At Capital Weekly 31 Aug 2008

AT CAPITAL RESEARCH

31 August 2008

Asian Tiger Capital Partners

Weekly News Update

AT Capital Weekly Update Key themes in this issue are: Bangladesh: • The decision by Grameenphone to issue BDT 4.25bn (around USD 60mn) of bonds has been welcomed as a potential catalyst to the development of Bangladesh’s nascent corporate bond market. • If there is a clear commitment and partnership among the Bangladesh Bank, SEC, multilateral agencies and the private sector financial market players, there is no reason Bangladesh cannot move towards a vibrant bond market. • The collapse in Pakistan’s equity markets has triggered a panic response from the SEC who put in an artificial floor. The prospects remain extremely bearish. • Sri Lanka and Pakistan’s near 30% inflation rates risk further macro-economic and market instability. Global Markets: Markets: • US Q2 GDP analysis – despite strong exports, weaker than 3.3% looks. • China likely to extend lead over India in growth stakes/resilience. • Convergence technologies and prospects for Telecoms. • Lessons from Katrina on potential impact of Hurricane Gustav on US.

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

In this week’s Special Focus on the Bond Market we discuss:: • Why Bangladesh Needs a Bond Market: The benefits for both issuers and investors • International lessons for the development of Bangladesh’s Bond Markets • The corporate debt market in India • The Malaysian PDS market – Global Competitiveness in Islamic Bonds Pakistan equities euphoria turns to fear prompting SEC panic

AT CAPITAL RESEARCH

31 August 2008

Contents

Overview – Bangladesh Grameenphone and the prospects for a Bangladesh Corporate Bond Market

Page 3 3

The long saga of the non-development of Bangladesh’s Bond Markets

3

Lessons from Pakistan equity markets on what Bangladesh should not do!

4

Overview – Global Markets

5

US Q2 GDP 3.3% gain reflects domestic recession and export boom but also misleadingly low inflation

5

India to lag China in resisting the US Slowdown?

5

Perspectives on Convergence Technologies and the prospects for Telecoms in the Data Market

7

Lessons from Katrina on the potential impact of Hurricane Gustav

8

Special Focus Why Bangladesh Needs a Bond Market

9 9

International lessons for the development of Bangladesh’s Bond Markets

13

Kunming Asia Corporate Bond Market Conference Highlights

13

The corporate debt market in India

14

The Malaysian PDS market – Global Competitiveness in Islamic Bonds

15

Growth and acceptance of Islamic bonds

15

Stock Market Weekly

17

Weekly Stock Market Commentary

18

Stock Market News

18

Economics Economic News

Sector News Appendix

20 21

22 29

_______________________________________________________________________________________ AT Capital Weekly Update

2

AT CAPITAL RESEARCH

31 August 2008

Ifty Islam, Managing Partner [email protected]

Overview – Bangladesh Grameenphone and the prospects for a Bangladesh Corporate Bond Market The decision by Grameenphone to issue BDT 4.25bn (around USD 60mn) of bonds has been welcomed as a potential catalyst to the development of Bangladesh’s nascent corporate bond market. In fact, the issue is a private placement with each bond having BDT 10mn (USD 0.14mn) face value, a 2 year maturity and paying a coupon of 14.5%. As can be seen from the table below, the Grameenphone bond issue is by far the largest private placement of bonds seen Issuer IDLC IDLC BRAC IPDC ULC

Size (USD Million) 2.8 5.1 15.0 5.2 5.8

Tenor (Years) 5 5 1 5 5

(Michael Kwiback, Bangladesh, Chapter 14) The full book is available online at:

It is even large compared to the size of recent syndicated loan deals which have been dominated by the Telecoms sector. Borrower TM International (Aktel) Warid Telecom Shung Shing Power Orascom Bangladesh (Banglalink) Pacific Bangladesh Telecom (Citycell) GrameenPhone

recently began privatizing selected state-owned companies and deregulating the financial market, progress has been slow, leaving financial market participants skeptical about whether the government can succeed in this endeavour. Bangladesh finds it difficult to move forward for several reasons: weak governance at the institutional and market levels; high nonperforming assets among the nationalized commercial banks (NCBs); poorly defined and overlapping responsibilities of the Bangladesh Bank, Securities and Exchange Commission, and Ministry of Finance; and the lack of incentives and private initiative to drive market developments. These four problems are the principal obstacles to the development of bond markets in Bangladesh. The government is aware of them, and the World Bank and other organizations have been pushing for solutions. However, change is slow.”

Amount in USD Milliion 44 44 41 35

Tenor (Years) 6 6 6 5

31 29

5.8 5

But beyond the fact that a large private placement increases issuers and investor’s familiarity with an alternative means to bank financing, the fact that Bangladesh has failed to develop any secondary market for corporate debt and an extremely limited government bond market underlines the challenge ahead. Islami Bank mudaraba perpetual bond (issue size BDT 3 billion) was the only public bond issue in the recent years and it is clearly a specialized issue. The long saga of the nonnon-development of of Bangladesh’s Bond Markets In researching the development (or rather lack of it!) in Bangladesh’s bond market, I came across the following excerpt from an IFC book published in 1999:”Developing Local Bond Markets: An Asian Perspective” edited by Alison Harwood.

“Numerous factors in Bangladesh today suggest that Bangladesh will not be able to develop an active, local-currency fixed--income market. Economic and financial transactions are highly regulated, and the economy does not provide a sufficient number of appropriately structured and skilled issuers and investors. Although the government

http://www.ifc.org/ifcext/publications.nsf/AttachmentsByTitle/Building _Local_Bonds_FullReport/$FILE/Building_Local_Bonds_FullReport. pdf

The private sector in Bangladesh, and the quality of potential corporate issuers, has developed considerably over the past 9 years but the bond market has failed to take off even in a limited way. In the appendix at the end of this Overview, we have replicated a full day seminar held in 2004 hosted jointly by the Bangladesh Bank and the SEC on developing Bangladesh’s bond markets. On the one hand I am impressed the by the breadth and depth of the discussion. If you click on the hyperlinks, a number of the presentations are available. In addition to the appendix, the details of the conference can be found online at: http://www.bangladesh bank.org/seminar/iwdbmbd/seminarbmbd.html

On the other hand, financial market participants ought to be frustrated that almost none of the discussion that occurred 4 years ago has yet manifested itself in terms of the growth in terms of size and liquidity of the bond market. The secondary government bond market has seen only limited development, forget a corporate, securitized or derivatives/swaps market. As is clear from our two special focus articles this week, we believe it is very much in the interests of the Bangladesh capital markets’ evolution to strengthen and deepen the bond markets. If there is a clear commitment and partnership between the Bangladesh Bank, SEC, multilateral agencies and the private sector financial market players, there is no reason Bangladesh cannot move towards a vibrant bond market. It is all about a collective focus and will which in turn will reflect the extent to which the benefits are recognized and it becomes a policy priority.

_______________________________________________________________________________________ AT Capital Weekly Update

3

31 August 2008 Lessons from Pakistan equity markets on what Bangladesh should not do! The following developments in our two neigbouring countries and competitors should give Bangladeshi policymakers some comfort in the face of the major power crisis and food inflation the country has faced. Fearing a complete meltdown of stock prices at Karachi Stock Exchange, Pakistan's Securities and Exchange Commission imposed a floor of 9144 for the market's benchmark KSE-100 index. The index closed at 9144 level on Wednesday, Aug 27, the day the KSE and SEC announced their decision to not allow the KSE-100 to trade below this arbitrary level. This extraordinary action, the first of its kind since the exchange opened its doors in 1948, came after investors pushed down the index to its lowest level in more than two years.

AT CAPITAL RESEARCH further deteriorated. Note the surge in inflation in the chart above with Pakistan and Sri Lanka competing for the most inflationary economy in South Asia (we discuss Sri Lanka below). Bangladesh Bank should take credit for the impressive relative performance of Bangladesh. The latest media reports indicate that the Pakistani stockmarket regulator will review the freeze imposed on the market within the next 12 days. It is almost certain the market will continue to slide as soon as the freeze is lifted, unless political stability and economic fundamentals show any signs of clear improvement.

Sri Lanka is keeping pace with Pakistan.

Karachi stock exchange saw very thin trading on Friday and the KSE-100 index finally closed at 9,208.26 points, with a meager gain of 4.48 points. The KSE-30 index increased by 15.87 to close at 10,198.05 level. The KSE-100 has lost 34.6% of its value this year, as investor confidence has been hurt by political uncertainty and a long list of economic troubles, including skyrocketing inflation, disappearing foreign exchange reserves, declining rupee and a soaring deficit.

While Sri Lanka's long running civil war has largely been limited to the north and east, leaving the populous, well-off west largely unscathed, its stresses are beginning to show in the island nation's economy. The Economist reports that Sri Lanka's annual inflation is close to 30%, the highest in South Asia. The rupee has appreciated against the dollar, further hurting exporters. By one estimate, economic growth—which was 7.6% in 2006— will be 4.3% this year. As elsewhere, inflation is being driven by high food and energy prices. But in Sri Lanka, 25-year average annual inflation is 12%. Monetary policy has been too loose, in part to finance the war. Including the cost of resettling refugees, the war eats up around 30% of the government's budget. Sri Lanka's exports and economy have been propped up by special EU preferences for Sri Lankan textiles. Under a concession known as "GSP Plus", awarded in 2005 to help Sri Lanka rebuild after the 2004 tsunami, Sri Lankan exporters enjoy preferential tariff treatment from the EU. As a result, the EU is Sri Lanka 's biggest export market, accounting for annual sales of around $1 billion; about half are covered by GSP Plus. But there is a problem with the rules of GSP Plus. Beneficiaries must comply with 27 international conventions, on environmental, labour and human rights standards. And on the last of these, Sri Lanka is struggling. The agreement expires at the end of 2008. The Economist believes that it will not be renewed.

Prior market stabilization measures introduced by Karachi Stock Exchange in June included tighter circuit breakers on the downside and a complete ban on short selling. However, when these measures were reversed in July, the market continued its downward slide because the fundamentals

_______________________________________________________________________________________ AT Capital Weekly Update

4

31 August 2008

AT CAPITAL RESEARCH side and on the industry side), although the weakness in import enters as a positive contribution to GDP – note that the positive contribution to GDP that came from the slump in imports was larger than the one of personal consumption (1.45% versus 1.24%). Moreover, exports win the medal from the strongest contributor to growth this quarter, with a contribution of 1.65%. Gross domestic income (GDI), or the money earned by the people, businesses and government agencies whose purchases go into calculating gross domestic product, rose 0.3 percent in the 12 months ended in June after adjusting for inflation.

As the Economist has noted, what has upset the EU are various reports indicating government complicity in the abduction or murder of hundreds of Tamil and Muslim men. It is at war with human-rights groups. It has refused to let the UN High Commissioner for Human Rights set up an office in Sri Lanka. The EU cancellation of Sri Lankan preferences would mean 4% cut in Sri Lanka's garment exports. Overall, it would cost 2% of GDP. If the EU renewed the agreement without progress on human rights, it might be challenged at the World Trade Organization—as happened to an EU trade sop to Pakistan in 2004.

The 1.9 percentage-point difference between the GDI and GDP over the last 12 months is the biggest in the post World War II era. Corporate profits were down 7 percent in the year to June, the biggest drop since the last economic contraction in 2001, according to the Commerce Department. Also part of the reason real GDP was higher was that the inflation adjustment was lower than expected. But based on the accompanying graph of the GDP inflation figure and headline CPI (which most people already believe is lower than reality), there seems to be something of a disconnect between the two (which would imply, of course, that U.S. economic growth is a lot lower than reported).

Overview – Global Markets US Q2 GDP 3.3% gain reflects domestic recession and export boom but also misleadingly low inflation Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 3.3 percent in the second quarter of 2008, (that is, from the first quarter to the second quarter), according to preliminary estimates released by the Bureau of Economic Analysis. In the first quarter, real GDP increased 0.9 percent. The increase in real GDP in the second quarter primarily reflected positive contributions from exports, personal consumption expenditures (PCE), federal government spending, nonresidential structures, and state and local government spending that were partly offset by negative contributions from private inventory investment, residential fixed investment, and equipment and software. Imports, which are a subtraction in the calculation of GDP, decreased. Net export contributed to 3.1% of the 3.3% growth. The real growth rate of export was revised upward from 9.2% to 13.2% (and the contribution to real GDP growth from 1.16% to 1.65%). The real growth rate of imports was revised downward from -6.6% to -7.6% (and their contribution was therefore revised up from 1.26% to 1.45%). These numbers expose the weakness of U.S. domestic demand which is clear from both the performances of personal consumption and imports (both on the consumer

India to lag China in resisting the US Slowdown? An interesting recent commentary from Columbia Professor Arvind Subramanian, who is also a fellow of the Peterson Institute. “Can China and India sustain their current growth rates? A traditional answer to this question is conditional: yes, provided they continue to implement policy reforms. But historical experience allows a less guarded answer. There are few examples of countries that have grown as strongly and for such long periods as India and China have—6 percent and 10 percent, respectively, for nearly three decades—and then suffered a sharp slowdown or collapse. If history is a reliable guide, then barring major upheavals, economic growth looks likely to continue in both countries until some threshold level of prosperity is attained.

