At Capital Weekly 4 January 2009

AT CAPITAL RESEARCH

4 January 2009 200

AT Capital Weekly Update Key themes in this issue are:

Weekly News Update

Bangladesh Overview: th • On Dec 29 , Bangladesh saw a historically significant election. The Awami League led by Sheikh Hasina Wajed secured a large parliamentary majority – Out of a total of 300 seats, the AL won 230 seats on its own (up from 62 in 2001) with another 32 won by its allies allies. The Bangladesh Nationalist Party (BNP), more of whose leaders were targets of the interim government’s anti-corruption anti corruption drive, was left with only 29 seats (down from 193 in 2001), with another 2 won by its ally, Jamaat-e-Islam. Jamaat

EDITORS

Syeed Khan Partner [email protected]

The electorate appeared to t resoundingly reject the policies of the 2001 2001-2006 BNP regime in favour of change. There was a record turnout of youth as well as female voters amid a participation rate of 85%, one of the highest seen globally and a testament to the vibrancy of democracy in Bangladesh.

•

At the time of writing, there are some encouraging signs that Begum Khaleda Zia and the losing BNP’s rejection of the legitimacy and fairness of the poll seem to be fading away as opposed to a return to the confrontational politics of street street protests seen in the past.

•

The DSE saw a strong rally on the back of the election results. Indeed, at -7% in 2008, it was one of the best performers globally. However, while we expect domestic investment spending to pick up with a return to democracy, the negative headwinds in the g global economy still point to the risks of a significant Bangladesh slowdown in 2009. A defensive stance on Bangladeshi equities is still warranted.

•

The National Coal Policy needs to be adopted by the new government ASAP and the Asia Energy project at Phulbari Phulbari needs to be approved in order to tackle the energy crisis.

•

We also review trends in the Telecoms sector in 2008 and the prospects for the GP IPO and WIMAX in 2009.

Global Overview: • A barometer of the global nature of the downturns is reflected in o one of the most open economies, Singapore, where the government announced on Friday that it was slashing its growth forecasts for 2009 to -2% after a 12.5% quarter-on-quarter quarter estimated fall in gross domestic product during the last three months of 2008. •

China is close to technical recession in the manufacturing industry on the basis that their Chinese manufacturing index has now been registering contraction for five consecutive months. We discuss the impact of a slowdown in the one economy that was expect expected to offset the US slowdown.

Jisha Sarwar Senior Research Associate [email protected]

Year!! Happy New Year

0% -10% 10% -20% 20% -30% 30% -40% 40% -50% 50% -60% 60% -70% 70%

NIKKEI 225

FTSE 100

S&P 500

VN Index

KSE 100

BSE SENSEX

YTD performance of Major Stock Indices

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

Shaghai Composite

DSE – One of the best performing market in 2008

Asian Tiger Capital Partners

DGEN

Asian Tiger Capital Partners

Ifty Islam Managing Partner [email protected]

•

-5.5%

-35.4%

-29.4% -42.1% 42.1%

-50.9% -60.8% -66.8%

-65.4%

4 January 2009

Contents

AT CAPITAL RESEARCH Page

Bangladesh Overview

3

Overwhelming Awami League Victory underlines expectations for change

3

DSE one of the best performing markets in 2008; but 2009 may be more challenging

4

Avoiding Politicization of Energy Policy Decisions critical, especially on Coal

5

Bangladesh Telecoms sector 2008 Review/2009 Outlook

5

Telecoms Review of 2008

5

Telecoms companies hit by VOIP fines

5

Grameenphone IPO, de-railed by shareholder dispute, slimmed down but back on track

5

Three WIMAX licenses auctioned

6

Telecom Prospects for 2009

6

Other Prospective IPOs

7

Telecoms Sector Data Appendix

8

Global Markets Overview

9

Global Manufacturing Downturn Intensifies

9

China Manufacturing Technically in Recession? Week in Review – End-2008 Rally in Commodities and Risk Assets

9

Stock Market Weekly

10 11

Stock Market News

12

Economics

14

Economics News

15

Sector News

16

Agriculture/ Aviation

16

Banking

17

Healthcare/ Infrastructure & energy

18

Pharmaceuticals/Telecoms/ Textiles/ Tourism

19

_______________________________________________________________________________________ AT Capital Weekly Update

2

AT CAPITAL RESEARCH

4 January 2009

Ifty Islam, Managing Partner [email protected]

Bangladesh Overview Overwhelming Awami expectations for change

League

Victory

underlines

The Economist stated in its Jan 2 issue that this year’s Bangladesh elections “went better than anyone dared hope.” Indeed, with an extraordinary turnout rate and a well organized, peaceful and transparent voting system, the th country’s first election in seven years on 29 December 2008 was perhaps the most credible one since the country’s Independence in 1971. The Awami League e Alliance led by Sheikh Hasina, who was Prime Minister from 1996-2001, 1996 won a grand victory. The League secured a large parliamentary majority – Out of a total of 300 seats, the AL won 230 seats on its own (up from 62 in 2001) with another 32 won by its allies. The Bangladesh Nationalist Party (B (BNP), more of whose leaders were targets of the interim government’s anti-corruption corruption drive, was left with only 29 seats (down from 193 in 2001), with another 2 won by its ally, Jamaat-e-Islam.

3

2

1

Analyzing the percentage of votes cast in 299 constituencies, the Election Commission (EC) stated that the turnout is most likely to exceed 85%, a staggering 10% higher than the previous record, and the highest in Bangladesh’s history. According to the secretary retary to the EC Secretariat In many constituencies in the rural areas, turnout is between 85 to 90%; in some constituencies the turnout is as high as 94%; in metropolitan areas, particularly in Dhaka and Chittagong, the turnout however was lower, but abov above 70%. Perhaps it is not such a great surprise that the AL won. Apart from the general trend of the AL and the BNP alternating in power since 1991 (BNP was the ruling party from 1991-1996; 1991 AL from 1996-2001; 2001; BNP from 2001 2001-2006), Sheikh Hasina’s slogan for “Change” was also well framed at a time when voters, especially the young and first time voters, were desperate to see change and improvement. For one one-third of voters this was their first election; a further 23% voted just once before, in 2001.

