by 51%

•

Finance

ministry

approves

new

rule

on

bank

borrowings

Nominal GDP growth in Bangladesh over last 5 years

Latest Latest treasury yields Auction date

Tenor & security type

Weighted average yield yield

20-Jul-08

91-day T-bill

7.78%

20-Jul-08

182-day T-bill

8.01%

20-Jul-08

364-day T-bill

8.51%

15-Jul-08

5-year T-bond

10.60%

1-Jul-08

10-year T-bond

11.72%

8-Jul-08

15-year T-bond

12.14%

22-Jul-08

20-year T-bond

13.07%

Source: Bangladesh Bank S Adeeb Shams Research Associate [email protected]

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Economics News

Economic News Bahrain lifts ban on work permits Independent Bangladesh, Thursday July 24, 2008

Bahrain has lifted a ban on issuing work permits for Bangladeshi workers on the condition that they must abide by the country's laws, said the overseas Employment Secretary. The Middle Eastern kingdom placed a ban on issuing work permits for unskilled Bangladeshi workers on May 26, following the killing of a Bahraini citizen by a Bangladeshi mechanic. Another Bangladeshi worker was executed by a firing squad on June 6, after being convicted of murdering Bahraini fashion designer Sana Al Jalahama in 2006. Reports were published in Bahrain, that after almost two months, the government is lifting the ban on the entry of unskilled workers from Bangladesh. The new conditions stipulate that, Bangladeshis seeking work permits will have to submit a certificate issued by the Bangladeshi authorities providing assurance that they will abide by Bahraini laws. There are presently 86,000 Bangladeshis living in Bahrain, according to the Ministry of Expatriates' Welfare and Overseas Employment. http://www.independentbangladesh.com/200807247889/country/bahrain-lifts-ban-on-workpermits.html

EU adopts new regulation for GSP The Daily Star, Friday July 25, 2008

The European Commission has adopted a new regulation on Generalised System of Preferences (GSP), which comes into effect from January 1, 2009 until the end of 2011. The EU hopes that the new regulation will allow the EU to maintain preferential access to its market for 176 developing countries.

Foreign exchange reserves rose to approximately USD 6bn at the end of the 2007-08 fiscal. Other major sources of income included revaluation gains, interest from government borrowings, earnings from banks and interest from the credit extended to employees. http://www.newagebd.com/2008/jul/22/busi.html

Finance ministry approves new rule on bank borrowings The Financial Express, Sunday July 20, 2008

The Finance Ministry has approved new regulations aiming to keep bank borrowings within 3% of the country's GDP, according to Ministry officials. The regulation, the 'Government Properties and Budget Management Ordinance 2008’, the first of its kind in Bangladesh, was prepared following recommendations made by major donors and multilateral agencies. The ordinance will now be sent to the advisory council for approval. The IMF in its pre-budget opinion supported the caretaker government's move to finalise the regulation, stating that it would help keep budgetary expenses under control. The official said the new regulation, however, has not put any restrictions on the government seeking loans from donor and multilateral agencies. Among other things, the new regulation will make it mandatory for the government to keep aside 6.5 per cent of GDP in the budget for the purpose of poverty alleviation. The government's dependency on local bank borrowings has grown in recent years, as a means to finance the budget deficit. In the recently concluded 2007-08 fiscal, the deficit reached 4.8% of GDP from a projected 4.2%. This forced the government to raise bank borrowings by 43% to BDT 104bn (USD 1.5bn), from the initially projected amount of BDT 72.5bn (USD 1bn) for the year. http://www.thefinancialexpressbd.info/search_index.php?page=detail_news&news_id=40168

According to a press release issued by the EU, the renewed preference system will be updated and improved, ensuring that GSP is targeted at those countries that need it most. As a result of re-calculations to reflect the evolution of trade, preferences for specific product groups will be re-established for six beneficiary countries of GSP (Algeria, India, Indonesia, Russia, South Africa and Thailand). Preferences will be suspended for one country, Vietnam, for Section XII products (footwear and some other products). These adjustments are triggered automatically when a country's performance on the EU market goes either above or below a certain threshold. http://www.thedailystar.net/story.php?nid=47316

BB net profits increase by 51% New Age, Tuesday July 22, 2008

Bangladesh Bank announced an increase in net profits of 51% from BDT 34.6bn (USD 505.3mn) in the 2006-07 fiscal, to BDT 52.2bn (USD 761.8mn) in 2007-08 of which BDT 25bn (USD 365mn) was earned through investments in foreign markets. An official reported that Bangladesh Bank invests its foreign exchange reserves in short term deposits, in money markets, in particular, Singapore and Hong Kong.