_______________________________________________________________________________________ AT Capital Weekly Update

5

31 August 2008 But why does growth beget more growth? One mechanism is simply that growth signals the fact of profitable economic opportunities, which encourages investors to rush in, first in response to these opportunities but then in response to each other—this is growth as a confidence trick—creating a virtuous circle. If countries are relatively poor, if their markets are large, and if their policy framework is basically sensible—all of which are true of China and India—the chances of the growthbegetting-growth dynamic taking hold are high. China's task of improving its private sector seems easier to accomplish than India's task of arresting institutional decline. But in addition to the signaling effect, growth may itself cause changes that have in turn a growth-reinforcing effect—a kind of positive feedback loop. A good example is education. For long, development economists bemoaned the poor levels of educational attainment in India, directing their critique at the government's failure to supply better education. But economic growth changed the education picture dramatically. It increased the returns to, and hence the demand for, education. And if government supply remained weak, consumers simply turned to the private sector to meet their demand for education. Improvements in educational attainment over the last 15 years are attributable in part to more rapid growth. An important question then is whether India and China can take the positive feedback loop for granted, especially in relation to two key determinants of long-run growth: state capacity or effectiveness and the private sector's entrepreneurial capacity. In other words, is it inevitable that over time growth will itself improve the quality of private entrepreneurship and public institutions? Consider each in turn. Policy reforms have created the conditions for the private sectors in both countries to flourish. Yasheng Huang of MIT in his new book, Capitalism with Chinese Characteristics, argues that the Indian private sector, especially the indigenous part, is more efficient and entrepreneurial than its Chinese counterpart. One crude measure of relative sophistication or entrepreneurial capability is how much direct investment (FDI) these countries are exporting, especially to richer countries and especially in sophisticated sectors. Based on new data on mergers and acquisitions, Aaditya Mattoo of the World Bank and I calculated that India's FDI exports to the OECD countries overall and even in the manufacturing sector were substantially greater than China's (measured as a share of GDP). China is rightly considered the world's manufacturing powerhouse and export juggernaut, and yet in the manufacturing sector, Indian entrepreneurial and managerial capital (in the form of FDI) has been more successful than China's in taking control of and managing assets in the sophisticated markets of Europe and the United States. So, while both private sectors have improved, India can claim today that it is ahead of China in fostering entrepreneurial capitalism. Turn next to institutions. In the case of China, the focus of the world, and indeed the disappointment, has been the absence of the positive political feedback loop: Growth and the attendant economic freedoms have not led to greater political development and openness. Implicitly, there has been less concern about the effect of growth on the state's economic

AT CAPITAL RESEARCH capacity. Over the last thirty years, the Chinese state has successfully created physical infrastructure and delivered essential services. Contrast that with the Indian experience. While there are many exceptions, and at the considerable risk of over generalizing, the Indian state, despite rapid economic growth, has deteriorated over time. Whether it is providing basic law and order, ensuring sanctity of contract, or delivering public services, the stench of decline is hard to ignore. For example, on a crude measure of government effectiveness on which I compiled data across time, India's performance declined sharply: In the early 1960s, India was in the top 5th percentile of countries in the sample, slipping to the middle of the pack in recent years (see Subramanian 2004, "The Evolution of Institutions in India and its Relationship with Economic Growth". The education example discussed earlier is an exception to the growth-institutions dynamic, made possible only because of private alternatives to state supply. For the core public-sector functions, where such an alternative does not exist, the growth-institutions dynamic has been weak or nonexistent. So, growth in India has come with a more entrepreneurial private sector but accompanied by deteriorating state capacity. China has a vastly superior state capacity but an indigenous private sector that is still finding its feet. Which combination augurs better for the future? There is a fundamental asymmetry between state and markets. It is easier to create markets than it is to create state capacity or to prevent its deterioration. Creating markets is a lot about letting go, establishing a reasonable policy framework, and allowing the natural hustling instinct to take over. In other words, hustling is the natural state. Building state capacity, on the other hand, is quite different. It involves overcoming collective-action problems, mediating conflict, creating accountability mechanisms where outputs are multiple and fuzzy and links between inputs and outputs murky, and contending with the deep imprints of history. In Weber's memorable words, building public institutions is like the "slow boring of hard boards." In that light, China's task of improving its private sector seems easier to accomplish than India's task of arresting institutional decline. So, while China and India can probably both count on more years of high growth, the odds still favor China pulling off that feat than India. That, and not just the meager medal tally, should be what India mulls over as the curtain descends on the Beijing Olympics.” India versus China – Manufacturing versus versus Services Another interesting perspective on the India versus China debate has been covered by two Dallas Fed Economists, Michael Cox and Richard Alm. They argue that for decades, China and India plodded along under ideologies that favored the visible hand of government over the invisible hand of markets. Their economic systems stifled growth and left both countries poor. In 1980, real per capita income stood at $556 in China and $917 in India. To jump-start their economies, China and India shifted strategies, letting private enterprise flourish and opening markets to trade and investment. The new policies have led to rapid economic development. China’s real per capita

_______________________________________________________________________________________ AT Capital Weekly Update

6

AT CAPITAL RESEARCH

31 August 2008 income has grown an average of 8.4 percent a year since 1995, climbing to USD 4,766. India’s 5 percent average annual growth has raised per capita income to USD 2,534. Both China and India have unleashed pent-up economic energy, but they’re not traveling the same development path. China has followed the traditional route, becoming a center for low-wage manufacturing and exporting clothing, toys, electronics and other goods. India has emphasized services, using its large English-speaking labor force for call centers, data-processing operations and the like. Growth rates give China’s goods-dominated strategy the better track record so far. But India’s approach may pay off better longer term. A look at per capita incomes around the world shows that the wealth of nations eventually depends more on services than industry.

Computer Corp. (HTC) expects its sales in India to double in 2008, from 100,000 in 2007 to 200,000 in 2008. Although reliable figures are not available, Blackberry is finding traction in Pakistan and HTC is promoting its low-cost smartphones. Overall, there is room for substantial growth. In terms of wireless voice and data, markets with large populations and relatively low penetration rates, such as India, China, Philippines, Pakistan, Vietnam and Indonesia, will continue to grow at a rapid rate, according to an Aug 2008 report by Paul Budde Communication Pty Ltd. Each platform provider is vying for greater developer mindshare and faster wireless networks to add value to its device and gain market share to become the standard in mobile computing and communication. These developments are pulling together all of the necessary ingredients for explosive growth of mobile internet business in the coming decades. Though it's early, this ongoing mobile platform revolution could easily eclipse the PC and Internet revolutions of the 1980s and 1990s. The reason is simple: The cost and convenience of mobile devices makes them much more affordable and useful to a much larger population of the world today. In an earlier post titled Mobile Internet for Pakistan (see http://www.riazhaq.com/2008/02/mobile-internet-for pakistan.html) , he wrote :” With the personal computers and

the Internet penetration in Pakistan in single digit percentages and the mobile phone penetration approaching 50%, should Pakistanis still aspire primarily for the Western style PC/Internet access model? The answer to this question is clearly a resounding NO. Here is an opportunity for a strategic leapfrog to ubiquitous Internet connectivity via the most prevalent device owned by the largest number of people--the mobile phone. It makes sense from many perspectives: Device cost, connectivity options, electricity availability, usefulness for the vast majority of people, etc.”

The full article can be found at: http://dallasfed.org/research/eclett/2008/el0808.html

Perspectives on Convergence Technologies prospects for Telecoms in the Data Market

and

the

So what would the mobile internet do for people? Many consumers already use programs that come with their phones to send text messages, browse the web or take and email pictures. In addition to standard widgets like time, temperature, stock prices, and maps, Apple is offering an iTunes like online store called AppsStore that lets users download and install applications. iPhone owners can install programs that let them tune into Internet radio stations or get directions to the nearest gas station.

Given the upcoming Grameenphone IPO, there is a great deal of focus on the prospects for mobile phone companies earnings prospects. One potential growth area is in greater mobile penetration (Bangladesh has 50 mn subscribers versus 80mn in Pakistan despite the similar populations). But a key determinant will be in the ability of mobile providers to capture the data market in direct competition from Wimax technologies.

In future, phones will be able to do a lot more. San Jose Mercury quotes analysts as saying:

The report below from Riaz Haq provides an interesting perspective. He argues that mobile application developers and high-bandwidth wireless data network operators are being dramatically boosted by latest innovations, growing popularity and rising demand of smartphones such as iPhone, Blackberry, Palm Treo and other mobile platforms. Some 10 percent of phones shipped worldwide — and some 19 percent of phones sold at retail in the United States — are smart-phones. Taiwanese smartphone maker High Tech

2. Whenever your bank account dips below a certain balance, your phone will notify you — and allow you with one click to instantly move more money into the account.

1. By simply using your phone's camera to take a picture of a bar code, you will find out instantly whether the store across the street or one online is selling a coffee maker at a lower price than the store you are at.

3. If you have a medical device implant, you will be able to use your phone to instantly and automatically alert your doctor to any troubling conditions. 4. Your phone will be able to tell you when you need to leave

_______________________________________________________________________________________ AT Capital Weekly Update

7

31 August 2008 your house or office to make an appointment on time, given existing traffic conditions along your route. As PC-like standards emerge in the mobile space and allyou-can-eat data services become inexpensive, the natural progression toward cloning and commoditization will happen, thereby making highly useful and multi-functional mobile platforms more affordable and ubiquitous in emerging markets such as India and Pakistan. Lessons Lessons from Katrina on the potential impact of Hurricane Gustav Signs that Hurricane Gustav is losing strength is a welcome relief to both oil markets and Gulf Coast resident. But it could yet gather new momentum. A recent article in the Wall Street Journal by Kathleen Madigan provides a useful backdrop to the potential disruption from Hurricane Gustav from the impact Hurricane Katrina had on New Orleans 3 years ago. Tropical Storm Gustav’s path to the U.S. could be a replay of the track Katrina took in 2005. But the economic landscape the current storm will sweep over is very different from the one three years ago. Hurricane Katrina ravaged New Orleans and other Gulf cities, but its impact on the overall U.S. economy was fairly minimal. The same might not be true for Gustav. The economy today is more vulnerable than it was in 2005. It’s impossible to know how much havoc Gustav might wreak or where. But given the importance of the Gulf Coast to the energy industry and the region’s busy ports to the export industry — any longer-lasting damage will exacerbate the drags already hitting labor markets, growth, and exports. The main evidence of Katrina’s hit on the economy was in the labor markets. The Bureau of Labor Statistics estimated that about 160,000 jobs were lost due to the hurricane. Even so, the overall labor market hardly registered an impact from Katrina (or Rita which hit about a month later). After a slowdown in September and October, payrolls jumped by 361,000 new jobs in November. For the year, payrolls were up 2.5 million slots.

AT CAPITAL RESEARCH Today, housing is in a recession, consumer spending is sluggish (even with tax rebate checks), and business investment is falling. Credit is tight, and long market rates, for consumers and corporates alike, are relatively high. According to data from Moody’s economy.com, almost half of all states are in recession, including Georgia and Alabama. Louisiana is at risk of slipping into recession. Any sustained loss of economic activity in the Gulf States this time around won’t be offset by better output elsewhere. Worse still, port closings along the Gulf Coast could hurt the one bright spot: exports. Much of the current export boom can be traced to farm products and industrial supplies. In the first half, the value of agricultural exports was up 50%, thanks to rising commodity prices and increased global demand. Exports of soybeans, corn and wheat almost doubled. Industrial supply exports were up 31%. The Gulf ports handle about 500 million tons of cargo each year, including half of the grain exports in the U.S. If ships are unable to get through, export growth will suffer — even if temporarily. The one area that may ride out this storm better than it did last time is the energy sector. Thanks to high prices, demand for energy is down this year, so a supply shock may not be so disruptive to consumer spending this time. Even the spike in oil prices this week, to nearly $120 per barrel, doesn’t look as ominous since Americans were dealing with oil at $140 a barrel just two months ago. Plus, after Katrina, oil prices fell back quickly. Consumers may expect the same to happen this time around, resulting in less of a drag on spending and confidence. The Gulf Coast and its infrastructure may be better prepared to withstand the weather’s fury. But it could be harder to protect the U.S. economy from whatever Gustav might bring.

In 2008, however, the labor markets are much weaker, undermined by the bursting of the housing bubble and the constriction of credit across the economy. Today’s jobless rate of 5.7% compares poorly with the 5% prevalent at Katrina’s time. An average of 66,000 jobs per month have been lost so far in 2008. Any sustained Gustav-related payroll drops will darken an already bleak picture. The differing labor markets reflect diverging economic pictures. The 2005 economy was powered by a housing boom, robust consumer spending, and strong business investment in equipment. Credit was easy, and long-term rates were low. Katrina devastated the regional economies that were hit. In addition to the loss in wages, drops in earnings for small business proprietors and landlords totaled $80 billion in the third quarter of 2005. But because other regions of the U.S. were booming, real GDP grew by a 3.8% annual rate that quarter and 2.9% for the year.

_______________________________________________________________________________________ AT Capital Weekly Update

8

31 August 2008

AT CAPITAL RESEARCH Professor Jahangir Sultan, Senior Advisor [email protected]

Special Focus Why Bangladesh Needs a Bond Market Bonds are fixed income instruments, issued by governments and corporations, that promise to pay fixed amount periodically, known as the coupon, and pay back the face value at the end of the maturity. According to Merrill Lynch, at the end of 2007, the size of the global bond market was $67 trillion, compared to $51 trillion global equity market. The size (2005 data) of the bond market (as a percentage of GDP) varies across countries: China (11%) and USA (112%). In advanced capital markets, bond markets are integral part of asset allocation and asset-liability management programs. Bangladesh currently does not have a well-functioning bond market. The popularity of bond markets in advanced developed countries reflects growing appetite among borrowers to reduce over reliance on commercial banks for long-term funding. Suppose a manufacturer wants to borrow long-term to finance its future expansion. Having already issued shares earlier, it can issue more stocks which will dilute the ownership base and may be sold at unfavorable prices in the market, depending on market conditions. Alternatively, it can approach a bank, but borrowing long-term is difficult and costly because banks use short-term deposits to fund shortterm loans. The sound choice for a corporation is to issue long-term debts, IOUs (I owe you), which are promissory notes and interest expenses are tax deductible. By mixing debt and equity, corporations can achieve the desired capital structure to lower their cost of capital and maximize shareholder wealth. Of course the firm has to be prudent as to how much debt it incurs. As the level of debt increases beyond a certain level, the probability of financial distress is higher.

13 countries have seen much progress (see below). Philippine currently boasts a stable bond market of $60 billion (2007). Malaysia has a bond market equal to $122 billion (2007) out of which, the corporate bond market constitutes half, making it the third largest Asian corporate bond market. Vietnam’s local currency denominated bond market is currently valued at $11.9 billon, out of which, $1.6 billion comes from the corporate sector, and the rest is the government bond market.