Election 2008

Election 2001

2 1 1 4

17 8 6

Awami League

27 29

BNP

BNP

230

Awami League

62

Jatiya Party

Jamat-e-Islami

193

JSD

Jatiya Party

Workers Party

Independent

Jammat-e-Islami Jammat

A computerized photo voter list was introduced for the first time, and 81mn genuine voters were registered. According to the UNDP, an independent audit of the list by the Washington-based based International Foundation for Electoral Systems (IFES) concluded that the list was compiled with a “high degree of accuracy,” and no ‘ghost voters’ were found.

Given the catastrophic scale of the defeat for the BNP. There were naturally fears of the traditional response of mass protests, general strikes and a boycott of parliament. Begum Khaleda Zia stated in the immediate aftermath of results that the general election was stage-managed managed are not acceptable to her party. However, the Chief Election Commissioner (CEC) confirmed that there would be no scope for any quarter to reject the results of the ninth parliamentary election. According to him, about 1,500 foreign and 0.2mn

Election Statistics 1991

1996

2001

2008

140

116

193

29

Bangladesh Awami League

88

146

62

230

Jamaat-E-Islami Bangladesh

18

3

17

2

N/A

14

27

Bangladesh Nationalist Party (BNP)

Jatya Party (Ershad)

N/A

Source: Bangladesh International Observer Network

_______________________________________________________________________________________ AT Capital Weekly Update

3

AT CAPITAL RESEARCH

4 January 2009

DSE one of the best performing markets in 2008; but 2009 may be more challenging The DSE ended 2008 down 7.1% after the dramatic 91% 91 gain in 2007. However the absolute returns mask a very strong performance in the context of the most severe bear market seen since the great depression amid the global financial crisis.

103.8% 90.6%

100% 80% 60% 40% 20%

14.4% -16.1% -3.6%

0% -20%

2003

2004

2005

2006

-7.1% 2007

2008

-40%

NIKKEI 225

FTSE 100

S&P 500

VN Index

YTD performance of Major Stock Indices

Shaghai Composite

As the chart below illustrates, the DSE has been one of the best performing stockmarkets in the world in 2008 pm a relative basis when compared to declines of 65% in China, 67% in Vietnam, 51% in India, 75% in Russia and 35% for the S&P 500.

KSE 100

Expectations ations for the new government are very high – apart from hopes that the new administration will move away from the previous 15 years and three democratic governments that was characterized by constant political vendetta, hopes are invested in the new leaderr for tackling inflation, poverty, energy crisis, climate change, terrorism, and protecting the economy from any major impact from the global financial crisis. Starting from businessmen to farmers, the public expect the AL to demonstrate the changes that tthe party promised in its manifestos. While talking to The Daily Star, the AL said one of the first vital indications of 'change' would be the formation of the cabinet, dropping many of the 'old faces' and appointing new, honest and competent people in charge rge of various ministries. Other things that need to be addressed urgently include keeping the ports of economic facilities free from politicization, encouraging foreign direct investment, creation of jobs, and appointing competent people to the energy ministry istry to strengthen the country's energy security. Last but not the least, one of the most important pre-requisites requisites for attaining economic growth and attracting more FDI and investors, is a stable post election climate, with minimal protests, strikes and street treet violence. Needless to say, the only way to attain stability will be for the opposition party to accept the results, and work in coco operation with the ruling party in the best interest of the country. UN Secretary-General Ban Ki-Moon Moon stated that a stable post-election election climate will be vital for the effectiveness and sustainability of the nation’s democracy. He urged all political parties, irrespective of their performance in the elections, to work together in a spirit of dialogue and compromise, to address ess the challenges facing the nation. Such cooperation should include an enhanced role for the opposition in Parliament.

120%

BSE SENSEX

The fact that Hasina has told U.N. election observers after the elections that her party will work in unison with the opposition in parliament to strengthen democracy and develop the nation, is promising. romising. Furthermore, speaking at her first post-election election news conference, Hasina said that she would share power with the opposition despite winning a massive majority in the election, and was ready to offer a senior parliamentary post to her bitter political tical rival, Begum Khaleda Zia. Hasina stated, “As winners, we have to deal with everything with a sense of forgiveness and accommodation instead of vengeance, to take the country forward in cooperation with all irrespective of party affiliation.”

DSE General Index Return (%)

DGEN

local observers are monitoring the whole election process, and so, it will be impossible for anyone to reject the results. At the time of writing, the prospects for the BNP contesting the election results through public protests appears to be diminishing.

0% -10%

-5.5%

-20% -30%

-29.4% -35.4% 35.4% -42.1%

-40% -50% -60% -70%

-50.9% -60.8% -66.8%

-65.4%

However, as the next chart illustrates, the PE ratio of Bangladesh at 17.1 times look quite rich relative to many of its EM peers such as India, Pakistan, China and Russia. Indeed even the UK stockmarket looks relatively cheap. Ultimately, a key consideration in assessing the sustainability of current levels for the DSE comes down to the vulnerability of the Bangladesh economy to the global slowdown as much as strected valuations. On the one hand, there is an expectation that weakk domestic investment spending that has been held back by the anti-corruption anti drive of the caretaker government period is likely to pick up as BD corporates regain an appetite to invest. But on the other hand, as we discus in more detail in the Global Mark Markets section of this issue, the stormclouds for the global economy continue to darken with the Chinese manufacturing sector technically in recession and Singapore now expected to contract by 2% in 2009. On balance, we continue to believe

_______________________________________________________________________________________ AT Capital Weekly Update

4

AT CAPITAL RESEARCH

4 January 2009 the risks for Bangladesh gladesh growth in 2009 are for a slowdown towards 5%. This in turn will depress corporate earnings and argues for a defensive stance on Bangladesh equities at current levels.