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Sector News Agriculture International increase in rice price lowers private rice import import

The Daily Star, Tuesday July 22, 2008 Rice and wheat importers have stopped imports due to recent increases in food grain prices in international markets. Pressure on importers has been compounded by India banning all exports of rice and the reduction in business confidence following the recent anti-graft campaign and government pressure to reduce profits. Rice generally gets imported between December and August as prices remains low in the international market. On average 300,000 to 400,000 tonnes of rice were imported each month during this period last year. But for the last five months the private sector import has been zero. According to the food ministry, a total of 3.45 million tonnes of food grains were imported in the last fiscal year,of which about two-thirds (2.56 million tonnes) were imported by the private sector. Out of 3 million tonnes of wheat imported last year, the government imported only 1 million tonnes while the remainder was imported by the private sector. The importers do not anticipate importing food drain over the next few months. http://www.thedailystar.net/story.php?nid=46856 Open Market Sales Sales of rice set to be resumed from August

The Daily Star, Tuesday July 22, 2008 The Government is planning to sell rice through the open market from the last week in August, rather than in September that was previously planned, in an attempt to keep prices stable during the month of Ramadan. The program will be extended to 250,000 tonnes of rices across the country, fixing prices, at BDT 28-30 (USD 0.41-0.44). Each person will be allowed to buy 3 kg of rice through 7,100 outlets across the country. http://www.thedailystar.net/story.php?nid=46911 Experts rule out major flood this year

The New Age, Thursday July 24, 2008 Weather and water experts said that available statistics and data provided by different national and international agencies indicate that the chances of major flooding in Bangladesh are slim this year. Although the possibility of inundation is slim, usual monsoon flooding which affects 30% of the country has not been ruled out. http://www.newagebd.com/2008/jul/24/nat.html Sugarcane output is set to suffer due to the shortage of fertilizer

The New Age, Saturday July 19, 2008 Supply of sugarcane is expected meet only two thirds of demand, as production has fallen significantly due to the unavailability of fertilizer. Inadequate supply of fertiliser, coupled with lower sugarcane prices has instigated a good

number of farmers to shift production to maize and paddy cultivation which is expected to cause a 20 per cent decline in sugarcane output. According to an assessment conducted by the Bangladesh Sugar and Food Industries Corporation (BSFIC), only 42% of demand (21,000 tonnes) was fulfilled with the corporation supplying 12,180 tonnes to farmers. Among the non-urea fertilisers, the corporation has estimated that TSP fertiliser’s demand stands at 16,000 tonnes and MOP at 14,000 tonnes. According to the BSFIC, sugarcane acreage would decline by 12%, to 194,000 hectares from a preliminary target of 217,000 hectares. http://www.newagebd.com/2008/jul/19/busi.html AgriAgri-input business flourishes on strong demand from the farmers.

New Age, Sunday July 20, 2008 Agri-input businesses are thriving as the local farmers are switching to modern technologies and better farming products. Last year nearly 3,600 tractors were sold with sales this year expected to reach 4,500 units. Sales of power tillers are forecast to grow by at least 15 per cent to 70,500 units. The local market of handy farm machines, including reapers, harvesters, seedling and weeding equipment, is estimated to be BDT 1.2bn (USD 175.3mn), and it is growing by about 30% annually. The BDT 15bn (USD 219.1mn) market for pumps and diesel engines for irrigation is expanding by about 20% every year. Kafiluddin Ahmed, chairman of Bangladesh Fertiliser Association, said exorbitant prices inflated the domestic market size of chemical fertilisers to more than BDT 40bn (USD 5.84 bn). 33 companies have been marketing mixed fertilisers as farmers are increasingly looking for them amid soaring prices of common fertilisers. Some 70 enterprises are engaged in the BDT 3bn (USD 43.8mn) seed market with annual growth of 25 per cent, while many others are assessing entering the market of highyielding seeds for paddy, potato and vegetables. http://www.newagebd.com/2008/jul/20/busi.html#2 Aviation Air India Express to introduces flights between Dhaka and Kolkata The Daily Star, Monday July 21, 2008