Overall, according to the Asian Development Bank, the Asian bond market is expected to grow rapidly, with Vietnam leading the way (251%) in terms of growth rate (see below).

Investing in bonds can be risky. If the yield on alternative investments increases, then the investor with an existing bond portfolio loses out an opportunity to earn higher yield elsewhere. As a result, the value of her holding decreases, that is, the bond price falls. The second most important risk is the possibility that the issuer may default on its existing bonds. Of course, if the corporation is liquidated, the court may distribute some portion of the bond value to the existing bondholders. Much of it also depends whether or not the country has well developed bankruptcy laws. In terms of bond market development, our Asian neighbors have been quite active. At the end of 2006, the size of the Asian bond market was approaching $2.8 trillion. At a recent (2008) meeting of Asian finance ministers in the Philippines, the 10-members of Asian Bond Markets Initiative (ABMI) plus China, Japan, and South Korea, has agreed to undertake a series of actions to increase the growth of the bond market. Among the initiatives undertaken are: improving the bond trading infrastructure (clearance and settlement), improving liquidity, promoting credit culture among firms, and conducting financial analysis. The ultimate objective of these initiatives is to avoid the contagion of 1997. According to the Asian Development Bank, since 2003, bond markets in these

Closer to home, bond markets in India, Nepal and Sri Lanka seem to be on an upward trajectory. According to the World Bank, the size of the bond market as a percent of GDP in these countries is as follows: India (35%), Nepal (15%) and Sri Lanka (50%). Where does Bangladesh stack up? Bangladesh does not have a developed government or corporate bond market. According to the World Bank, the total size of the Bangladesh bond market is approximately $7.35 billion (12% of the GDP), and the liquidity is very low.

_______________________________________________________________________________________ AT Capital Weekly Update

9

31 August 2008 At present, government securities worth $2.9 billion are listed on Dhaka and Chittagong stock exchanges but their liquidity is dismal. In fact, they do not trade at all. This is an important drawback that retards the growth of the financial market and most importantly the development of structured products to help corporations raise capital. The lack of a developed bond market also reduces the extent to which foreign investors bring much needed additional capital into the market. So, the existence of a bond market is crucial to a developed stock market. Both are needed. On a macro level, Bangladesh really needs a bond market. The 1997 Asian financial crisis was largely due to a combination of some key factors: massive current account deficit that was financed by un-hedged short-term capital inflow, a heavy reliance on commercial banks for loans, and an inadequately supervised banking sector that lacked sound risk management (Masahiro Kawai, Asian Development Bank), excessive foreign borrowing, rapidly depreciating currencies, a lack of sound corporate governance practices, and macroeconomic problems. In particular, local firms were borrowing foreign funds heavily. Unfortunately, as the local currencies depreciated against major currencies, the cost of borrowing skyrocketed in local terms. As firms defaulted on their loans, the Asian economies suffered one of their worst economic crises. Many experts are of the opinion that the magnitude of this catastrophic event could have been lessened had there been a developed banking sector. What was needed at that point was a matured bond market that would have provided much needed capital to firms interested in borrowing long-term (instead of borrowing from foreign countries). Additionally, a matured bond market would have provided much needed external monitoring of managerial performance of the corporate community, the disciplining mechanism which was sorely absent at that time. Overall, the bond market, along with sound regulatory controls, would have lessened the impact of this crisis on Asian economies.

Do investors in Bangladesh need a bond market? The answer is yes. Without a local bond market, investors are unable to invest long term as well as hedge their investments in the stock market. Bonds offer known cash flows and are great instruments for long-term investments. We all know that a proper mix of equities, bonds, and cash, for example, is needed for asset allocation. When stocks and bonds are negatively correlated, as they often are, investors can

AT CAPITAL RESEARCH significantly reduce their risk by holding both stocks and bonds. In times of crisis, investors flee the stock market and move to the safety of the bond market. This flight to safety is essential for a country to lessen the impact of falling equity prices. When bonds become less attractive, investors can switch to stocks. History is replete with examples where a lack of bond market exacerbated the adverse effect of systemic shocks. Take the 1997 Asian currency crisis. Most of the Asian economies did not have a developed bond market at that time to allow investors to diversify portfolios using stocks and bonds. The result, the 1997 Asian currency crisis led to a double digit declines in many Asian countries. What are the essential building blocks for developing the bond market? A simple bond valuation exercise will highlight these basic ingredients. Suppose ABC corporation has issued a 20-yr AAA bond with 8% coupon, paid semiannually, with a face value of TK1,000. An investor purchasing this bond is guaranteed TK40 every 6 months for the next 20 years and a full payment of TK1,000 at the end of the 20-yr period. How much would an investor pay for this bond now? That depends upon what the returns on alternative investments in the market are. Suppose that the market interest rate is 12% per annum. The value of the bond is simply the discounted value of the coupons plus the discounted value of the face amount. The present value of the coupons is TK601.85 and the present value of the principal is TK97.22. Therefore, the price of the bond is TK699.07. If the bond is selling below this price, it is selling cheap. A price greater than 699.07 indicates the bond is expensive and not worth buying. This short example brings out some of the necessary ingredients for a thriving bond market in Bangladesh: Credit Rating Agency: Credit rating agencies reduce information asymmetry in the financial market. Investor sometimes cannot tell which bond is good and which bond is bad. Equally, firms are also unable to let investors know that their projects, which need funding, are good projects. Credit rating agencies, like Standard & Poor or Moody in the United States, can reduce such information asymmetry. Their job is to stay neutral, examine the borrower’s financial statements, and determine its creditworthiness. In other words, credit risk determines a firm’s ability to pay back its debt. Bonds of the best creditworthy firms get a score of AAA and the worst ones receive a credit score of D. Typically, if you are investing in a bond that is rated anything less than BBB, you would demand a higher yield from investing in the bond. This would come from two sources, a higher coupon and a lower price today. A credit rating agency’s stamp is a critical indicator of the safety of the bond. Government Bond Market: The corporate bond market thrives when there is already an established government bond market. To nurture the government bond market, the government can issue short and long-term bonds to fund its economic development. These short and long-term bonds are typically risk-free because they are issued by the sovereign government in which we have complete faith in its ability to repay its debt. To increase broader market participation, the monetary authority can require banks to hold required reserves in the form of short-term government

_______________________________________________________________________________________ AT Capital Weekly Update

10

31 August 2008 notes. Trading on these instruments fosters the growth of the secondary bond market. Secondary Secondary Market: Once bonds are issued and sold initially through IPOs (the primary market), they are then traded on the secondary market. A vibrant secondary market is important for increasing transparency and liquidity of the bond market. Benchmark Yield Curve: These government securities offer something critical to the overall bond market – the yield curve – or the benchmark yield curve. The yield curve is based on the yield on these short and long-term bonds and is used to value all other corporate bonds of similar maturities. To price a corporate bond, you look at its credit score, and then add an interest rate spread on top of the government bond yield of similar maturity to arrive at the proper discount rate. Using that discount rate, you can determine the present value of the corporate bond. The interest rate spread is contingent upon the credit rating of the bond. The riskier the bond, the greater is the spread. This is typically known as the default risk premium. Low quality firms usually issue high yield bonds to compensate investors for potential default on the bond. Repo Market: A repurchase market is where brokers/dealers borrow or lend short-term excess funds that are backed by collaterals such as government securities (bills, notes, and bonds) and shares. A repo is an agreement to sell a security, buy it back at a later date, and pay interest on the use of the funds for the duration. The availability of shortterm government securities is critical for allowing smooth trading of excess cash, increasing the liquidity and depth of the financial markets. Regulatory Aspects: There are four most critical regulatory aspects of a bond market. First, there should be laws to detect and penalize illegal insider trading in the bond market. Illegal insider trading occurs when officers of the issuing firm, for example, those with fiduciary responsibilities towards shareholders, conduct insider trading while in possession of material private information. Sometimes, bond markets are not closely monitored and as a result insiders conduct illegal insider trading in the bond market. Second, the government needs to consider making investor-friendly tax laws to encourage investor participation in the bond market. In particular, the government needs to design tax policies to attract domestic as well as non-resident investors. One way to achieve this would be eliminate withholding tax on interest and capital gains. The third regulatory aspect of a bond market development is to remove exchange controls so that foreign investors can freely repatriate their income anywhere in the world. The fourth piece of regulation needed for a thriving bond market is one that removes restrictions on foreign ownership of corporate and government bonds. Information Availability: The development of the bond market relies heavily on how investors are able to collect information on the bond issues and credit risk of the issuers. In the United States, all listed firms are required to file online their financial statements such as 10Q, 10K, etc. An investor can access these statements free of cost. Similarly, bond

AT CAPITAL RESEARCH prospectuses should be filed online and book building in IPOs can allow fairness in pricing and increased participation by investors. With increased information, the bid-ask spread also declines, lowering transaction costs. Infrastructure: The bond market infrastructure includes trading platforms, real-time data distribution, market makers, financial analysts for valuing bond, determining the riskiness of the bonds, timely clearing and settlements systems, and government supervision of trading activities. In summary, the Bangladesh economy is making great strides in financial and regulatory reforms to promote the financial sector. It has withstood the effects of the Sub-prime crisis and massive price increases in agricultural, metals, and energy. While some of the neighboring countries have experienced huge equity market falls (Vietnam, 60%, India, 29%), the Bangladesh stock market has demonstrated relative resilience. Resilience in the stock market reflects growing confidence in the corporate community and the outlook for economic and political stability. Having a bond market is the next logical step towards developing a well functioning capital market. A local bond market reduces foreign exchange risk, interest rates, and refunding risk. It reduces the over reliance on bank loans, increases the size of the financial sector, and improves efficiency by promoting competition among issuers. From an investor point of view, bonds and stocks are an integral part of asset allocation to diversify portfolio risk. Pension funds and life insurance firms, for example, can match their long-term liabilities with long-term assets such as bonds. Regarding supply of capital, institutional and retail investors can inject much needed capital into the economy by investing in bonds. The development of the government bond sector allows the government to supply liquidity and transparency in the economy. At the same time, these government securities can become vital instruments for the central bank to conduct prudent monetary policy, in much the same way the Federal Reserve conducts open market operations (OMO) in the United States. And finally, on a macroeconomic setting, the existence of a bond market allows a country to lessen the impact of external shocks like 1997 Asian currency crisis. The government of Bangladesh can quickly promote a vibrant bond market. First priority should be to establish a government bond market by issuing short and long-term government securities for funding development projects, like the $5.4 billion strategic transportation program. Next, to develop the corporate bond market, several important building blocks are needed. The government needs to develop the benchmark yield curve, streamline the issuance process for corporate bonds, increase the pool of issuers and investors, establish the secondary market to improve liquidity, and finally introduce risk management instruments such as derivatives instruments. All these may sound like a tall order but it is doable. Bangladesh does not need to reinvent the wheel. All it has to do is to examine what our Asian neighbors have achieved in a relatively short span of time. To put it bluntly, when it comes to having a bond market, our Asian neighbors have left us in the dust.

_______________________________________________________________________________________ AT Capital Weekly Update

11

31 August 2008

AT CAPITAL RESEARCH

References: Wikipedia.“The Anatomy of Local Bond Markets in Emerging Market Economies: Sharing Malaysia’s Experience,” Rahamat Bivi Yusuff, Malaysian Ministry of Finance, May 2007. “Developing an Asian Bond Market as a Means for Regional Financial Cooperation,” Olarn Chaipravat, Thai Ministry of Finance, October 2004. “Bond Market Development: The Case of Singapore,” Ng Nam Sin, Monetary Authority of Singapore, June 2005. “Asian Bond Market Development: Progress, Opportunities and Challenges,” Masahiro Kawai, Asian Development Bank, November 2006. “Building Corporate Bond Markets in Emerging Countries,” Alison Harwood, International Finance Corporation, March 2002. “Vietnam Tightens Bond with Global Economy,” HSBC, June 2008, http://www.hsbcnet.com/country/vn/globaleco_bond.html http://asianbondsonline.adb.org/administrative/abm_overview.php “Asian Finance Ministers Set New Bond Market Road Map,” GMA NewsTV, August 2008, http://www.gmanews.tv/story/115381/Asian-finance-ministers-setnew-bond-market-road-map “Bangladesh bond market smallest in S Asia,” Financial Express, March 1, 2008.