PE Ratio of Different Markets 7.9

UK Russia China USA Pakistan India Dhaka

12.4 4.4 13.0 14.6

10.0 10.5

44.3

20.1 20.5

28.0

Current

20

2008 proved to be a significant year for the Bangladesh Telecoms sector with three key events: The residual fallout from the VOIP scandal with fines ines paid by all the major Telcos; The on-off off GrameenPhone IPO; the Wimax license auctions . The prospective GP issue will likely see other Telecoms operators come to stockmarket so the sector is likely to be of significantly greater focus for stockmarket investors and

1) 2)

23.6

10

Bangladesh Telecoms sector 2008 Review/2009 Outlook

Looking into 2009 and beyond, some key issues facing the sector will be:

16.2 17.1

0

prices for electricity, gas and fuel towards a level that will encourage age both energy exploration and energy conservation.

30

40

50

3)

Beginning of the Year 2008

Avoiding Politicization of Energy Policy Decisions critical, especially on Coal As we have highlighted on a number of previous occasions, we believe that the newly-elected elected Awami League government should approve the National Coal Policy In particular, it is important to move beyond the rhetoricfrom the anti-coal lobby within Bangladesh. ladesh. In the Jan 4 issue of New Age, Professor Anu Muhammad, member secretary on the National Committee to Protect Oil, Gas, Mineral Resources Power and Port stated that the ‘Leaders of the Awami League, Workers Party of Bangladesh and Jatiya Samajtantrik ntrik Dal time and again expressed their solidarity with us in our demand for a coal policy barring open open-pit mine, cancellation of the agreement with Asia Energy and award of offshore blocks to two international oil companies. As they are set to form the government, overnment, we hope they will meet our demands’. However, any such strategy from the new government risks delaying the urgently needed coal production. The Asia energy project has already done widewide ranging feasibility studies and is ready to go. Evden then it would take a minimum of three years, even if the project was approved tomorrow, to start producing coal. Any fresh tenders do not make sense and would inevitably delay the ability of Bangladesh to egenrate energy from its intrinsic coal reserves, something hing almost everyone agrees the economy desperately needs, He also stated that he hoped the new government will implement fully the agreement the former BNP-led BNP government signed with the committee to bar open-pit open mining in Bangladesh and to expel Asia Energy from Bangladesh commenting that ‘We also demand the new w government should cancel the offshore bidding as the existing PSC has a provision for export of 80 per cent of gas.” Given the current gas shortage in the country, there is little logic in exporting gas as long as the Powercell agrees to pay market prices pric for electricity which in turn means genuine prices for gas. The Bangladesh economy needs to use the collapse in energy prices in recent months to move away from the artificially low

4) 5)

The prospective success of the GP IPO; Consolidation in Telecoms sector as market-share market increasing strategies incurring losses prove increasingly unsustainable; The he ability of BD Telecoms operators to persuade the new government to support reduced SIM card taxes to support increased Mobile penetration in rural areas and among the poorer segments of society. This will be critical if Bangladesh is to replicate the Pakistan Pa mobile subscriber base of around 80 mn; The scope for Telecoms operators to slow rate of Average Revenue Per User(ARPU) declines by increased sales of Value Added Services (VAS); The battle between Wimax and mainstream Telecoms operators via 3G in the battle for data delivery;

Telecoms Review of 2008 Telecoms companies hit by VOIP fines In August, GrameenPhone (GP), the country's biggest cell cellphone company, was fined Tk 250 crore by the Bangladesh Telecommunications Regulatory Commission (BTRC) providing E1 connectivity to third parties enabling the use of Voice over Internet Protocol (VoIP). Earlier in 2007, GrameenPhone paid fines worth Tk 168.40 crore for similar offence. The BTRC TRC also fined CityCell Tk150 crore, AKTEL Tk 145 crore, and Banglalink Tk 125 crore for illegal VoIP trade. VoIP is a technology that allows someone to make voice calls using a broadband internet connection instead of a regular (or analog) phone line. Grameenphone IPO, dede-railed by shareholder dispute, slimmed down but back on track In July 2008 Grameenphone, finalised its plan to raise $300 million (Tk 2,058 crore) -- $ 150 million from the stock market and the rest through private placement or pre-IPO. The proposed IPO was an important event in the evolution of Bangladesh’s capital markets. Its significance lies not only in the fact that it is by far the largest proposed issue (at a proposed USD 300mn of a USD 3.2bn valuation at the time), but also that: i) Greater Supply: The GP IPO would likely encourage other corporates in Bangladesh to come to market as they become more convinced that the regulators are allowing “fairer” or market-driven driven valuations. We will also likely see greater supply from om other Telecoms companies and potentially privatization issues.

_______________________________________________________________________________________ AT Capital Weekly Update

5

4 January 2009 ii) More Overseas Demand: It was also potentially a catalyst for greater liquidity in the market and critically more overseas investor involvement in the Bangladesh stock market. Larger foreign investment companies have for some time been waiting for sizeable and liquid issues to invest in. However, optimism for a smooth IPO process was undermined by an increasingly frictional and contentious dispute between the two main shareholders, Telenor of Norway and Grameen Telecom. Professor Yunus, the nobelprize-winning head of Grameen. Among other comments, the Professor Yunus stated September 4 that: "The recent activities (of Telenorcontrolled management) in Bangladesh leave me with little alternative other than to investigate the possibility of taking legal action”. He softened his stance on September 5 by stating a lawsuit was only a "remote possibility (and that) this is not an outcome that we think is necessary...It is a possibility, a remote possibility…We are not the kind of people to rush to the courts." Dr. Yunus continues to claim that Telenor refused to honour an agreement sealed in 1996 to transfer its majority holding to his Grameen Telecom by 2002 stating that: "Back in 1996, Telenor and we agreed that the joint company within six years should be a locally operated company with Bangladeshi management and Bangladeshi majority ownership. This has not happened… Telenor now tells me that it was a mistake to rely on their words. We now are being told that the words of the written agreement in a legal sense are non-committing statements. We relied on the words of the agreement." Telenor, however, has its own interpretation of the 1996 partnership deal. The company stated that "In the conflict regarding the ownership of Grameenphone, Telenor disagrees with Muhammad Yunus that we have an agreement to sell our stake in the company to him… We would like to emphasise that the shareholder agreement clearly states that any disagreements should be resolved through the Swedish courts." What is more concerning is that this is not an isolated argument or disagreement. In an Associated Press Report in December 2006, it was reported that Norway's Telenor rejected an offer to sell control of GP to partner Grameen Telecom, saying its strategy is to own majority stakes in joint ventures. Newspaper Dagbladet quoted Muhammad Yunus, as saying Grameen Telecom was ready to offer Telenor NOK 2.6bn (USD 426.9mn) to buy a 13% stake in Grameenphone and gain a majority. One would be hard pressed to come up with a more potentially damaging and confusing issue ahead of the proposed IPO. Reports of Professor Yunus’ comments have appeared in as diverse a range of media as Bloomberg, the Guardian in the UK and Reuters, as well as extensive coverage domestically. A public dispute between the two main shareholders ahead of an IPO is pretty much unprecedented in developed markets, especially for such a large company offering. It was likely the dispute rather than deteriorating international markets that saw the delay of the IPO and the move away