Air India Express, a subsidiary of the Indian state-run Air India, recently introduced Dhaka-Kolkata flights, with the objective of offering attractive fares to passengers. Mukta D Tomar, acting High Commissioner of India to Bangladesh, S Mahadevan, Executive Director (East) of National Aviation Company of India Ltd, SR Premkumar, Country Manager of Air India Express Bangladesh, high officials of Civil Aviation Authority of Bangladesh and Biman Bangladesh Airlines, among others, were present at the inaugural ceremony which took place at Zia International Airport. Air India Express will operate six flights every week between Dhaka and Kolkata, while operating once a week between Dhaka and Mumbai. http://www.thedailystar.net/story.php?nid=46678

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27 July 2008 Best Air to fly to Colombo and Male

Firm asked not to indulge in unlawful reinsurance brokering

The Daily Star, Friday July 25, 2008

The Daily Star, Sunday, July 20, 2008

Best Air, a private airline company, is to introduce flights to Colombo and Male from July 28. This is the first time a Bangladeshi private airliner is operating directly to Colombo and Male.

The government has cautioned Tyser Risk Management (Bangladesh) Ltd, a concern of UK-based insurance giant Tysers, for its involvement in reinsurance brokering and bypassing local insurance companies that is not permitted by the law.

http://www.thedailystar.net/story.php?nid=47315

Banking Banking Moody's, S&P respond to credit rating rating proposal for Bangladesh, Govt. body to assess offers this week The Daily Star, Sunday, July 20, 2008

Two international credit rating agencies -- Standard & Poor's and Moody's Investors Service -- have responded to the central bank's proposal to provide a credit rating for Bangladesh, a move that will help the country attract more foreign investment and receive international aid more easily, sources said. The central bank in May this year initiated the move for Bangladesh's first-ever credit rating following arbitrary credit ratings for the country by donors and individual enterprises and countries. BB officials believe a country rating will help Bangladesh mobilise resources from the capital market and help foreign investors and multilateral lenders evaluate the investment environment before making investments or providing loans. Although credit rating for business organisations is common globally, country credit rating is relatively new. However, besides developed countries, some Middle East and many African countries have country credit ratings. Credit ratings generally reflect a country's overall economic and sociopolitical environment. http://www.thedailystar.net/story.php?nid=46589 Nordic Investment Bank awaits government government nod to start operation in Bangladesh The Daily Star, Friday, July 25, 2008

Nordic Investment Bank (NIB), an international financial institution, is launching operations in Bangladesh. The NIB aims to finance both private and public projects for infrastructure development, sources in the Economic Relations Division (ERD) said. On receipt of the government's approval, the bank has already applied to set up a branch. NIB, headquartered in Helsinki, the capital city of Finland, was founded in the mid-1970s by five Nordic countries: Denmark, Finland, Iceland, Norway and Sweden. In 2005, Estonia, Latvia and Lithuania became sponsors of the bank. NIB acquires funds for its lending by borrowing from international capital markets. It has an office in Copenhagen and a representative office in Singapore. The bank has financed over a thousand projects since it began operating in 1976.

Legal, fundamental and basic principles of insurance practice permit insurance companies to only appoint a broker for reinsurance, not the party insured. Warid Telecom International appointed Tyser & Co Ltd as its reinsurance broker side stepping the insurance companies, according to sources. The question of reinsurance comes when one insurance company wants to purchase coverage from a second insurance company for a risk that the first company is insuring. This is normally done via a broker. Amyn Merchant, Chief Financial Officer of Warid Telecom, said the discord has been due to a misunderstanding between the parties concerned. “The problem has now been resolved. Warid is still working with the three insurance companies and as per the law the insurance broker has contracted with the insurance companies directly,” the Warid CFO said. http://www.thedailystar.net/story.php?nid=46592 BB issues 'compromise' rule, finally The Financial Express, Thursday, July 24, 2008