_______________________________________________________________________________________ AT Capital Weekly Update

12

31 August 2008

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

Special Focus International lessons for the development of Bangladesh’s Bond Markets In the aftermath of the 1997-8 Asian bond market crisis, there has been extensive research on the need to establish both a regional bond market as well as accelerate the development of national bond markets in Asia. Perhaps the three most extensive and broad-based discussions of the issues occurred at a BIS conference held in November 2005 in Kunming, China, another held in 2005 in Korea and another BIS conference held in March 2004. Kunming Asia Corporate Bond Market Conference Highlights

Why Should We Have a Corporate Bond Market? Marvin Goodfriend, Professor of Economics at Carnegie Mellon University, gave a valuable perspective on the evolution of internal external bank and external bond market financing in his presentation on “Why have a Corporate Bond Market?” he noted that, in the earliest stages of economic development, firms finance investment by building up savings from internally generated funds. Self-funding is supplemented by loans from close relatives, extended family members, friends in the community and the like. Such “inside” funding overcomes information and credibility problems, and provides an incentive for owners to use the funds energetically, as promised. The borrower is bonded by its close relationship to family and community. Indeed, close relationships monitor the borrower’s behaviour and can enforce discipline on the borrower if need be. As an economy develops, self-funding and inside funding become insufficient to finance firms that must manage complex production processes and serve broader markets. Firms must attract additional financing from external sources. Banks arise to provide information-intensive external funding, and, in effect, recreate the kind of information, bonding and monitoring that come with family relationship lending, only with more funding. The cost of external funding through banks involves credit evaluation, loan monitoring, and a component to allow for the risk of default and the cost of managing a default if it occurs. These costs of external finance create an external finance premium that a borrower must pay over and above the opportunity cost of self-funding or funding from close associates. As an economy continues to develop, some firms need increasingly large external funds. Firms that are widely known can bypass information-intensive bank lending and access lenders directly with corporate bond funding. In the 19th century, railroads were among the first large-scale enterprises in the United States to borrow directly with longterm corporate bonds. Railroads were able to utilise direct bond finance because they had a relatively transparent public image and a physical capital structure (railroad tracks and cars) that was relatively easy to monitor. Hence, railroads reduced their external finance premium by borrowing directly from the public. More generally, firms with

a good public image, which produce a product that is widely used and easily monitored, have an incentive to bypass bank loans in order to exploit their transparency to lower their external finance premium. Nevertheless, firms with direct access to the bond market continue to fund themselves in part with bank loans because banks provide a number of other financial services. These include: backstop financing with a line of credit; access to debtor-in-possession borrowing in the event of bankruptcy; customised borrowing (as opposed to standardised debt instruments used to access the credit market directly); and confidential borrowing, for instance when secrecy is needed for a borrower to appropriate the returns to investment financed with external funds. Too much reliance on bank loans or direct bond finance, however, exposes a firm to excessive risk of bankruptcy in the event of default. Hence, in developed economies firms have come to rely on a portfolio of external finance that usually includes substantial equity, as well as bond and bank loan finance. Equity finance gives a firm financial flexibility in the choice of the payment of dividends - flexibility that a firm can utilise to avoid default on bank loans or bonds. Outside equity, however, involves a cost of its own: too much of it blunts the incentive of managers to run a firm efficiently because external ownership allows managers to retain only a fraction of every dollar of value they create for the firm above revenue needed to pay off fixed obligations, which include debt and fixed salaries. Therefore, equity, bank loans and bonds generally coexist in the capital structure of modern corporate borrowers. A market for direct debt also improves the incentive for banks to remain efficient and to innovate. A market for short- and long-term corporate debt disciplines and ultimately strengthens the banking system by providing competition for information-intensive bank loans at the margin. Banks have an incentive to be efficient in order to retain clients with actual or potential access to direct finance. A market for direct debt encourages banks to innovate because products initially created and customised by banks often have the potential to be commoditised, standardised and moved from banks to capital markets, which provide them at lower overhead cost. Developing Developing corporate bond markets As Jacob Gyntelberg, Guonan Ma and Eli Remolona highlighted in their presentation, development of multiple and complementary institutions for performing financial intermediation takes time and effort and cannot be accomplished in the short run. Significant efforts have already been undertaken in Asian economies in this regard, as the other chapters in this volume have abundantly illustrated. The supply of and demand for credit and liquidity is at the heart of financial intermediation. In order to develop an alternative to intermediation driven primarily by banks, it is necessary to simultaneously make progress on a number of fronts:

_______________________________________________________________________________________ AT Capital Weekly Update

13

31 August 2008 •

•

•

•

• • •

Free flow of capital and market-based interest rates,legal frameworks, bankruptcy reform and investor protection,corporate governance standards to mitigate wasteful agency costs, and control premiums to reduce the cost of corporate borrowing Prudent regulatory frameworks that promote selfregulation, but establish enforcement of disclosurebased rules Provision of stable and reliable government benchmark yield curves even when governments are running a surplus (the Australian and the US experiences are illustrative of the benefits of this policy). Developing transparent and efficient primary and secondary markets (the recent initiative by the Securities and Exchange Commission (SEC) in the United States to create TRACE (Trade Reporting and Compliance Engine) is worth studying in this connection. Broadening the investor base through the creation of bond funds Open access to currency and credit markets Provision of market mechanisms for credit risk transfer, such as credit default swaps and collateralised debt obligations.

A thriving credit culture has a crucial role to play A sound credit culture is characterised by 1) appropriate understanding of the creditworthiness of borrowers, i.e. their willingness and ability to meet their obligations; and 2) the ability of investors to decide whether or not to lend, and the price of lending based on proper credit assessments. Moody’s understands that this view is shared by officials directing China’s economic reform. The more advanced a country is economically, the more advanced its credit culture is generally!

AT CAPITAL RESEARCH The following factors are often cited as impeding the development of corporate bond markets in Asia: – Low investor participation. With ample liquidity in the banking system, it is true that Asian banks and financial institutions have increased their appetite for bonds in recent years. Institutional investors other than banks, such as pension funds or provident funds, have also played a more active role as the amount of funds under management is growing alongside an aging population. However, retail investors’ participation is still low, while in some markets, restrictions on cross-border investment in individual markets have discouraged foreign investors. – Low liquidity. There is a lack of liquidity in the secondary markets for corporate bonds. Such a low degree of liquidity is often associated with the relatively small size of issues and infrequent issuance. In Asia, where there are a large number of small and medium enterprises, corporate issues are commonly constrained by the size of the balance sheet of the company. Furthermore, the buy-and-hold strategy of most bond investors further reduces the liquidity in the secondary market. – Low price transparency. There is a lack of price transparency in the trading of bonds in the secondary markets. This is because the majority of bonds, particularly corporate bonds, are traded over-the-counter (OTC). This opaqueness in pricing has contributed to wide bid-ask spreads, making transactions unnecessarily costly and inefficient to investors. The corporate debt market in India V K Sharma and Chandan Sinha, of the Reserve Bank of India, made a useful presentation highlighting the key aspects of the Indian experience in developing their bond markets. There has been no one process through which corporate bond markets have developed. However, based on experience from around the world, we can say that there are a number of preconditions for the growth of a local corporate bond market including: 1. The share of the private sector in the economy is large and its financing requirements are met directly by the market through the issue of both equity and debt instruments. 2. Interest rates are completely deregulated, and financial markets integrated. 3. The government securities market is well developed, so that it can provide the benchmark yield curve for bond pricing. 4. Clearing and settlement systems are up to date, in terms of both infrastructure and investor protection. A well functioning depository system is in place for ease of issuance and trading. 5. There is a regulatory framework that provides for adequate disclosure, accounting standards, proper corporate governance and the like. 6. Laws are enacted to provide for regulatory oversight and investor protection. 7. A credible system of experienced rating agencies exists in order to get opinions about debt issues into the public domain. 8. The government has a clear policy with respect to the development of the corporate bond market.

_______________________________________________________________________________________ AT Capital Weekly Update

14

31 August 2008 Insofar as the preconditions for the development of a corporate bond market are concerned, India is fairly well placed. There is a developed government securities market that provides a dependable yield curve. The major stock exchanges have trading platforms for debt securities. The existing depository system has been working well. Looking ahead, the authors note that for most developing countries, where dependence on bank loans is substantial, corporate bond markets are small, marginal and heterogeneous in comparison with corporate bond markets in developed countries. India has a bank-dominated financial system that was, until recently, supplemented by DFIs specialising in project finance. First, because of the conversion of DFIs into banks, an institutional gap for longterm finance now exists in India. Second, for the commercial banks themselves, the proportion of long-term deposits (longer than five years) to total deposits is showing a declining trend. Because of regulations relating to debt issuance and asset-liability management, banks may not be able to fill the gap in long-term finance. Third, Indian enterprises now have the ability to raise funds in foreign capital markets. Indeed, an underdeveloped domestic market can push the better-quality issuers abroad, thereby accentuating the problems of developing the corporate debt market. The ability to raise funds efficiently has implications for the overall growth of the economy. The development of the corporate debt market, therefore, remains critical for achieving and sustaining high growth rates of 8% or so. The Malaysian PDS market – Global Competitiveness Competitiveness in Islamic Bonds Muhammad bin Ibrahim and Adrian Wong of Bank Negara Malaysia in their presentation highlighted that at the end of 1986, the PDS market was virtually non-existent in Malaysia. This was in contrast to the equity and government debt markets, both of which had achieved a reasonable level of sophistication and maturity by that time. PDSs outstanding in 1987 amounted to only MYR 395 million (0.5% of GDP), versus the market capitalisation of the Kuala Lumpur Stock Exchange (KLSE) of MYR 73.8 billion (91% of GDP) and the outstanding amount of Malaysian Government Securities (MGS) of MYR 48.8 billion (60.2% of GDP). Importance of a functioning corporate debt market The period of strong economic growth in the early 1990s created high demand for funds from the corporate sector. Therefore, the development of the corporate bond market was aimed at meeting the financing needs of the expanding Malaysian economy, particularly those of privatised infrastructure projects. Specifically, the PDS market was intended to provide an alternative means of financing to bank borrowings, and complement the more mature and sophisticated market in MGS and equities. The PDS market would also serve as a new avenue for savings in a wide range of financial assets, in the context of a high domestic saving rate. It is a well-recognised fact that a diversified financing structure, comprising financial intermediaries from the equity, bond and banking markets, is needed for an economy to allocate resources in the most efficient manner. Such diversification also provides businesses the opportunity to

AT CAPITAL RESEARCH address capital needs more effectively, and allows corporates to match their asset-liability profiles. A welldeveloped corporate bond market also plays a vital role in risk diversification of the financial system, and adopting a market mechanism in the allocation and pricing of credit would also ensure greater efficiency in the allocation of funds to borrowers. The Islamic PDS (Corporate Bond Market) The Malaysian Islamic PDS (corporate bond market) market has shown remarkable progress since its introduction in 1990. Malaysia has successfully created a niche market in this area: it is estimated that 85% of the total global Islamic bonds that have been issued were issued in Malaysia, making Malaysia one of the world’s largest Islamic bond markets. Structure of Islamic products A prerequisite for Islamic bonds, or Sukuk, is compliance with the Shariah (Islamic laws), which prohibits the charging of interest (riba). A Sukuk instrument is structured so that it involves an exchange of Shariah-compliant assets for a financial consideration that allows the investors to earn profits and rentals from transactions in the future. There are various types of Islamic-based structures used for the creation of Islamic bonds, but the more prominent are sale and purchase of an asset based on deferred payment (bai’ bithaman ajil); leasing of specific assets (ijarah); and a profit- and loss-sharing scheme (musyarakah). There are also a number of innovative instruments recently pioneered by market players involving the gamut of Islamic financial principles, including istisna (project finance), murabahah (cost-plus sale), mudharabah (profit-sharing), and qard (interest-free loan). In the case of Malaysia, the majority of Islamic bonds are debt-based instruments, i.e. murabahah and bai’ bithaman ajil. With the new Guidelines on Offering Islamic Securities issued in 2004 by the SC, issuers are no longer constrained by the legal concept of debentures (debt-based), as required for conventional products. It is envisaged that these guidelines will promote the development of new Islamic products, and, in particular, encourage the issuance of products that are based on profit- and loss-sharing, such as mudharabah and musyarakah. In an effort to promote issuance of Islamic debt securities via the principles of mudharabah, musyarakah and ijarah, expenses incurred by issuers are allowed as deduction for computation of income tax for a period of five years. Growth and acceptance of Islamic bonds The increasing popularity of Islamic bonds is attributable to several factors. First, Islamic PDSs provide an avenue for Islamic-based investors who need to invest in Shariahcompliant instruments. Second, Islamic products have also appealed to conventional investors who are constantly looking for liquid, attractively priced instruments to obtain capital gains and income. The strong demand by investors also provides the opportunity to issuers to finance borrowing at a lower cost. Third, the Malaysian government has been actively involved in creating an efficient price discovery

_______________________________________________________________________________________ AT Capital Weekly Update

15

31 August 2008

AT CAPITAL RESEARCH

process for Islamic securities through its issuance of Malaysian Islamic Treasury Bills (MITBs) and Government Investment Issues (GIIs), which has led to the establishment of an Islamic benchmark yield curve. Over the years, Islamic capital market products have garnered universal acceptance as viable alternatives to conventional products. There has been clear evidence of the acceptability of the products to non-Muslims, both issuers and investors. As an indication of the success of Malaysia’s Islamic capital market, 49.4% of funds raised in the PDS market in 2004 were through Islamic products. The success of “mainstreaming” Islamic bonds could be replicated internationally, considering the estimated size of the global Islamic financial system and the latent demand for Shariahcompliant financial instruments. References Developing Corporate Bond Markets In Asia, BIS Paper No. 26 http://www.bis.org/publ/bppdf/bispap26.pdf Asian Bond Markets, Issues and Prospects, BIS Paper No 30 http://www.bis.org/publ/bppdf/bispap30.pdf?noframes=1

_______________________________________________________________________________________ AT Capital Weekly Update

16

AT CAPITAL RESEARCH

31 August 2008

Stock Market Weekly DSE performance: 52 weeks weeks

Market news • GP to raise BDT 4.25bn (USD 62mn) through bonds

• Wise up to stock market: SEC

• Fresh SEC move to amend direct listing regulations

• SEC fines One Bank for 'breach' of market discipline

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 20.12 Last Week 19.78 % Change 1.72% *Weighted on Market Cap.

DSE General Index

DSE 20

2,706.6 2,765.5 2.2% 58.8

2,395.1 2,425.9 1.3% 30.8

This Week

Last Week

4 14.07 156 39 61

4 13.83 121 30 53

15

13

Issues Advanced Declined Unchanged Not Traded

% Change 1.7% 28.8% 28.8% 16.2% 16.2%

This Week 178 54 13 42

Last Week 102 131 10 44

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

July-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

_______________________________________________________________________________________ AT Capital Weekly Update

17

31 August 2008 Weekly Stock Market Commentary The bullish trend that started in the earlier week continued this week. The marked gained on all 4 trading days this week closing up 2.2% on the week.

AT CAPITAL RESEARCH tenure bond will be BDT 10mn (USD 0.14mn) each and the coupon rate will be no more than 14.50 percent. "We have approved GP's proposal to raise the funds from the bond market," said another high official of the capital market regulator.

Almost all the sectors gained except the banking sector. Insurance companies and the mutual funds were the major gainers. The state owned companies (SOEs) in the fuel and power sector (e. g. Power Grid, Desco, Jamuna, Padma, Titas) were not doing well in recent weeks but gained significantly this week. They are expected to declare their annual earnings and dividends in the next few weeks GrameenPhone announced that it plans to issue BDT 4.25 bn of bonds this week. While they will be placed privately and will not be listed, we welcome a good quality bond issue. See our Special Focus piece on Developing a Bond Market.