AT CAPITAL RESEARCH from international investor participation to soley a domestic one. The company, later in October, said it planned IPO to $125 million -- half from stock market and rest through private placement. In the event, in December, Grameenphone Ltd. closed the marketing of a pre-IPO private placement of its shares amounting to US$60 million (BDT 413 crore) to local institutional investors on December 4, 2008. The company reported that the pre-IPO placement offer was oversubscribed by three times due to strong support from more than 50 local institutional investors. In the pre-IPO offer, the company raised a total of USD 60 million at BDT 7.4 per share, which was increased from earlier size due to the strong demand. Grameenphone Ltd. has filed its final application for an initial public offering (IPO) of US$65 million (BDT 449 crore) with the Securities and Exchange Commission (SEC) today (December 11, 2008). Grameenphone's Board of Directors had earlier approved a proposal for an IPO of its shares, subject to necessary approvals and market conditions. The price for the IPO has been proposed at BDT 7.00, subject to SEC approval. Three WIMAX licenses auctioned In September , Augere, BanglaLion Communications, BRAC BDmail Network Ltd won licences for establishment, operation and maintenance of broadband wireless access services through WiMAX (worldwide interoperability for microwave access) technology which allows wireless data to travel over long distances by various means, from point-topoint links to full mobile cellular type access. The licenses were auctions for a record BDT 215 Crore ($ 31 mn ) versus the previous record of the previous record for WiMAX license fee was in Singapore (18 million Dollar). According to the licence conditions, the winners were required to set up at least 90 base stations in the first year and the entire country will need to be brought under the WiMAX network in three years. The licence acquisition fee, set by the commission auction, will be supplemented by an annual licence fee of Tk 3 crore. Each of the companies have been alloted a chunk of 35 MHz frequency to operate. Mobile phone companies were barred from participating in the auctions. In the event Bracnet was unable to raise sufficient funds to take up the Wimax license and the next three bidders were also unwilling to commit. As a result, Mango Teleservices have decided to take up the license. Telecom Prospects for 2009 On the GP IPO, we believe, that the proposed price of Tk 7.00 looks fair relative to the original expectations of seventeen times face value and a number of other issues in the marketplace. The decline in Asian Telecoms valuations has also seen GP reduce their own price expectations. While the valuation relative to Indian Telecoms issues looks somewhat on the rich side, it might be argued that GP’s market dominance is unlikely to be challenged by the next major players such as Banglalink, AKTEL, Warid and Citycell. Indeed, it seems unlikely that the market can sustain so many Telecoms operators and some degree of consolidation seems likely. One potential catalyst for greater competition in the Telecoms sector might be to introduce the portability of numbers that might diminish the first-mover

_______________________________________________________________________________________ AT Capital Weekly Update

6

AT CAPITAL RESEARCH

4 January 2009 advantages GP has overt the newer arrivals. The biggest uncertainties about the longer prospects for the GP issues are primarily on the issue of their ability to expand Value Added Services (VAS) to arrest the decline in ARPU as well as any prospective shifts in the regulatory environment. While there is nothing on the horizon, the events of 2008 with respect to VOIP fines, Wimax licenses and so on, all suggest a more activist regulator in Bangladesh than some other comparable EM telecoms markets. It is also important for the liquidity of the GP issues to attract more foreign investors. Another uncertainty is the likely stance of the new government on the level of SIM card taxation. Over the longer-term, a major battleground in the Telecoms sector, given the cut-throat nature of price competition in the voice market, is whether GP’s GPRS data service and the competing internet services from Banglalink and AKTEL can continue to grow in the face of the rollout of WIMAX. One school of thought is that as 3G is introduced in Bangladesh, that Telecoms players like GP will remain competitive versus WIMAX given the proliferation of 3G handsets and the prospects for further cost reduction and pricing of future 3G compatible handsets. On the other hand, we believe that the population density of Bangladesh makes it attractive for WIMAX players to be able to aggressively price their broadband offerings, particularly if, as we expect, BTRC maintains pressure on BTCL to continue to cut the wholesale price of internet bandwidth over the course of 2009. The big market opportunity for WIMAX is for greater broadband penetration and the proliferation of more laptops and PCs among a newer generation of internet-hungry consumers who do not want to be limited to handset-based email usage but rather wish to take up a broader range of web-based content that is more suited to computer usage. On balance we believe WIMAX will prove to be a more serious competitor for the exisiting Telecoms players than is assumed by the current consensus given well capitalized overseas players such as Augere and other partnering with the local companies that can cross-fertilize their experience of WIMAX rollouts in other EM countries. The success of GP VAS has been somewhat limited to date with initiatives like Cell Bazaar mobile marketplace. But they will need to maintain support and investment for the creation of a broader range of phone-based data applications if they are to limit further sharp declines in ARPU. The 30% stake in AKTEL taken by NTT Docomo, the leading Japanese Telecoms company, might also see GP face major competitive threats when 3G rollout occurs given the Japanese companies’ acknowledged expertise in 3G/4G technologies. Some other potential Telecoms issues include: •




Electronic remittance: $8bn in annual remittances to Bangladesh

Financial products (e.g. savings account, insurance) targeting a large, under-banked segment of population who depend on remittances Mobile content and advertising
Mobile gaming present compelling opportunity given youthful subscriber base
Mobile advertising has a captive user base of ~50mm: more than most other medium Call centers
Growing telecom infrastructure, low cost of labor and English proficiency can support growth of ITenabled services / BPO sector
Upside to telecom services provider capable of delivering the bandwidth and services