The central bank has issued a rule allowing commercial banks to appoint two directors from the bank’s depositors. Under the new rule, the board of directors of a bank shall submit a proposal to the central bank seeking approval of appointment of its directors. "The appointment will be effective after receiving approval from the central bank," the rule said, adding that the central bank, if necessary, might seek more names for the appointment of directors from the board of directors of the bank concerned." The new rule will help the banks to ensure better management and transparency," Bangladesh Bank Governor Dr. Salehuddin Ahmed told reporters while speaking about the new rule for appointment of two directors from bank depositors. http://www.thefinancialexpressbd.info/search_index.php?page=detail_news&news_id=40661

Infrastructure & Energy USD 24mn loan for setting up 3 small power plants

The Daily Star, Thursday July 24, 2008 Bangladesh Bank signed an agreement with NCC Bank to lend USD 24mn from its Investment Promotion and Financing Facility (IPFF) project for financing three small power plants (SPPs) to be set up by Doreen Power Generations and Systems Ltd. The three SPPs are expected to add 66MW power to the national grid between October and December, 2008. The World Bank approved the USD 50mn, IPFF project

http://www.thedailystar.net/story.php?nid=47313

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27 July 2008 which extends finance to bank and financial institutions to support long term financing of private sector entrepreneurs for infrastructure projects.

by around 100MW, if gas was rerouted to efficient power units. http://www.newagebd.com/2008/jul/21/front.html#4

http://www.thedailystar.net/story.php?nid=47151 SIMCL serves legal notice to Power Cell, demanding fair play

New airair-conditioned train to be seen on ChittagongChittagong-Dhaka rail route soon

Financial Express, July 21, 2008

Financial Express, Wednesday July 23, 2008 Summit Industrial and Mercantile Corporation Ltd (SIMCL) has served a legal notice to the state owned entity, Power Cell demanding fair play and to allow the company to submit its bid for installing the 450MW Bibiyana power plant. SIMCL had earlier sent two separate letters to Power Cell, demanding its qualification to compete in the bidding for setting up the Bibiyana power plant.

A new air-conditioned train is being launched on ChittagongDhaka rail route. The last consignments of imported airconditioned coaches have recently been unloaded at Chittagong port. Bangladesh Railway authority imported 30 air-conditioned coaches from China for around BDT 1.06bn (USD 15mn). Mongla Port remains idle

Financial Express, July 22, 2008 The deadline for bid submission for the Bibiyana power plant expires on July 24, 2008. http://www.thefinancialexpressbd.info/search_index.php?page=detail_news&news_id=40594

Immediate seismic survey to retain maritime boundary urged

Financial Express, Tuesday July 22, 2008

The country's second seaport at Mongla remained virtually idle last week with no cargo ships anchoring at the problemridden port, officials sources reported. "Even till July 23 there is no schedule for any ship in the port," one official said, stressing that if the situation continued, there would be a paralysing impact on export and import activities through this sea port. On July 19, MV Banglar Maya left the port after loading jute goods and since then no ship has anchored at the port. In this current situation of inactivity, several thousand port workers have been employed on no-work-nopay basis. Mongla Port Authority hopes that the crisis would be over very soon.

A 3 year deadline has been set by the United Nations (UN), for lodging maritime claims. This underlines the need to conduct seismic surveys of the territorial sea line, if Bangladesh is to submit a credible claim by 2011, under the UN Convention on the Law of the Sea 2001 (UNCLOS). Bangladesh needs to carry out two major surveys (a hydrographic survey and Geographical survey of the entire coastline of Bangladesh) to determine its claim, under UNCLOS. In total, the sea area is approximately 1.10 per cent more than that of the mainland..

IT

PDB wants BDT 424mn 424mn more to pay rental power plant bills

Second submarine cable by Dec likely

Financial Express, Tuesday July 22, 2008 The Bangladesh Power Development Board (BPDB) has sought an additional BDT 424.3mn (USD 6.2mn) subsidy from the finance ministry for payment of monthly bills against the purchase of electricity from seven rental power units. The BPDB needs financial support to offset the losses on account of selling electricity at lower rates than its purchase rates. On January 15, 2008, the PDB signed contracts with six rental power units to purchase electricity at comparatively high prices in order to cope with its electricity shortfall in the short term. http://www.thefinancialexpressbd.info/search_index.php?page=detail_news&news_id=40404