The cellphone operator had earlier announced a USD 300mn (BDT 20.58bn) equity raising – USD 150mn from the stock market and the rest through private placement or pre-IPO. The initial public offering proposal is still pending with the SEC. GP sought approval from SEC for bond issue before submitting the IPO proposal.

The average trading volume in the week was BDT 2,667mn, 12% higher than the average volume of trade in August but slightly lower than the average this year. Trading volumes started increasing significantly since 2007, now representing 8 times that in 2006.

The Securities and Exchange Commission yesterday urged merchant bankers and brokerage houses to organise regular awareness programmes for investors to help them make rational investment decisions. At least 0.1mn new investors have entered the capital market in the last two years and most of them have no clear knowledge about the market and investment tools and techniques, said Faruq Ahmad Siddiqi, chairman of the SEC. In most cases, the capital market regulator said, investors sometimes make decisions based on rumours instead of analysing company fundamentals. “Such investor awareness programmes will help the investors to make knowledge-based investment decisions in lieu of rumour-based investment decisions,” Siddiqi said.

Daily Average Turnover (USD mn)

http://thedailystar.net/story.php?nid=52234

Wise up to stock market: SEC The Daily Star, Friday, August 29, 2008

http://thedailystar.net/story.php?nid=52355

Fresh SEC move to amend direct listing regulations The Financial Express, Thursday, August 28, 2008

The growth of capital market activities in recent times has been beneficial not only to issuers and investors, but also those who earn their keep on commissions, margin lending and advice - the brokers and merchant bankers. Times have been tough in the past with many players feeding on a small pie - there are 200+ brokers in a market with 263 listed companies! The top five market participants have seen their share prices increase dramatically. If one bought stock in those five companies on January 1, 2007 and still hold them today, returns would have been exceptional - 356% (AB Bank), 1153% (Lanka Bangla Finance), 391% (IDLC Finance), 1128% (Investment Corporation of Bangladesh) and 553% (Prime Finance) to date.

Stock Market News GP to raise BDT 4.25bn (USD 62mn) through bonds The Daily Star, Thursday, August 28, 2008

Grameenphone announced it plans to raise BDT 4.25bn through issuing bonds. The country's largest mobile operator, majority-controlled by Norway's Telenor, has received the green light from the Securities and Exchange Commission to raise the funds through a private placement, an SEC official said. According to the official, the value of the two-year

The Securities and Exchange Commission (‘SEC’) has recently formed a committee, comprised of various stakeholders representatives, to amend the direct listing regulations introduced about three years back, following recent issues with the Titas direct listing and significant volatility of the Jamuna Oil listing. Mr Bhuiyan, the head of the committee, said, "the committee, in its first meeting recently, has already identified the merits and demerits of the regulations in the light of experiences gathered the trading of five state-owned issues under the regulations". http://www.thefinancialexpressbd.info/search_index.php?page=detail_news&news_id=43915

SEC fines One Bank for 'breach' of market discipline The Daily Star, Tuesday, August 26, 2008

The Securities and Exchange Commission (SEC) has fined the directors of One Bank BDT 0.1mn (USD 1,460) each for their failure to submit audited financial statements for year ended 31 December 2007, by 11 May 2008, the annual reporting deadline. The SEC imposed the fine on 20 August and asked the directors to deposit the penalty within 15 days. Should the company fail to pay the fine in time, the SEC will file a 'certificate case' against the bank said SEC Executive Director Farhad Ahmed. http://www.thedailystar.net/story.php?nid=51877

_______________________________________________________________________________________ AT Capital Weekly Update

18

AT CAPITAL RESEARCH

31 August 2008 DGEN Performance LTM

DGEN Performance YTD

Best performers*

Turnover leaders (All figures in mn) BDT

USD

Titas Gas Beximco Pharma BEXIMCO Islami Bank AB Bank Lankabangla Finance Com Uttara Bank Keya Cosmetics ACI Limited. Square Pharma

13.9 8.4 6.5 6.4 6.2 5.7 4.6 4.5 3.8 3.8

949 576 442 435 424 390 313 305 261 259

% Change 39.9 30.9 30.5 27.2 24.5 23.6 23.4 23.1 22.9 21.6

ICB Peoples Insurance 1st BSRS Popular Life Lexco Agrani insurance National Polymer Prime Islami Life Reliance Insurance Eastern Cables

Worst performers* % Change Pubali Bank -30.1 Maq Enterprises -12.5 Kohinoor Chemicals -10.0 Bd.Thai Aluminium -8.8 Renwick Jajneswar -6.7 Wonderland Toys -6.1 Jamuna Bank -5.0 Rahim Textile -4.6 NBL -3.9 Shahjalal Islami Bank -3.8

Source: Dhaka Stock Exchange

*By closing price 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]

_______________________________________________________________________________________ AT Capital Weekly Update

19

AT CAPITAL RESEARCH

31 August 2008

Economics Export performance across different different sectors (USD mn)

Market news

% increase over 20062006-07 exports

•

Remittances of USD 9bn this year

•

NBR expansion on the cards

•

Strong dollar to cut imports, but inflation unlikely to ease

•

Consumer Rights Protection Ordinance approved

•

BEPZA signs USD 100mn investment deals in July

Exports (2007(2007-08)

Export target (2007(2007-08)

% increase over target

All products RMG knit

14,110.8 5,532.5

14,500 5,465

-2.7% 1.2%

15.9% 21.5%

RMG woven Frozen food Jute goods

5,167.3 534.1 318.3

5,400 600 350

-4.3% -11.0% -9.0%

10.9% 3.6% -0.8%

291.4 284.4

310 295

-6.0% -3.6%

13.4% 6.9%

185.1

95

94.9%

120.6%

169.6 165.1

165 175

2.8% -5.7%

24.8% 12.2%

91.3

130

-29.8%

-27.0%

66.6 64.3 60.5 43.0 40.7

40 60 40 32 26

66.4% 7.1% 51.2% 34.4% 56.3%

84.5% 18.9% 69.7% 52.8% 77.2%

38.3

35

9.5%

28.0%

23.1

30

-

-

27-Jul-08

91-day T-bill

7.78%

22.4

20

11.9%

24.1%

27-Jul-08

182-day T-bill

8.01%

Product

Home textiles Leather Petroleum by-products Footwear Raw jute Chemical fertilizers Textiles fabrics Bicycles Vegetables Pharmaceuticals Agri processed Ceramics Computer services* Tobacco

Latest treasury yields

Auction date

Tenor & security type

Weighted average average yield

Camera parts 18.8 25 -25.0% -12.3% Tea 14.9 8 86.1% 114.6% *Export figure for the 11-month (July 2007-May 2008) period

27-Jul-08

364-day T-bill

8.51%

19-Aug-08

5-year T-bond

10.60%

Source: Export Promotion Bureau

5-Aug-08

10-year T-bond

11.72%

12-Aug-08

15-year T-bond

12.14%

22-Jul-08

20-year T-bond

13.07%

Top exported items (USD mn)

Source: Bangladesh Bank

Export price and volume indices

Index by price Index by volume

Total exports (+) 1.82% (+) 14.05%

Primary products (+) 12.22% (+) 6.44%

Manufactured products (+) 1.09% (+) 14.58%

Source: Export Promotion Bureau

S Adeeb Shams Research Associate

[email protected]

_______________________________________________________________________________________ AT Capital Weekly Update

20

AT CAPITAL RESEARCH

31 August 2008 Economic News Budget deficit to reach 5.2pc of GDP in FY 09 Economist Intelligence Unit says The Daily Star, Friday, August 29, 2008

The Economist Intelligence Unit (EIU) has forecasted Bangladesh's budget deficit for the 2008-09 fiscal at 5.2% of GDP, which is marginally higher than the official target of 5%. Real GDP is expected to grow at 6% in the current fiscal, driven by strong household spending and investment. According to the EIU, consumer price inflation is expected to remain high over the forecast period, averaging 8.2% in 2008 and 8.8% in 2009 and the trade deficit is expected to increase to record levels this fiscal, as demand for industrial raw materials rises and international oil prices remain high. http://www.thedailystar.net/story.php?nid=52364

More amendments to forex law soon: BB governor The Financial Express, Sunday, August 31, 2008

Bangladesh Bank (BB) Governor Salehuddin Ahmed said on Saturday that a proposal to amend the foreign exchange regulation act, the Foreign Exchange Regulation Act 1947, is awaiting final approval from the government. The interim government earlier sought a final draft report from the central bank on the amendments to the existing Foreign Exchange Regulation Act to make it time-relevant and ensure its effective implementation in line with international standards, officials said. Some neighbouring countries, including India, Pakistan and Sri Lanka, have already amended their foreign exchange rules and regulations in line with the international practices. http://www.thefinancialexpressbd.info/search_index.php?page=detail_news&news_id=44175

Credit flow to private sector goes up by 25pc in FY '08 The Financial Express, Thursday August 28, 2008

Credit growth to the private sector recorded a significant 25% increase to BDT 379.6bn (USD 5.5bn) in the 2007-08 fiscal, from BDT 198bn (USD 2.9bn) in the prior period. According to a senior central bank official, the rise was caused by increases in private sector economic activity, financing for natural disasters and global price increases of imported goods. The central bank expects the existing trend to continue for at least for the next five months in line with the ongoing monetary policy of the Bangladesh Bank, although the upward trend in private sector credit may come down slightly in the coming quarters, because of falling prices of petroleum products and those of some essentials in the global markets. Additionally, some banks may also improve their overall liquidity positions by the end of the calendar year. http://www.thefinancialexpressbd.info/search_index.php?page=detail_news&news_id=43917

Garment exports to hit USD 25bn in 2013 The Financial Express, Wednesday August 27, 2008

According to the President of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), AnwarUl-Alam Chowdhury Parvez, the country's garment exports will hit USD 25bn by 2013, as buyers remain impressed with the country's quality products and competitive prices, despite its rickety infrastructure and a growing shortage of skilled manpower. Despite a relatively poor performance during the first quarter, export earnings from the garments sector recovered to reach USD 10.7bn in the 2007-08 fiscal – a16% increase from the prior period. Parvez also mentioned that the growth rate of the industry in the last three years was 64%.Authorities have set an ambitious target of achieving exports receipts of USD 18bn by 2010, and USD 25bn by 2013.Such an expansion will create jobs for approximately 1.4mn people directly within the ready-made garments industry and will open up further opportunities across other sectors. The sector currently accounts for 10% of GDP and employs 2.4mn people, which is about 40% of the country's total industrial workforce. http://www.thefinancialexpressbd.info/search_index.php?page=detail_news&news_id=43545

Inflation back in double digits The Daily Star, Tuesday August 26, 2008

Point-to-point inflation soared to 10.04% in June, driven by high oil prices in global markets and increases in food prices. Natural disasters exacerbated the global phenomena. This represented a 2.6 percentage point increase from 7.44% in May. Inflation had remained in double digits from July last year, having reached close to 12% in December 2007, before falling to 7.66% in April, despite soaring commodity prices in kitchen markets. The all-year inflation rate was 9.94% in the last fiscal year, exceeding government estimates of 9%. In the 2006-07 fiscal, the average inflation rate was 7.2%. http://www.thedailystar.net/story.php?nid=51875

Aziz defends foreign aid The Daily Star, Tuesday August 26, 2008

The Finance Adviser Dr. Mirza Azizul Islam has defended the need for foreign aid, saying it helps the government carry out development activities. He said that in broader terms, the inflow of aid has considerably declined and it will not be possible for the country to meet the need on its own. Foreign aid also helps the government halt the depreciation of the taka against the dollar, which is of great significance as Bangladesh is an import-dependent country. He made these remarks at the Accra Conference on Aid Effectiveness: Perspectives Bangladesh, organised by private research organisation Centre for Policy Dialogue (CPD). http://www.thedailystar.net/story.php?nid=51878

_______________________________________________________________________________________ AT Capital Weekly Update

21

AT CAPITAL RESEARCH

31 August 2008

Sector News Agriculture & Food Food price hike pushed 4mn into poverty The Daily Star, Thursday August 28, 2008

It has been estimated that food price increases coupled with the effects of natural disasters have pushed more than 4mn people into poverty. A 60 percent increase in the price of rice alone in the last 12 months, has eroded nearly one-fifth of the income of a poor households. Forecasts suggest the food price increases have caused the poverty rate to increase by 3% - however combined with the effect of GDP growth, the baseline poverty rate has fallen to 38% from 40% in 2005. The report suggested that increasing productivity through improved agricultural yields and crop management are critical to alleviating the pressure, as the population grows by 2mn annually with cultivable land falling by 1% per year. http://www.thedailystar.net/story.php?nid=52061 http://www.thedailystar.net/story.php?nid=51875

Prices of nonnon-brand edible oil rise despite international downtrend The Daily Star, Saturday August 23, 2008

Prices of non-brand edible oil, which had been falling in line with a downward trend in the international market over the last month and a half, suddenly went up in kitchen markets in Dhaka over the last three days. In wholesale markets, the price of non-brand palm oil and soybean rose by BDT 100 (USD 1.46) and BDT 50 (USD 0.73) a maund (1 maund = 37.32kg) over the last three days. Bangladesh Rifles (BDR) started selling rice for the reduced price of BDT 28 (USD 0.41) a kilogram (kg) from its 100 fair-price outlets in the capital, under the Ramadan initiative announced by the Government last week. http://www.thedailystar.net/story.php?nid=51511

Fertiliser shortage threatens Aman target in 16 districts The Daily Star, Saturday August 23, 2008

The government is failing to supply adequate amount of fertilisers to 16 northern districts for Aman cultivation. Price hike in fertilisers is also limiting farmers’ abilities to cultivate their land. Inadequate use of fertilisers may hamper Aman production which may also affect subsequent crops like Boro rice. The Department of Agriculture Extension planned to cultivate Aman on 1.7mn hectare of land in 16 northern districts to achieve 4.3mn MT of rice production this season. http://www.thedailystar.net/story.php?nid=51514