•

•

Other Prospective IPOs Apart from Grameenphone & Aktel IPO, there is at least 9 more prospective IPOs coming in the next three years: •

•

•

•

ICX IPOs: Currently other than state owned BTCL, there are two interconnection exchange companies operating in the country. They are Getco Telecommunications Limited & M & H Telecom. According to licensing requirement, they have to offload their share in the local stock market within 3 years of the commencement of their business. IGW IPOs: Currently 3 international gateway companies operating in the country other than state owned BTCL. They are Bangla Trac Communications Limited, Mir Telecom & NovoTel Limited. They also have the same licensing requirement for offloading IPO within 3 years of operation. WiMax IPOs: 3 companies were selected to provide WiMax service in the country. The companies are Augere Wireless Broadband Bangladesh Limited & BanglaLion Communications limited and Mango Teleservices. These companies will have to come up with IPO within 3 years of their operation. Other than these IPOs, state owned BTCL might come in the stock market, because govt. has already expressed its intention to sell 100% of BTCL share. But yet they have not formulated the way how they are going to offload those shares. Moreover, we believe once Grameenphone & Aktel will be listed, there will be a regulatory pressure on other mobile phone operators to offload their share in local stock exchange. So they might also get listed in next three years time. So their will be a series of listing from the telecom industry of Bangladesh in coming years.

Mobile banking and payments Mobile payments have significant potential in cashbased economy such as Bangladesh

User familiarity with stored-value usage of cell phones (e.g. Flexiload)
In various other developing countries similar to Bangladesh (e.g. Philippines, South Africa), storedvalue in cell phones is widely used to make payments to vendors in lieu of cash Mobile banking presents a compelling opportunity in the following areas:


_______________________________________________________________________________________ AT Capital Weekly Update

7

AT CAPITAL RESEARCH

4 January 2009 Telecoms Sector Data Appendix

Mobile Phone Subscribers Bangladesh (mn) 80 60 40 20 0

10.44 21.204

34.37 42.04

50

30%

60

70

Mobile phone penetration in Bangladesh(%) 23.1%

20% 10%

27.4%

14.5% 7.3%

0% 2005

2006

May 2008

Grameenphone 1997

Banglalink 1997

Aktel 1997

Ownership

Telenor 62%

Orascom 100%

Subscriber

Grameen Telecom 38% 20.84mn

9.9mn

Telekom Malaysia 70% NTT DoCoMo 30% 7.98mn

1.67mn

3.48mn

Bangladesh Government 0.93mn

(as of July 2008) Market Share Net subscriber

46.50% 5.7mn

22.10% 4.38mn

17.80% 0.6mn

3.70% 0.31mn

7.80% 2.15mn

2.10% -0.03mn

Addition (2007) Churn Market Share of

43.47%

33.42%

4.58%

2.36%

16.40%

-0.23%

net addition AMPU ARPU

4.13

2.8

(Q1’08 USD) Revenue (2007)

793.1

193

210.2

EBITDA (2007)

389.7

-42

63.3

BTS (EOY 2007)

5,700

3,200

3,905

14.6 MHz

12.4

12.8MHz

10MHz

15MHz

15.2MHz

Start of Operation

Frequency

CityCell 1993

2007

Warid 2007

Teletalk 2005

Dhabi Group 100%

100% owned by

(As of Aug’08)

_______________________________________________________________________________________ AT Capital Weekly Update

8

4 January 2009

Global Markets Overview Global Manufacturing downturn intensifies The JPMorgan Global Manufacturing PMI hit 33.2 in December, a series record. More to the point you can get a comparison between what is happening now and the 2001 "recession lite" with only a swift glance, and, of course, the 2009 long recession is only just getting started. Some forecasts are predicting that Global Steel Output could decline 13% or more in 2009, the worst since World War II. The Global Manufacturing Input Prices Index posted 31.3, its lowest ever reading. The rate of deflation was especially marked in the US, were purchase prices fell to the greatest extent since June 1949.

Source: JP Morgan

A barometer of the global nature of the downturns are reflected in two major trading economies, Singapore and Japan. Singapore's government announced Friday that it was slashing its growth forecasts for 2009 after a 12.5% quarter-on-quarter estimated fall in gross domestic product during the last three months of 2008. The contraction was far sharper than the -3.4% expected by economists, and as one of the first economies in Asia to post results for the fourth quarter, the data poses worrying signs for the rest of the region. Singapore officially fell into recession back in October, as declining demand from key customers like the United States and Europe began to hurt exports, but the spillover into the city-state's wider economy has intensified since then. The slump in manufacturing and financial services is now starting to affect the services industry, with the latest estimates from the sector on Friday showing year-on-year growth at 1.1%-down from 5.3% in the previous quarter. Singapore's Ministry of Trade and Industry said there had been a "collapse" in world trade and warned that the knockon effects would continue into 2009. Property, retail and business services were all expected to suffer. The government now expects GDP to contract 2% in 2009. Analysts from Barclays Capital expect Japan to post an annualized 12.1% drop in gross domestic product for the fourth quarter of 2008, which would be the sharpest contraction in 34 years. China Manufacturing Technically in Recession? CLSA Asia-Pacific Markets, who compile the China Purchasing Managers Index, have suggested that China is "close to technical recession in manufacturing industry" on the basis that their Chinese manufacturing index has now been registering contraction for five consecutive months.

AT CAPITAL RESEARCH China’s composite manufacturing index contracted for the fifth consecutive month in December as recessions in the U.S., Europe and Japan bit deep into demand for exports indeed China's exports fell year on year for the first time in seven years in November. The CLSA China Purchasing Managers’ Index registered a seasonally adjusted 41.2, compared to a record low of 40.9 in November. On such indexes any reading below 50 reflects a contraction.