Petrobangla, PDB agreed to shut down five inefficient power plant units

New Age, Monday July 21, 2008 Petrobangla and the Power Development Board (PDB) has agreed in principle to close down five old units at Shahjibazar and Shikalbaha power plants and divert the gas to energy efficient units at other power plants. Petrobangla has estimated that electricity generation could be increased

http://www.thefinancialexpressbd.info/search_index.php?page=detail_news&news_id=40454

The Financial Express, July 20, 2008 The government might issue a license for laying the second submarine cable by December this year. The regulator, the Bangladesh Telecommunications Regulatory Commission (BTRC) has taken the necessary steps for laying an alternative submarine cable network in the private sector to create a competitive market and expand internet access to rural areas. The Internet is vulnerable to frequent disruption with dependence on a single undersea cable network. Bandwidth charges in Bangladesh remain higher than in neighboring countries. The BTRC has received 13 proposals for establishment of a submarine cable under private management. India's Tata Telecom, Reliance Communication, Mahanagar Telecommunication, Egypt's Orascom and Hong Kong's PCCW are among the contenders for installing the alternative submarine cable. http://www.thefinancialexpressbd.info/search_index.php?page=detail_news&news_id=40173

BTRC to issue licences for WiMAX soon

The Financial Express, July 24, 2008 The Bangladesh Telecommunication Regulatory Commission (BTRC) will soon issue licences for WiMAX, a wireless digital communication system, to enhance the

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27 July 2008 proliferation of the Internet. The target date is December this year, though BTRC expects to issue the licences much ahead of time. The BTRC has published draft guidelines for national licences for WiMAX on two different bands. The licence will allow high-speed mobile wireless internet access and it will facilitate service providers to use the system for fixed and mobile connectivity. The licencees will be authorised to develop and operate a telecommunications network to provide nationwide Broadband Wireless Access (BWA) services based on WiMAX standards. Amongst the short-term roll-out requirements, the regulator notes that within two years of issuing the licences, the networks must cover 50 per cent of the Upazilas and 20 per cent of all villages. The networks must also cover all universities, medical and engineering colleges and research institutes in both the private and public sector; all ministries, divisions, attached departments, boards, corporations, semigovernment and autonomous organizations. Meanwhile, Chinese company Huawei is planning to arrange a WiMAX exhibition in the city at the end of this month. The aim of the exhibition is to showcase Huawei's 3-G WiMAX end-to-end solutions. http://www.thefinancialexpressbd.info/search_index.php?page=detail_news&news_id=40672

http://www.thefinancialexpressbd.info/search_index.php?page=detail_news&news_id=40816

Real Real Estate Developer looks to highhigh-rise buildings buildings to reduce costs The Daily Star, Friday July 25, 2008

Leading developers are aiming to reduce apartment prices by constructing high-rise buildings with at least 100 apartments in each. Sheltech, a leading developer, believes this will reduce production costs by up to 10%. Sheltech plans to undertake three large projects under which the company will construct high-rise buildings in Rajarbag, Shantinagar, and Elephant Road areas in Dhaka to offer low cost flats. According to Sheltech’s plans, the maximum size of a single apartment in a high rise building will not be over 1,500 square feet and average sales price per square foot will be between BDT 3,500 (USD 51.1) and BDT 5,500 (USD 80.3) which, the company officials said, is 10 per cent lower than the market price. Industry sources said developers in general have started to build more small apartments ranging from 800 to 1,000 square feet and apartments outside Dhaka to deal with the reduced sales of apartments, caused by global price increases of construction materials. http://thedailystar.net/story.php?nid=47312 Realtors missing deadlines for apartment handover The Financial Express, Saturday July 26, 2008

IDCOL to disburse working capital among software, ITES firms

Financial Express, July 21, 2008 IDCOL has set aside a fund to be disbursed as working capital loans among software and ITES companies through Trust Bank Ltd, IDLC Finance Ltd and ULC Ltd. http://www.thefinancialexpressbd.info/search_index.php?page=detail_news&news_id=40355

Leather Leather Footwear exporters elated over EU withdrawal of GSP for Vietnam

The Financial Express, Saturday July 26, 2008 The country's footwear industry expects a boom in exports as the European Union (EU) has decided to scrap the Generalized System of Preferences (GSP) facility offered to Vietnam by the end of this year, officials and exporters said on Friday. Officials said a number of giant shoe makers of South Korea, Taiwan and Hong Kong have already approached the Bangladesh Export Processing Zones Authority (BEPZA) to explore possibility of relocating their factories here. There is significant potential to develop the country's footwear industry as Bangladesh has available low cost labor and raw material and Vietnam is the prime competitor. According to statistics of the EPB, the country's leather and footwear exporters fetched over BDT 27.9bn (USD 407mn), marking a 18.30% growth in the first 11 months of the current fiscal.