Aviation Aviana opens direct flight on DhakaDhaka-Syedpur route The Daily Star, Wednesday August 27, 2008

Aviana Airways has introduced a direct flight from Dhaka to Syedpur aiming to establish more efficient air communications between the northern parts of the country with the capital. The flight, with a Dash-8-102 aircraft made by Bombardier of Canada, operates on Sundays, Tuesdays

and Thursdays. One-way tickets on the route have been fixed at BDT 5,595 (USD 82). The company has also announced a one-month inauguration discount of BDT 1,000 (USD 15) till September 25. Syedpur Airport is now open to flights will be reopened for the new flights after a period of sixteen months closure after the caretaker government had halted operations of Biman on this route in order to cut down on its losses. http://www.thedailystar.net/story.php?nid=52040

Best Air adds new new aircraft New Age, Monday August 25, 2008

Private airlines Best Air has announced it has added a new MD83 aircraft to consolidate its international network. Speaking to reporters while receiving the airplane at Zia International Airport, Chairman and CEO of the Best Air, M Haideruzzaman said the addition of new aircraft has now increased the fleet strength to two with plans to further expand its fleet this year. http://www.newagebd.com/2008/aug/25/busi.html

Banking 80pc banks don’t evaluate board performance The Daily Star, Thursday, August 28, 2008

Some 80 percent of the banks and 88.9 percent of the nonbank financial institutions (NBFI) have no performance evaluation of their boards, a study revealed. The study found only 15 percent of the banks and 11 percent of the NBFIs have had a performance evaluation system and five percent of the banks refused to respond to the issue. “Performance evaluation is critical to increase the efficiency of a board. Such evaluation gives proper direction to management to counter possible risk and to improve the performance of any organisation,” said the study, conducted by Bangladesh Enterprise Institute (BEI) and placed before a seminar on August 27. The two-day-long SAARCFINANCE seminar titled “Corporate governance in banks and financial institutions” was organised jointly by Bangladesh Bank (BB) and BEI. SAARCFINANCE is a network of Saarc central bank governors and finance secretaries who share experiences on macroeconomic issues. BB Governor Dr Salehuddin Ahmed chaired the inaugural session of the seminar. He said good corporate governance in banks and NBFIs helps financial stability and accelerates economic growth. He commented that very few banks and NBFIs have written code for corporate governance, which is necessary for Basel II implementation.“Unless you (banks and NBFIs) have a guideline, it is difficult to practice corporate governance,” he said. http://thedailystar.net/story.php?nid=52240

_______________________________________________________________________________________ AT Capital Weekly Update

22

31 August 2008 Govt, private sector to float venture capital co soon The Financial Express, Saturday, August 30, 2008

The government plans to form a 'venture capital company' in coming months with private partnership to provide collateral free loans to companies with strong growth prospects. Finance ministry officials said such a company will have an initial capital of BDT 5.0 billion and will be majority controlled by the government. "About 51 per cent of the capital of the company will be invested by the government. Private entrepreneurs will invest the rest," said a senior finance ministry offical. The finance ministry has sought opinions on the outline and modus operandi of the 'venture capital company' from the central bank and the Securities Exchange Commission. "We hope after the completition of the necessary consultations, the first venture capital company can go into operation within months," he added. The Finance ministry examined rules and operational methods of successful venture capital funds across the globe, but mainly adopted the Indian experience while preparing the outline. India has emerged as one of the top magnets for big global venture capital funds after allowing them to operate since 1988. The move to form a venture capital fund came after a central bank study found that many companies with strong growth potential have limited access to credit from the conventional banking system. The study said limited banking finance is a major constraint to the growth of the country's small and medium enterprises (SMEs), which account for almost 80 per cent of total employment in manufacturing sector. http://www.thefinancialexpressbd.info/search_index.php?page=detail_news&news_id=44068

Bangladesh Bank profit up 50pc The Daily Star, Tuesday, August 26, 2008

Increases in gold prices and income from foreign and domestic sources have helped Bangladesh Bank (BB) to post a 50 percent increase in net profit in the fiscal year. The central bank's earnings reached BDT 51.8bn (USD 756mn) in the 2007-08 fiscal year (FY), a 49.57 percent rise from BDT 34.6bn (USD 505.3mn) in FY 2006-07.Of the amount, BDT 27.4bn (USD 400mn) is payable to the national exchequer for FY 2007-08, according to central bank officials. BB had contributed BDT 21.9bn (USD 319.8mn) to the government in FY 2006-07 and BDT 10.85bn (USD 158.5mn) in 2005-06. Income from gold and silver increased by 832 percent in FY 2007-08. Gold and silver accounted for BDT 2.23bn (USD 32.5mn) in FY 2007-08 from only BDT 240mn (USD 3.5mn) in FY 2006-07. “Revaluation gain increased due to the fluctuation of conversion rates of the taka against major currencies and increased gold value in the international market,” a senior BB official said. Gold prices have been rising constantly since July 2001 due to the changing balance between supply and

AT CAPITAL RESEARCH demand. The price of per ounce gold reached USD1,000 in February-March of 2008 from below USD 300 in 2001. Income from foreign currency revaluation witnessed 100 percent and 38 percent growth respectively. Total profit from currency revaluation stood at about BDT 18bn (USD 262.8mn). The foreign exchange reserve position crossed USD 6bn mark for the first time in Bangladesh's history in February 2008. http://www.thedailystar.net/story.php?nid=51874

Mobile banking rattles banks, Bangladesh Bank promises to listen to growing concern The Daily Star, Wednesday, August 27, 2008

Banks, the traditional leader in payment systems, see mobile banking as a new threat if private telecom operators are allowed to use their outlets for money transfers. The central bank governor has taken the bankers' concerns into account and asked them to submit recommendations in writing in two weeks, a senior bank official said. Bangladesh Bank Governor Dr Salehuddin Ahmed held a meeting with the bankers yesterday over the issue, which came to a head after the central bank moved to introduce policies on mobile banking. “We have given our opinions at the meeting and told the central bank that banks have no objection to using modern technology as a tool of expanding delivery channels,” Mahmud Sattar, president of the Association of Banks Bangladesh (ABB), told The Daily Star. But the transactions must be done through the banks, and mobile phones should be used as a mere banking tool, he said. “A mobile phone outlet cannot be used as a bank branch." “We won't let anything, which hurts the banking industry, happen. Banks have been asked to submit their proposals in two weeks on the proposed policies,” said a senior central bank official. The decision to consider banks' recommendations came at the meeting between the bankers and the BB governor. The meeting discussed two proposed policies -- a guideline for mobile phone banking and a set of rules for mobile-phone payment systems. If the policies are approved, the banks say, mobile operators' outlets will be used as payment centres. Banks fear the phone companies will take away a large swathe of their business through thousands of outlets across the country. http://www.thedailystar.net/story.php?nid=52017

Bangladesh Bank offers $60m OD facility to two SCBs The Financial Express, Thursday, August 28, 2008

The central bank provided US$60 million overdraft (OD) facilities to two state-owned commercial banks (SCBs) in the last couple of days to help them settle fuel oil and fertiliser import bills. "We've provided the SCBs such facilities against government approved securities to settle import payment bills for petroleum products and fertiliser," a senior official of the Bangladesh Bank (BB) told the FE on August 27.

_______________________________________________________________________________________ AT Capital Weekly Update

23

AT CAPITAL RESEARCH

31 August 2008 In addition, to the two USD 30mn facilities, an OD facility for USD 7.0mn was provided to another SCB for paying fuel import bills. The senior official said the central bank will continue to give such foreign currency support to the commercial banks particularly to the SCBs for making import payments against petroleum products and essential items including food grains and fertiliser. The BB has continued its intervention in the inter-bank foreign exchange market by directly selling and buying of the US dollar and providing short term facilities to the banks aiming to keep the foreign exchange market stable, they added. http://www.thefinancialexpressbd.info/search_index.php?page=detail_news&news_id=43937

Dhaka making steady progress on antianti-money laundering issues The Financial Express, Thursday, August 28, 2008

David Shannon, team leader of the Assessment Team of Asia-Pacific Group (APG) on Money Laundering said Bangladesh is progressing steadily with anti money laundering activities. The APG team, an autonomous and collaborative international organisation founded in 1997 in Bangkok, is currently in Bangladesh to compiling a comprehensive report. The APG conducts mutual evaluation of its members to determine to what extent they comply with their obligations to implement the global anti-money laundering and anti-terrorist financing standards. David Shannon said the Anti-corruption Commission rules and promulgation of anti money laundering ordinance-2008 have contributed much in improving the country's money laundering situation. He said, "the aim of the assessment is to create a level playing field among the countries, especially in the cases related to investment, cash money and good governance." http://www.thefinancialexpressbd.info/search_index.php?page=detail_news&news_id=43931

Lack of corporate governance code in banks, NBFIs irks BB Governor The Financial Express, Thursday, August 28, 2008

Bangladesh Bank Governor Salehuddin Ahmed Wednesday expressed concern that the commercial banks and non-bank financial institutions (NBFIs) still have no written code for corporate governance, as the Basel II governance standard deadline approaches. "Unless you (banks and NBFIs) have a guideline, it's difficult to practise corporate governance," the BB Governor told a seminar on corporate governance at Hotel Purbani.

narrow the spread. At least 12 commercial banks raised the interest rates on deposits in August to encourage people to keep their money with the banks. The banks have raised the interest rates on deposit by 0.25 to 1.0 percentage points to collect fresh funds from general depositors, officials said. Also, at least 10 out of 48 banks have reduced interest rates on lending this month in line with the commitment made by the Bangladesh Association of Banks (BAB) to the central bank. "Some banks, especially private commercial banks (PCBs), have slashed their interest rates on industrial term loans and working capital for productive sectors on the basis of BAB commitments," a senior official of the Bangladesh Bank (BB) told the FE. The Bangladesh Association of Banks had proposed to the central bank that they would reduce interest rates on industrial term loans to 14.75 per cent from the existing 16.00 per cent while the interest rates for the productive sector will be brought down to 14.50 per cent from existing 15.50 per cent. He added, the central bank expects more banks to cut their lending rates on productive sectors from the next month. The weighted average spread between lending and deposit rates in the country's banking sector came down to 5.75 per cent in March from 6.05 per cent in December, according to the central bank statistics. http://www.thefinancialexpressbd.info/search_index.php?page=detail_news&news_id=43845

Limited bank bank funding impedes SMEs' growth, says BB study The Financial Express, Monday, August 25, 2008

Limited bank financing is a major constraint to the growth of the country's SME sector, although it accounts for almost 80 per cent of the total employment in the industrial sector and 23 per cent of the country's total labour force, according to a central bank study. 'Limited access to bank financing is one of the critical constraints facing the SMEs in Bangladesh,' said the central bank study, titled 'A Note on the Contribution of Small and Medium Enterprises to GDP.' The study also said large enterprises have a greater capacity to raise capital from the capital market, but the small and medium enterprises (SMEs) still depend heavily on banks for term loans as well as working capital. 'As a result, the SMEs are somewhat crowded out from the banking sources,' said the study prepared by the Bangladesh Bank (BB) policy analysis unit in June last. http://www.thefinancialexpressbd.info/search_index.php?page=detail_news&news_id=43649

http://www.thefinancialexpressbd.info/search_index.php?page=detail_news&news_id=43882

Healthcare

12 banks raise interest rates on deposits, 10 cut rates on lending

Private hospitals risk losing import duty exemption - 9 hospitals under NBR scrutiny

The Financial Express, Wednesday, August 27, 2008

Interest rates were raised on deposits and reduced on lending by commercial banks in the current month aiming to

The New Age, Sunday 24 August, 2008 The National Board of Revenue is considering the withdrawal of import duty immunity enjoyed by private hospitals since

_______________________________________________________________________________________ AT Capital Weekly Update

24

AT CAPITAL RESEARCH

31 August 2008 2005 for importing about 3,000 medical instruments. The NBR will investigate allegations of irregularities such as false declaration in duty-free imports of medical equipment and failure to ensure quality health services at affordable costs. Nine large referral hospitals that have been identified primarily for scrutiny -BIRDEM, National Heart Foundation, Apollo Hospitals, Square Hospital, Sikdar Medical Hospital and United Hospital in Dhaka, and Khawaja Younus Ali Hospital, Ibrahim-Iqbal Memorial Hospital and Jalalabad Ragib-Rabeya Hospital outside the capital. This initiative follows allegations that private hospitals charge exorbitant fees for medical services and many hospitals sell equipment, imported duty-free, to other clinics for profit. The NBR’s committee will examine whether the private hospitals maintained all the conditions under the import duty exemption, including whether patients were benefited in terms of quality service at reasonable costs and whether any official irregularities took place in awarding the hospitals the duty-free facility. The committee will also recommend if the duty exemption scheme should continue. http://www.newagebd.com/2008/aug/24/front.html#2

Board’s Rural Power Company Limited at about BDT 4.3 US Cents a unit. The Power Cell director general, Abdul Jalil, who heads the tender evaluation committee stated the committee would evaluate the financial offer of the consortium and send the report to the government in a week. http://www.newagebd.com/2008/aug/29/front.html#15

Guidelines on power sector publicpublic-private partnership drafted The New Age, Thursday August 28, 2008

The Power Division has released draft guidelines on publicprivate partnerships in the power sector. Provisions include: •

•

•

Only 17pc dentists, clinics sterilize equipment

The Daily Star, Monday 25 August, 2008 Dentists at a round table organized by Oral Health and Research Foundation (OHRF) expressed concerns over the fact that only 17% of dental clinics or dentists sterilize their equipment regularly in line with international standards. They commented that such negligence is exposing dental patients to the risks of diseases like Hepatitis B, C and HIV/AIDS http://www.thedailystar.net/story.php?nid=51752 Infrastructure & Energy Energy ministry plans to place again draft coal policy before cabinet The Daily Star, Saturday August 30, 2008

The Ministry of Energy plans to place again the draft coal policy before the Cabinet Division by the end of September, clarifying all the queries that were raised.. Most of the advisers put up questions about the rehabilitation and land reclamation provisions laid down in the draft policy, which proposed not to give back the acquired land to its original owners after completion of coal mining andqueried the royalty fixing provision. http://www.thedailystar.net/story.php?nid=52487

Lone Bibiyana bidder offers high power price The New Age, Friday August 29, 2008

The consortium bidding for the 450MW Bibiyana independent power plant installation has offered to sell electricity to the Power Development Board at a price of 4.5394 US Cents a kilowatt-hour. The price offer of the consortium is almost double the price for which the Power Development Board (‘PDB’) buys power from the 450MW Meghnaghat and 360MW Haripur independent power plants installed in 2001. The PDBbuys electricity from the 90MW single-cycle Westmont IPP at a price of about 4.31 US Cents and from the 210MW power plant of the Rural Electrification

•

Private investors setting up power plants based on fuels other than gas, will be given priority in developing coal mines. Any fuel supply or source of energy has to be arranged by developers of such power plants without government involvement. Private investors can set up private power plants on their own if they obtain appropriate licenses from the Bangladesh Energy Regulatory Commission (‘BERC’) and sell power to their own buyers. Public power agencies can also purchase electricity from these plants. All distribution utilities should provide nondiscriminatory open access to their transmission or distribution systems for the private power plant or its buyers by paying wheeling and any other charges fixed by the BERC.