Prof Nouriel Roubini of New York University in a recent article in the Asia-Pacific Journal has underlined the high probability of a hard landing. He notes that “In a country with the potential growth of China, a hard landing would occur if the growth rate of the economy were to slow down to 5-6% as China needs a growth rate of 9-10% to absorb about 24 million folks joining the labor force every year; it needs a growth rate of 9-10% to move every year about 12-14 million poor rural farmers to the modern industrial/manufacturing urban sector. The whole social and political legitimacy of the regime of the ruling Communist party rests on continuing to deliver this high growth great transformation of the economy. Thus, a slowdown of growth from 12% to 5-6% would be the equivalent of a hard landing or a recession for China. And now a variety of macro indicators suggest that China is indeed headed towards a hard landing.” Prof Roubini goes on to note that China is an economy that is structurally dependent on exports: net exports (or the trade balance surplus) are close to 12% of GDP (up from 2% earlier in the decade) and exports represent about 40% of GDP. Real investment in China is about 45% of GDP and, leaving aside the part of this investment that is housing and infrastructure spending, about half of this capex spending goes towards the production of new capital goods that produces more exportable goods. So, with the sum of exports and investment representing about 80% of GDP, most of the Chinese aggregate demand depends on its ability to sustain an export based economic growth. The trouble, however, is that the main outlet of Chinese exports – the U.S. consumer – is now collapsing for the first time in two decades. Chinese exports to the U.S. were growing at an annualized rate of over 20% a year ago, while the most recent bilateral trade data from the U.S. show that this export growth has now fallen to 0%. But the worst is still to come in the next few quarters: after an ok second quarter in the U.S. (boosted by the tax rebates) U.S. retailers hoped that the consumer downturn would be minor: they thus placed over the summer massive orders for Chinese (and other imported) goods for Q3 and Q4. But now the U.S.

_______________________________________________________________________________________ AT Capital Weekly Update

9

4 January 2009 holiday season clearly looks like the worst that the U.S. will experience in decades and the result of it will be a huge overhang of unsold Chinese goods. Thus, you can expect that orders of Chinese goods for Q1 of 2009 and the rest of 2009 will sharply decline, dragging Chinese exports to the U.S. into negative territory. And it is not just Chinese exports to the U.S. Until a few months ago the U.S. was starting to contract but the rest of the advanced economies (Europe, Canada, Japan and Australia/New Zealand) were growing at a sustained rate, thus boosting Chinese exports. But there is strong evidence that a severe recession has now started in almost all of the advanced economies. You can thus expect that Chinese export growth to Europe, Canada, Japan, etc. will sharply decelerate in the next few quarters, thus adding to the fall in Chinese net exports. And once Chinese export growth sharply decelerates and net exports sharply fall you can expect a severe fall in capex spending in China as there is already a large excess capacity of exportable goods given the massive overinvestment of the last few years. Thus, a sharp fall in net exports and a sharp fall in real investment will likely trigger a hard landing in China. Considering the certainty of a recession in advanced economies and the high likelihood of a global recession, there is now a very high probability that Chinese growth could slow down to 7% or even lower in 2009 (7% growth for China is indeed now the forecast of a leading EM focused bank such as Standard Chartered); and 7% is just a notch above the 6% that would represent a near hard landing for China.

AT CAPITAL RESEARCH However, looking at 2008 overall, commodity prices still had their worst year on record. As the charts below courtesy of Bespoke.com illustrates, oil is still off around 75% from its 2008 highs.

And relative to bonds, the US Dollar and even equities, oil remains by a wide margin the worst performer of the year

Week in Review – EndEnd-2008 Rally in Commodities and Risk Assets Most global stockmarkets enjoyed an end-year rally after the “annus horribilis” that was 2008. Among the major asset classes, the ongoing crisis in the Gaza strip fuelled a 22.9% jump in oil prices and US equities were able to shrug off ongoing weak economic data in terms of plunging consumer confidence, ISM and Case-Shiller home prices.

_______________________________________________________________________________________ AT Capital Weekly Update

10

AT CAPITAL RESEARCH

4 January 2009

Stock Market Weekly DSE performance: 52 weeks weeks

Market news

40

14.5

30

14.0 13.5

20

13.0

10

Weighted avg. P/E Ratio* This Week 18.1 Last Week 17.2 % Change 5.31% *Weighted on Market Cap.

5%

6.7%

DGEN, Dhaka

6.2% 2.0%

CASPI, Chittago ng

0% -5%

BSE Sensex, Mumba i

-10%

KSE100, Karachi

-15% Valuation snapshot

DSE General Index

Opening of this week Closing of this week Change within a week (%) Change within a week (Point)

Number of Trading Days Market Capitalization (USD bn) Total Turnover (USD mn) Daily Avg. Turnover (USD mn) Total Volume (mn) Daily Avg. Volume (mn)

DSE sixth best performing stock exchange in the world until November

-11.3% 11.3%

Turnover

Market summary

Capitalization and turnover

•

10% Turnover in USD Mn

50

15.0

10-Nov-08 12-Nov-08 16-Nov-08 18-Nov-08 20-Nov-08 24-Nov-08 26-Nov-08 30-Nov-08 2-Dec-08 4-Dec-08 15-Dec-08 18-Dec-08 22-Dec-08 24-Dec-08 30-Dec-08

Market Cap. in USD Bn

15.5

Index performance

Trading of Maksons Spinning, National Housing st begins begins on 1 January 2009

Regional stock market performance (last week)

DSE performance: 30 days

Market Cap.

•

2,630.1 2,807.6 6.7% 177.5

2,196.2 2,316.5 5.5% 120.4

This Week

Last Week

3 15.30 168 56 83

4 14.49 78 19 67

28

17

Issues Advanced Declined Unchanged Not Traded

Sector P/E

DSE 20

This Week 196 39 8 36

% Change 5.57% 116.8% 189.0% 23.9% 65.2% Last Week 221 27 6 52

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

Aug-08 19.08 10.96 49.92 39.11 17.85 17.81 23.17 45.08 41.44 16.16 25.46 8.36 23.97 20.57 19.05 15.74

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

Oct-08 15.62 10.32 41.76 40.8 17.09 19.14 23.12 28.93 47.89 14.18 32.2 9.97 30.25 23.55 18.44 14.55

Nov-08 15.62 8.91 32.17 31.94 14.77 16.29 17.69 21.42 33.96 14.18 23.32 7.32 26.26 18.74 14.87 12.43