It has been reported that more than 50% of apartment buyers have faced delays in taking possession of their flats each year as realtors often fail to hand over apartments within agreed deadlines, according to the REHAB, the real estate industry body. The realtors while admitting the delay in handing over apartments, blamed the abnormal rise in building material prices for the delay. Following an increased number of cases of missing deadlines by the realtors, a number of leading developers have stopped selling flats for the time being. According to realtors, construction costs have almost doubled over that of last year. One official of Asset Development, a leading developer, said that the costs of construction went up from BDT 1,600 (USD 23.40) - 1800 (USD 26.30) per square feet to BDT 2,700 (USD 39.40) 3200 (USD 46.78) including land prices. http://www.thefinancialexpressbd.info/search_index.php?page=detail_news&news_id=40812

Telecoms Telecoms 1.66mn 1.66mn new mobile phone subscribers in June

The Daily Star, Thursday July 24, 2008 Six mobile phone operators in Bangladesh added a further 1.66mn mobile phones. The private landline operators, on the other hand, added only 13,000 new customers to their networks, Bangladesh Telecommunication and Regulatory Commission (BTRC) data showed. Around 44mn people, out of a population of about 150mn, are now using phone services including 1.28mn landline users. The telecommunication sector has witnessed remarkable growth following introduction of mobile telephony in 1993. However, the landline operators have grown significantly, with limited

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demand, since private landline services were introduced in 2005. http://www.thedailystar.net/story.php?nid=46982 BDT 5730mn (USD 83.7mn) TeleTalk expansion project gets go--ahead go

The Daily Star, Thursday July 21, 2008 State-run mobile operator TeleTalk finally gave the go-ahead for its much-talked-about BDT 5,730mn (USD 83.7mn) network expansion project as the company last week awarded two of its existing vendors the first phase of the scheme. The BDT 2,730mn (USD 39.9mn) first phase work went to European Nokia-Seimens Network and Chinese Huawei. The board in has also decided to adopt an open tender process for awarding the second phase of the project, which is aimed to reach 1.8mn new customers by 2009. http://www.thedailystar.net/story.php?nid=46666 57% 57% drop in GP's operating profit in six months

The Daily Star, Thursday July 24, 2008 The country's largest mobile phone operator Grameenphone's operating profit dropped by 57 percent in the first half of the year 2008 compared to the same period last year, mainly due to a significant amount of money it had been fined by the telecom regulator. Grameenphone added 2.5mn customers during the April -June period in 2008, but a 36 percent downfall of monthly average revenue per user (ARPU) also caused the company's operating profit to fall to NOK 329mn (USD 63.8mn/BDT 4.4bn) from NOK 758mn (USD 146.9mn/BDT 10.1bn) a year earlier. In the second quarter ended on June 30, 2008, Grameenphone's operating profits stood at NOK 40mn (USD 7.8mn/BDT 534mn), which was NOK 335mn (USD 64.9mn/BDT 4.4bn) by the end of June 2007. The half yearly performance in terms of revenue earnings also saw a negative trend. The company's revenue dropped by 2 percent in June 2008 to NOK 2247mn (USD 435.4mn/BDT 29.8bn) compared to NOK 2307mn (USD 447mn/BDT 30.6bn) in June last year. (NOK 1= BDT 13.20). With 20.31mn customers by the end of June 2008, the company is still the number one among the six mobile operators in the market. Grameenphone’s market share also came down to 47 percent by the end of June 2008 from around 50 percent a year earlier. In the three months to June 30, Grameenphone's EBITDA (earnings before interest, taxes, depreciation and amortisation) had decreased by 43 asd percent to NOK 304mn (USD 44.4mn/BDT 3.0bn) from NOK 540mn (USD 78.9mn/BDT 5.4bn) from a year earlier. http://www.thedailystar.net/story.php?nid=47144

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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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