The draft also stated that some old and inefficient public sector power plants could be handed over to private investors for rehabilitation on an own and transfer basis. Investors would be selected through open tenders and successful bidders will be required to pay the value of the existing assets of the power plants or through adjustments to proposed tariffs subject to the government approval. http://www.newagebd.com/2008/aug/27/front.html#5

New private ICD goes into operation next week Financial Express, August 25, 2008

A private Inland Container Depot (‘ICD’), Incontrade, will start its operations next week. This will be country's largest ICD after they introduce barge operations within nine months. This is the first private ICD in the country to have provision for riverine transport. Built on 23-acres of land on the estuary of the river Karnaphuli, Incontrade also houses the country's single largest Container Freight Stations. The new depot will help ease congestion at Chittagong port, which handles more than 90 percent of the country’s US$35 billion foreign trade, by speeding up shipment of inbound and outbound cargoes. At present, there are 15 private ICDs in operation in and around Chittagong port. Among these, Essack Brothers Container Depot is the largest with capacity to handle over 150,000 containers. http://www.thefinancialexpressbd.info/search_index.php?page=detail_news&news_id=43643

_______________________________________________________________________________________ AT Capital Weekly Update

25

31 August 2008 Elevated expressway for capital by 2011

AT CAPITAL RESEARCH

A draft of the second PRSP (Poverty Reduction Strategy Paper for 2009-2011) will be submitted to the National Economic Council, chaired by the chief adviser. The first PRSP had been introduced for the period of 2005-2007, the tenure of which was extended up to the last fiscal. The PRSP

The government plans to develop several SEZs across the country to attract investment. The SEZ, the first of its kind in the country, will be modeled after similar zones have been successfully set up in China, Vietnam, South Korea, Dubai and Jordan. The proposed ordinance was drafted after consultation with SEZ authorities in other countries and representatives of local and foreign chambers and export oriented trade bodies.

has been prepared with advice from International Monetary Fund (IMF) and the World Bank.

Unlike the existing publicly owned and managed Export Processing Zones (EPZs), SEZs will be larger in scale and

In the second PRSP the government plans to construct an elevated expressway in the capital and a Dhaka-Chittagong expressway by 2011 in a bid to ease traffic congestion and to speed up communication with the port city. The government also plans to upgrade Dhaka-Chittagong, Dhaka-Khulna, Dhaka-Sylhet, and Dhaka-Tangail highways to four lanes, and to construct the Padma Bridge by 2011. It also includes a plan to construct a ring road around the capital and a flyover across Pragati Sarani in Gulshan area.

be linked to the domestic market. They will be established as public-private partnerships with the Special Economic Zone Authority overseeing development and plot allotments. Experts believe the spillover effects -- job creation, investments, transfer of management skills and technology -of SEZS will be much greater than traditional industrial parks such as EPZs.

The Daily Star, August 28, 2008

The second draft PRSP also discloses plans for instituting new policies and regulatory frameworks for enabling private investments in economic zones and for improving land zoning for industrial purposes.

Bangladesh set up its first EPZ in 1983 and since then its eight EPZs have attracted over $1.5 billion in investments, accommodating more than 283 industrial plants and creating 220,00 jobs. The EPZ factories exported US$2.43 billion last year, around 20 per cent of the country's annual export.

http://www.thedailystar.net/story.php?nid=52189

http://www.thefinancialexpressbd.info/search_index.php?page=detail_news&news_id=43642

Work on 2020-year transport plan starts to ease city traffic jam

BPC in fresh row with KPC over demurrage

Financial Express, August 28, 2008

The New Age, Thursday August 28, 2008

The government has drawn a 20-year transport plan to alleviate traffic congestion problems in the capital, reports the UNB. The Strategic Transport Plan (STP) will be implemented on a stretch of 17,500 square kilometres in Dhaka city, Narayanganj, Munshiganj, Narsingdi, Gazipur and Manikganj districtsThe 20-year STP will be implemented in three phases by the Dhaka Transport Coordination Board (DTCB). Construction of three Bus Rapid Transit (BRT) lanes, construction, reconstruction of 330 km of roads and construction of a 60 km underground train line have been proposed in the plan.

The state-owned Bangladesh Petroleum Corporation (BPC) has been locked a fresh row with the Kuwait Petroleum Corporation (KPC), as the latter has claimed a demurrage charge of USD 2.5mn against fuel supplies. KPC claimed the money for the delay in settlement of payments against a letter of credit opened by BPC for importing fuel which caused the overstay of the vessels that arrived in Chittagong port for discharging the cargo. Earlier BPC paid USD 1.5mn as demurrage charge to KPC against 28 fuel-laden vessels between August 2005 and June 2007. The cash-strapped BPC has previously secured a loan of USD 250mn from the Islamic Development Bank to meet its increasing fuel import costs. KPC is the major supplier of fuel to BPC supplying 3.8mn tonnes of petroleum products annually.

http://www.thefinancialexpressbd.info/search_index.php?page=detail_news&news_id=43939

Govt to set up SEZ Authority by yearyear-end to boost investment Financial Express, August 25, 2008

http://www.newagebd.com/2008/aug/28/front.html#15

Deals with IOCs likely by October

The Financial Express, Thursday August 28, 2008 The government plans to establish a Special Economic Zone Authority by year-end to speed up local and foreign investment in the Special Economic Zone (‘SEZ’) industrial parks. The chief advisor's office is reviewing the final draft of the proposed 'Special Economic Zone Ordinance-2008' under which the authority would be created. The proposed ordinance has already been approved in principle by the council of advisers. The ordinance is being expedited after the advisory council last month approved the creation of a SEZ in Sylhet. An official close to the CA Office said: "The ordinance will come into force soon to help establish the SEZ authority at least within the tenure of the caretaker government.

The Energy Ministry plans to sign contracts by October this year with the newly selected bidders in the 3rd round international bidding for hydrocarbon exploration in the country's offshore territory. Two International Oil Companies (IOCs) - Conoco Philip and Tullow were selected as bidders for nine offshore blocks in the Bay of Bengal under the latest bidding round that took place in May 2008. A total of 15 bids were received from seven IOCs - Conoco were selected for eight blocks, while Tullow was chosen for one block. http://www.thefinancialexpressbd.info/search_index.php?page=detail_news&news_id=43932

_______________________________________________________________________________________ AT Capital Weekly Update

26

AT CAPITAL RESEARCH

31 August 2008 Shahjibazar Power Plant goes into operation next month likely

BGFCL wants its gas sales tariff doubled

The Daily Star, Monday August 25, 2008

The Financial Express, Wednesday August 27, 2008 After successful completion of the 50MW Kumargaon Power Plant, Energy Prima is going to start the operation of the Shahjibazar 50MW Rental Power Plant in the first week of September. http://www.thefinancialexpressbd.info/search_index.php?page=detail_news&news_id=43793

New gas distribution company opens on August 26 The Financial Express, Tuesday August 26, 2008

A new state-owned gas distribution company - Sundarban Gas Company Ltd (SGCL) started operations on August 27 to supply natural to the south-western region of the country. For the Chittagong region, Karnafuli Gas Company Ltd (KGCL) will be established soon. Chief Advisor special assistant, professor Tamim said a number of new gas distribution companies would also be established soon to ensure smooth supply across the country. http://www.thefinancialexpressbd.info/search_index.php?page=detail_news&news_id=43747

Bibiyana IPP bidder withdraws condition of moneymoney-back guarantee

With the burden of exploring and producing gas, the country's biggest natural gas provider, the public sector Bangladesh Gas Field Company Ltd (BGFCL) is seeking to improve its financial position given the significant investment it plans to make in the next four years increasing gas production by 270mn cubic feet per day. Currently it is loss making and has had to turn to the Asian Development Bank for a USD 100mn loan to undertake projects to increase gas production and maintain the Titas gas field. The company now produces 700mmcfd gas from the Titas, Bakhrabad, Rashidpur, Narsinghdi and Kailastila gas fields. It argues, the current public sector intra company tariff system allocates profits inappropriately favouring public sector companies in the value chain who have less onerous investment obligations. BGFCL has requested that the government increase its gas sales tariff to BDT 14 (USD 0.20) per thousand cubic feet (mcf) from the current rate of BDT 7 (USD 0.10) which was fixed in 1991. BGFC currently sells gas to the Gas Transmission Company Ltd (GTCL), another public sector company, for BDT 7, after which it is sold to public sector gas distribution companies for BDT 11 (USD 0.16). Ultimately, the average selling price to consumers is BDT 93 (USD 1.36) per mcf.

The New Age, Tuesday August 26, 2008

http://www.thedailystar.net/story.php?nid=51791

The Power Division has approved the technical offer of the lone bidder for the installation of 450MW Bibiyana independent power plant after the consortium, comprised of Powertek Berhad of Malaysia, Siemens Project Ventures of Germany and the Korea Electric Power Company, withdrew its condition that the government would have to provide a USD 15mn guarantee for cancellation of the agreement. Following approval of the technical offer, Power Cell will now evaluate the financial aspects of the bid.

Leather

http://www.newagebd.com/2008/aug/26/front.html#9 Energy ministry seeks USD 300mn Bangladesh Bank credit to pay oil import bills

The Financial Express, Tuesday August 26, 2008 The Energy Ministry has sought USD 300mn credit line from the central bank through the three state-owned commercial banks to finance the import of petroleum products by the Bangladesh Petroleum Corporation (BPC). In 2007, the central bank provided USD 300mn credit support for the first time to three state-owned commercial banks (SCBs) - Sonali, Janata and Agrani for a six-month period. Currently, the central bank is offering overdraft (OD) facilities to the SCBs for import payments of essential items, including petroleum products, food grains and fertiliser. The stateowned BPC has been facing significant losses due to fuel subsidies it provides. The state-owned enterprise that was once a profitable entity suffered losses of around BDT 65bn (USD 949.3mn) in fiscal 2007-08. http://www.thefinancialexpressbd.info/search_index.php?page=detail_news&news_id=43738

Youngone's factory in KEPZ misses deadline for takeoff The Daily Star, Monday, August 25, 2008

South Korean company Youngone Corporation, , has missed its schedule to put its shoe-making plant into operation because of uncertainty over gas connections to the Korean Export Processing Zone (KEPZ), near south-eastern part of Chittagong. The shoe-making factory, arguably the world's largest with 72 assembly lines, will employ 34,000 people and produce more than 100,000 pairs of shoes a day i.e. 30 million pairs a year, for export. They are requesting a minimum of 10 million cubic feet of gas although more than 80 million cubic feet is needed for the plant. Youngone has been operating in Bangladesh from 1978 with annual export earnings of about USD 300 million Between 1999 and 2003, Youngone invested about BDT 1,000 (USD 14.6) million to procure 2,500 acres of land for the EPZ. Licensed to operate in May 2007, the KEPZ plans to install 500 industrial units requiring an estimated USD 1 billion of investment and will create about 100,000 direct employments. http://www.thedailystar.net/story.php?nid=51746

Renewable Energy Role of renewable renewable energy stressed for solving rural power crisis The New Nation, August 30, 2008

Speakers at a view exchange meeting said that the renewable energy can play a vital role for solving power crisis in the rural areas of the country. About 22 million of

_______________________________________________________________________________________ AT Capital Weekly Update

27

31 August 2008 cattle generate 220 million kilograms of dung per day in our country. This quantity of dung can produce huge amount of biogas in the country that can also be used to generate electricity. The climate of Bangladesh is suitable for most of the renewable energy technologies like biogas, solar, microhydro. The Grameen Sakti (GS), Infrastructure Development Company Limited (IDCL) and Renewable Energy Journalists' Forum of Bangladesh (REJFB) jointly organised the view exchange meeting. http://nation.ittefaq.com/issues/2008/08/30/news0188.htm

Telecoms Bangladesh Bank Drafting Mobile Banking Guidelines www.bdnews24.com, Tuesday August 26, 2008

AT CAPITAL RESEARCH RMG workers demand revised pay scale The New Age, Tuesday, August 26, 2008

The Bangladesh Garment Sramik Karmachari Federation called on the interim government to take steps to restructure the wage structure of garment workers introducing a minimum wage of BDT 5,000 (USD 73). Leaders of the garments labour rights body said that the current exorbitant prices of essential goods have made it impossible for the workers to run their families on their present salaries. The federation demanded the introduction of a 50% dearness allowance, the introduction of a low-price food rationing system, housing and travel allowance, and payment of all wage arrears before the forthcoming Ramadan. The labour leaders held the factory owners responsible for the recent labour unrest in some garment units as they did not pay them regularly or clear wage arrears. http://www.newagebd.com/2008/aug/26/busi.html

Bangladesh Bank has drafted a set of regulations to speed up money transfer by expatriates through mobile banking. The central bank has asked banks to submit their written opinions on the draft regulations proposing money transfer via SMS with mobile phone outlets working as payment centres. Expatriate workers sent back a record $8 billion in ‘07-‘08 fiscal year, registering 30% increase from the previous fiscal year, a direct result of more money being transferred through proper banking channels. However, a large amount of money still comes through illegal routes, as banking channels are costlier and more time-consuming. The mobile banking system will operate on the basis of branches or exchange houses of the banks in other countries informing a local bank or exchange house when money is sent by an expatriate Bangladeshi worker. The local bank or exchange house will then inform the recipient of the remittance through an SMS and they can collect the money from a mobile phone outlet which will operate as payment centres. Textiles Textile millers millers reiterate demand for adequate gas supply The Daily Star, Tuesday, August 26, 2008

The textile mill owners reiterated their plea for the adequate supply of gas to their plants on priority basis to maintain production. Bangladesh Textile Mills Association (BTMA) President Abdul Hai Sarker, along with the owners of major textile factories, made the plea at a press conference in Dhaka on Monday. The BTMA chief said that inadequate gas supply to the textile mills would adversely affect the country's export volume, as the country's export of readymade garment depends on the backward linkage of the textiles industry. At present, the local textile millers are capable of supplying 90% and 40% of the raw materials used in the knitwear and woven sub-sectors, respectively. The rest of the demand is met through imports, mainly from China. Textile factories in Kanchpur, Araihazar, Bhulta, Narsingdi, Baburhat and Demra areas have been severely affected due to the interrupted gas supply. http://thedailystar.net/story.php?nid=51879

_______________________________________________________________________________________ AT Capital Weekly Update

28

AT CAPITAL RESEARCH

31 August 2008

Appendix International Workshop on the Development of Bond Market in Bangladesh December 11-2, 2004 BRAC Centre— Centre—Rajendrapur, Dhaka Hosted by Bangladesh Bank (BB) and the Securities Securities and Exchange Commission (SEC) DAY 1

WEDNESDAY, DECEMBER 1, 2004

8:30 a.m.