Source: Dhaka Stock Exchange

_______________________________________________________________________________________ AT Capital Weekly Update

11

AT CAPITAL RESEARCH

4 January 2009 Stock Market News st

st Trading of Maksons Spinning, National Housing begins begins on 1 January 2009

The Financial Express, Wednesday December 31, 2008

Maksons Spinning Mills Limited and National Housing Finance and Investment Limited started trading on the Dhaka Stock Exchange (DSE) and the Chittagong Stock Exchange st (CSE) from 1 January 2009. Maksons Spinning floated 8mn ordinary shares at a face value of BDT 10 (US 14.52 Cents) each, raising BDT 80mn (USD 1.16mn) from the stock market. The paid-up capital of the company was BDT 340mn (USD 4.94mn) as of April 26, 2008. Maksons Spinning is the 40th listed textile company on DSE. The National Housing Finance and Investment Limited floated 0.5mn ordinary shares at a face value of BDT 100 (USD 1.45) each, raising BDT 50mn (USD 0.73mn) from the stock market. The pre-IPO paid up capital was BDT 400mn (USD 5.81mn) as of December 31, 2007. http://www.thefinancialexpressbd.com/search_index.php?page=detail_news&news_id=54636

DSE sixth best performing stock exchange in the world until November The Financial Express, Tuesday December 30, 2008

While globally most stock markets have suffered from the financial crisis, Dhaka and Chittagong stock exchanges have performed reasonably well in 2008. According to Bloomberg, during the first eleven months of 2008, the Dhaka Stock Exchange (DSE) was the sixth best performing stock exchange in the world on a currency adjusted basis. During the first half of the year, the stock market performed well. The rise in the indices were driven by strong performance from the banks’ impressive yearly results. However, stock prices declined in the second half of the year. The weakness during the second half was driven by pullout from retail investors worried about foreign portfolio investors withdrawing as they did in Russia, India, China, etc. Additionally, the uncertainty about the political situation also discouraged significant inflow into the market. However, the market recuperated in December 2008. http://www.thefinancialexpressbd.com/search_index.php?page=detail_news&news_id=54513

_______________________________________________________________________________________ AT Capital Weekly Update

12

AT CAPITAL RESEARCH

4 January 2009 DGEN Performance LTM

DGEN Performance YTD

3,400 3,200 3,000 2,800 Market cap. by sector* 2,600 Banks Fuel & Power 2,400 Pharmaceuticals 2,200

3,200 3,000

Turnover leaders (All figures in mn) BDT 1028 Beximco Pharma 891 Summit Power 734 Titas Gas 480 Grameen One: Scheme2 BEXIMCO 461 ACI Formulation Limited 448 Shinepukur Ceramics 416 Limited ACI Limited 372 356 NBL Uttara Bank 255

USD 14.9 12.9 10.7 7.0 6.7 6.5 6.0 5.4 5.2 3.7

14-Jan-08 29-Jan-08 12-Feb-08 27-Feb-08 12-Mar-08 30-Mar-08 13-Apr-08 28-Apr-08 13-May-08 28-May-08 11-Jun-08 25-Jun-08 10-Jul-08 24-Jul-08 7-Aug-08 25-Aug-08 8-Sep-08 22-Sep-08 14-Oct-08 28-Oct-08 11-Nov-08 25-Nov-08 18-Dec-08

Oct'08

Sept'08

Aug'08

Jul'08

Jun'08

May'08

Apr'08

Mar'08

Jan'08

Feb'08

2,400

51.0% 13.8% 11.6% Insurance 5.5% Cement 5.1% Miscellaneous 3.0% Engineering 2.4% Foods 2.1% Best performers* Worst performers* Textile 1.9% Service &%Real Estate 1.2% Change % Change Tannery Samata Leather 27.4% Shaympur Sugar 1.2% -11.6 Ceramics Olympic Industries 23.1% Renwick Jajneswar0.7% -11.6 IT 0.5% Bangladesh Online 21.2% Meghna Condensed -11.1 BDCOM Online Ltd. Paper & Printing 20.9% Eastern Lubricants0.1% -10.3 Jute Summit Power 20.4% Bangla Process 0.03% -9.0 Total Aims 1st M.F. 19.3% Zeal Bangla Sugar100% -7.8 *As of November , 2008 Grameen Mutual One 18.7% Meghna Pet -7.0 CMC Kamal 17.5% Dulamia Cotton -5.6 BCIL 17.3% Perfume Chemicals -5.2 Beximco Synthetics 16.9% Dhaka Fisheries -4.2

Dec'08

2,600

Nov'08

2,800

Source: Dhaka Stock Exchange

*By closing price Source: Dhaka Stock Exchange

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

51.0% 13.8% 11.6% 5.5% 5.1% 3.0% 2.4% 2.1% 1.9% 1.2% 1.2% 0.7% 0.5% 0.1% 0.03% 100% *As of November

Correlation with other indices*

S&P500 S&P500

1.00

Sensex

NIKKEI225

KSE100

Sensex

0.52

NIKKEI225

0.41

0.53

1.00

KSE100

0.16

0.32

0.15

1.00

SSECI

0.24

0.36

0.20

0.06

SSECI

FTSE100

Hangseng

DSE

1.00

1.00

FTSE100

0.81

0.53

0.44

0.24

0.34

1.00

Hangseng

0.65

0.62

0.48

0.13

0.45

0.74

DSE

0.07

0.12

0.05

0.02 0.02 0.08 0.09 * Based on the last 83 months’ USD returns Source: AT Capital Research

1.00 1

, 2008

Research Team Ifty Islam

Syeed Khan

Managing Partner

Partner

[email protected]

[email protected]

Mohammad Emran Hasan Senior Associate [email protected]

_______________________________________________________________________________________ AT Capital Weekly Update

13

AT CAPITAL RESEARCH

4 January 2009

Economics Selected macroeconomic indicators

Market news

3030-DecDec-07

1515-DecDec-08

Forex reserves (USD mn)

5546.23

5,561.80

3030-DecDec08 5787.80

USD-BDT average rate

68.5761

68.8897

68.9349

7.61

9.75

13.39

Call money rate

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

NovNov-08

Imports (USD mn) Annual %age change

761.38

7,914.78

3.12

23.32

32.39

P OctOct-08

Exports (USD mn) Annual %age change

2,090.40

21,629.00

27.18

26.70

26.07

Oct -08P

Current A/C Balance (USD mn)