Workshop Registration and Distribution of Information Folder

Lobby Area 9:30 a.m. Main Hall

Welcome Remarks: Governor, Bangladesh Bank & Chairman, SEC Address by Chief Guest: Honourable Minister for Finance and Planning Special Guests: Ms. Christine Wallich, World Bank Country Director Mr. Nissanke Weerasinghe, IMF Mission Chief for Bangladesh [Participants include: Senior officials officials of the World Bank, IMF, Bank Negara, Malaysia, Reserve Bank of India, State Bank of Pakistan and Central Bank of Sri Lanka and a number of resource persons from other regions]

10:45 a.m.

Tea Break

SESSION I

DEVELOPMENT OF GOVERNMENT BOND MARKET MARKET (Two parallel sessions)

11:15 am – 1 pm

Session A: Developing Yield Curve—Best Practices in Issuance and Management

Division, Chair: Mr. Zakir Ahmed Khan, Secretary, Finance Divisio n, Ministry of Finance -Debt strategy, maturity choice, issuance cycle, buyback and distribution -Monetary and interest rate policy Lead Speaker: Dr. A. G. Karunasena, Assistant. Governor, Central Bank of Sri Lanka Mr. Zafar M. Shaikh, Head of Treasury and Debt Management Department State Bank of Pakistan Main Discussants: Mr. A. M. Kazemi, Deputy Governor, BB; Ms. Usha Thorat, Executive Director, RBI, Dr. Shahabuddin M. Hossain, Advisor to the Governor, BB Rapporteur: Mr. Imam A. Sayed, MPD, BB. 11:15 am – 1 pm

Session B: Bond Market Infrastructure and Secondary Market Development

Fakhruddin Chair: Dr. Fakhruddi n Ahmed, Governor, Bangladesh Bank -Trading, clearing and settlement systems -Practical issues for banks and NBFI in managing bond portfolios (asset-liability management and performance goals for treasuries) Lead Speaker: Dr. R. H. Patil, Chairman, Clearing Corporation of India Mr. Ibrahim, Director: Investment Operations, Bank Negara, Malaysia

Mr. Mangala Boyagoda (Consultant, SEC). Main Discussants: Mr. M. Rumee Ali, Deputy Governor, BB; Mr. Subbaraman, Citigroup, India; Mr. Alam, Executive Director, SEC; Mr. Samad, CEO, CDBL; Rapporteur: Mr. Zulker Nyen, FRTMD, BB. 1:00 – 2:30 pm

Lunch Break

SESSION II

DEVELOPMENT OF CORPORATE BOND MARKET (Two parallel sessions)

2:30 – 4:00 pm

Session A: Corporate Debt Instrument— Instrument—Bonds and ShortShort-term Papers

Chair: Mr. Mr. Syed Manzur Elahi, Chairman APEX Group -Past problems and current prospects in Bangladesh (including the role of Trustees) -Institutional framework and underwriting issues

_______________________________________________________________________________________ AT Capital Weekly Update

29

AT CAPITAL RESEARCH

31 August 2008

Lead Speakers: Mr. Ziaul H. Khandker, MD, Investment Corporation of Bangladesh (ICB) Mr. Yawar Sayeed, CEO, AIMS Bangladesh Main Discussants: Maj. Gen.(retd.) Amjad Khan (Pran Group); Mr. Anis Khan, CEO, IDLC; Mr. Majedur Rahman, DMD, IPDC Rapporteur: Ms. Shanila T. Azhar, IPDC. 2:30 – 4:00 pm

Session B: Building Investor Confidence

Chair: Dr. Mirza Azizul Islam, Chairman, the SEC, Bangladesh -Role of rating agencies, disclosure requirements; accounting standards -SEC registration and supervision; enforcement of law Lead Speaker: Mr. R. Ravimohan, MD & CEO, CRISIL Ltd, India Main Discussants: Mr. McMullen (FIDP), BB; Mr. F. Ahmed, ED, SEC; Mr. Muzaffar. Ahmed, CEO, CRISL Bangladesh; Representatives of Insurance Companies. Rapporteur: Mr. Naved Mahbub, Head of Treasury, United Leasing Company (ULC). 4:00 – 4:30 p.m.

Tea Break

4:30 – 5:30 p.m.

Combined Roundtable on Key Issues - Q& A Session

Chair: Mr. Nissanke Weerasinghe, IMF Mission Chief for Bangladesh Panelists: Prof. Abu Ahmed, Chairman, Shilpa Bank; Deputy Governors of BB; Mr. Md. Ali, Member, SEC; Mr. M. Alam, E.D. SEC; Ms. Usha Thorat (RBI); Mr.Z. H. Khandker, MD, ICB; Mr. Patil (Clearing Corporation of India); Mr. Ravimohan (CRISIL, India) Rapporteur: Ms. Saima Rahman, IDLC. 7:30 – 9:00 p.m.

Dinner and Speech Cultural Event—Local Dance and Music

9:00 – 10:00 p.m. DAY 2

THURSDAY, DECEMBER 2, 2004

SESSION III

SECURITISATION (Two parallel sessions)

9:00 – 11:00 am.

Session A: Scope and Opportunities for Securitisation

Rahman, Chair: Mr. Aminur Rah man, Secretary, Ministry of Commerce -Securitization and bond market development -Identifying asset classes for securitization in Bangladesh Lead speakers: Mr. C. M. Alam, MD, IPDC Mr. Prashant Purker (ICICI, India); Discussants: Mr. Martin Essenburg, MD & Global Head of Asset Securitisation, Standard Chartered Bank, Mr. H. Zoarder, Executive Director, SEC Rapporteur: Mr. Md. Kamrul Hassan (CBSF), BB.

9:00 – 11:00 am.

Session B: Structuring and Collateral Issues in Securitization

Chair: Ms. Christine Wallich, World Bank Country Director -Pooling issues, senior/subordinated structuring; credit rating -Credit enhancement; bond insurance; legal/regulatory issues -Roles and responsibilities of the Trustees and Servicers Lead speakers: Mr. Bruce Arnold, Australia (FIDP); Ms. Kerry Adby, Australia (FIDP)] Discussants: Mr. Samir Ahmed (Agrani Bank); Mr. M. Boyagoda (Consultant, SEC) Rapporteur: Mr. Atiqur Rahman, Senior Manager, IPDC. 11:00 – 11:30 am

Tea Break

SESSION IV

HOUSING FINANCE & MORTGAGE BACKED SECURITIES (parallel sessions)

11:30 am – 1:00 pm

Session A: Best Practices in Public Private Partnership

Chair: Mr. Md. Martial Islam, Chairman IIDFC (Founder National Housing Bank) -Subsidized financing- government guarantee -Tax, transaction and legal issues Lead speaker: Mr. R. V. Varma, Executive Director, National Housing Bank, India

_______________________________________________________________________________________ AT Capital Weekly Update

30

AT CAPITAL RESEARCH

31 August 2008 Mr. Juan Costain, Lead Economist, South Asia Region, World Bank

Main discussants: Mr. Prashant Purker (ICICI); Mr. M. Aminuzzaman, MD NBL; Mr. Ala, MD, DBH, Mr. Ansaruddin, MD, National Housing; Mr. Shaha, MD, HBFC Rapporteur: Ms. Sabah Azim, IPDC. 11:30 am – 1:00 pm

Session B: Mortgage Backed Securitisation (MBS)

Chair: Mr. Md. Allah Malik Kazemi, Deputy Governor, Bangladesh Bank Chair -Standardization of mortgage; pooling mortgages into MBS -Government guarantee and institutional framework Lead speaker: Mr. Martin Essenburg, M.D. & Global Head of Asset Securitisation, Stan Chart Bank, UK; Mr. Mustafa Chowdhury, MD, Deutsche Bank, NY. Main discussants: Mr. Nigel Spratt (FIDP); Mr. Aslam Habib, Head of Finance, DBH Rapporteur: Mr. Arif Khan, GM, IDLC. 1:00 – 2:30 pm

Lunch Break

SESSION V

LEGAL & REGULATORY FRAMEWORK— FRAMEWORK—REGIONAL EXPERIENCE

2:30 – 4:30 pm

Session A: South Asian Experience in Bond Market Development

Chair: Mr. Khairuzzaman Chowdhury, Chairman, National Board of Revenue -Pro-active role of regulators and the Government -Tax regime; Evolution of legal and regulatory framework Lead speaker: Ms. Usha Thorat, Executive Director, RBI, India Main discussants: Mr. M. Boyagoda (Consultant, SEC); Ms. Lee Marium Khan (Lee Khan & Associates); Ms. Kerry Adby (FIDP) Rapporteur: Mr. Ahmed Taneem Muzaffar, Independent University of Bangladesh (IUB) 2:30 – 4:30 pm

Session B: Addressing Critical Market Impediments in Bangladesh

Chair: Mr. Syeduzzaman, Chairman, Bank Asia (former Minister for Finance) Chair -Investor confidence, market infrastructure & developing a liquid market Lead speaker: Mr. Ziaul Hassan Siddiqui, Bangladesh Bank Main discussants: Mr. Abbasuddin Khan (SEC); Mr. Abrar Anwar (Citibank, NA) Rapporteur: Mr. Rashed Rubaiyyat (Citibank, NA) rd END OF WORKSHOP: [Tour of Dhaka City for the invited guests on Friday (Dec. 3 ) 8:00 a.m.]

_______________________________________________________________________________________ AT Capital Weekly Update

31

AT CAPITAL RESEARCH

31 August 2008

AT Capital Team – Dhaka Ifty Islam

Managing Partner

(880-2)-8155144, ext. 132

[email protected]

Syeed Khan

Partner

(880-2)-8155144, ext. 109

[email protected]

Akther Ahmed

Senior Advisor

(880-2)-8155144, ext. 108

[email protected]

Masud Khan

Senior Advisor

(880-2)-8155144, ext. 113

[email protected]

Junaid Khan

Investment Advisor

(880-2)-8155144, ext. 121

[email protected]

Shahidul Islam, CFA

Investment Manager

(880-2)-8155144, ext. 122

[email protected]

Taufique Hasan

Investment Manager

(880-2)-8155144, ext. 123

[email protected]

Syeda Tasnuva Akhter

Research Associate

(880-2)-8155144, ext. 127

[email protected]

S Adeeb Shams

Research Associate

(880-2)-8155144, ext. 128

[email protected]

A. M. A. Bari Nahid

Research Associate

(880-2)-8155144, ext. 130

[email protected]

Mohammad Emran Hasan

Research Associate

(880-2)-8155144, ext. 131

[email protected]

Sohana Alam Seraj

Office Manager

(880-2)-8155144, ext. 132

[email protected]

Ahmad Sajid

Research Associate

(880-2)-8155144, ext. 135

[email protected]

S.M. Rashedul Hasan

Research Associate

(880-2)-8155144, ext. 137

[email protected]

Tami Zakaria

Research Analyst

(880-2)-8155144, ext. 125

[email protected]

Abdullah-Al-Farooq

Research Analyst

(880-2)-8155144, ext. 133

[email protected]

Sanwar Ahmed

Research Analyst

(880-2)-8155144, ext. 139

[email protected]

Md. Zahidur Rahman

IT Analyst

(880-2)-8155144, ext. 140

[email protected]

Ashek Ishtiak Haq

Research Assistant

(880-2)-8155144, ext. 136

[email protected]

Syed Najibullah

Research Assistant

(880-2)-8155144, ext. 136

syed.najibullah @at-capital.com

Minul Islam

Research Assistant

(880-2)-8155144, ext. 136

minul.islam @at-capital.com

Rasidul Hasan

Research Assistant

(880-2)-8155144, ext. 136

rasidul.hasan @at-capital.com

AT Capital Team – North America Zarif Munir

Senior Advisor

[email protected]

Professor Jahangir Sultan, Ph.D.

Senior Advisor

[email protected]

M. Nasim Ali

Senior Advisor

[email protected]

Iqbal Hussain

Senior Advisor

[email protected]

© 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.

_______________________________________________________________________________________ AT Capital Weekly Update

32