867.69

14,110.80

8.12

-7.84

15.87

P SepSep-08

20.00

Tax revenue (USD mn) Annual %age change

•

Economy rides past strong 2008

•

Taka depreciates against US dollar marginally again

20072007-08

46.00 P NovNov-08

NovNov-07

Ebbing inflation marks yearyear-end

20072007-08

941.48

SepSep-07

•

20072007-08

1,649.90

Oct -07

USD 9bn remittance in 2008

20072007-08

617.39

OctOct-07

•

672.00

Exports xports in Oct 08 declined to USD 867.69mn 867.69mn from USD1478.02 USD1478.02mn 1478.02mn in Sept 08

20072007-08

506.24

551.57

6,868.43

26.59

8.96

27.06

Monthly Exports

1700 1500

Source: Selected indicators by Bangladesh Bank, 17 December 2008

Mn USD

1300 1100

Latest Bangladesh Inflation Rates

900 SepSep-08 General

Inflation Food

Inflation Non-food

Inflation

OctOct-08

NovNov-08

210.14

209.31

207.14

10.19

7.26

6.12

227.66

226.88

223.98

12.07

8.08

6.68

187.10

186.13

184.95

7.19

5.95

5.25

700

Sourc

July

Aug

Sep

Oct

Source: Bangladesh Bank

Source: Bangladesh Bank Jisha Sarwar Senior Research Associate

[email protected]

_______________________________________________________________________________________ AT Capital Weekly Update

14

4 January 2009 Economic News USD 9bn 9bn remittance in 2008 The Daily Star, Friday January 2nd, 2009

2008 saw a record number of over 875,000 Bangladeshis going overseas for employment compared to about 832,000 people in 2007. The country also received a record amount of approximately US$9bn in remittances in 2008.

AT CAPITAL RESEARCH BDT 100,070mn (USD 1452mn) or 4.9% a year ago. The rise in domestic credit during the period was due to a significant rise in private-sector credit, by BDT 103,700nm (USD 1505mn) or 5.5%, according to Bangladesh Bank data. The taka remained generally stable at 68.50-69.50 against the USD throughout the year. However, the euro and the pound were extremely volatile against the taka in 2008. The euro went up to 111 against the taka in the mid-July and declined as low as 88 in November before bouncing back to 100. The pound went up to141 against the taka in March but declined to 103 in November.

http://www.thedailystar.net/story.php?nid=69632

Ebbing inflation marks yearyear-end The Daily Star, Thursday January 1st, 2009

Inflation dropped significantly at the end of 2008, although commodity prices, especially of food items including rice, are still high. GDP growth is expected to decline this year due to the ongoing global economic recession despite the economy having grown at a reasonable pace for the past several years, Inflation has been increasing for the past few years, crossing 11% on a point-to-point basis in 2008. However, in November 2008 inflation came down to 6.12%. Economists expect it to drop further in the coming days. But commodity prices still remain a concern. Multilateral donor agencies are predicting GDP growth to slow to 5.5% in 2008 or even 4.8% in the worst case scenario, although the government claims growth could be still be at around 6%. The ADP (annual development programme) implementation rate has not been very impressive during the first five months of FY 2009 with only 18% of the ADP implemented. However, the country's export and remittance inflow continues to be healthy despite the global financial meltdown. Exports grew by 30.7% while remittance grew by 33.6% during the first four months of FY 09. http://www.thedailystar.net/story.php?nid=69509

Economy rides past strong 2008 The Daily Star, Thursday January 1st, 2009

The economy remained resilient in 2008 despite an unfavourable domestic investment climate and the surrounding global economic meltdown. Economic indicators such as private-sector credit growth, call money rate, foreign currency, foreign exchange reserves, inflation, exports, import and remittances, were all positive in 2008.

Import growth was 25.6% during FY 09 against export growth of 15.7%; however, remittance inflow increased by 32% easing pressures on the balance of payments. Exports receipts in Q1 FY09 increased by 30.7% to USD 5,251.5mn from USD 4,018.7mn in Q1 FY09. Import payments in Q1 FY09 rose by 34.9% to USD 6,324.7mn from USD 4,687.5mn in Q1 FY08. Gross foreign exchange reserves stood at USD 5,245.4mn at the end of November 2008 compared to USD 5,095.3mn a year ago. The inflation rate on a point-to-point basis also decreased to 6.12% in November 2008 from 7.26% the previous month. The local money market experienced some volatility in 2008. The market remained calm in 2007, due to the surplus liquidity in the system. Call rates hovered between 7% and 15% in 2008, compared to between 6.5% and 9.5% in 2007. http://www.thedailystar.net/story.php?nid=69467

Taka depreciates against US dollar marginally again again

The Financial Express, Wednesday December 31st, 2008 Bangladesh taka (BDT) was depreciated marginally by 0.04% against the US dollar on Tuesday, the last working day of calendar year 2008, following a rise in demand for the greenback in the market. US dollar traded at BDT 68.95 in the foreign exchange market on the day against BDT 68.92 on the previous working day. In 2008, BDT was depreciated marginally by 0.54% against the US dollar mainly due to a short supply of the greenback in the inter-bank foreign exchange market. Compared to the previous four years, BDT/USD exchange rate was fairly stable in 2008, according to Citibank’s recently published annual market update 2008. http://www.thefinancialexpressbd.info/search_index.php?page=detail_news&news_id=54632

Bangladesh’s credit market remained unaffected by the global financial crisis - private-sector credit grew more than 26% in 2008. Domestic credit recorded an increase of BDT 174,130mn (USD 2527mn) or 7% during Q1 FY 09 compared to a rise of

_______________________________________________________________________________________ AT Capital Weekly Update

15

AT CAPITAL RESEARCH

4 January 2009

Sector News Agriculture

Cardinal, Pearl, Blue etc. These local grapes comparatively sweeter in taste than the imported ones.

are

Low wholesale price of edible oil yet to impact retail market

The Daily Star, Friday, January 2, 2008 Although prices of different types of edible oil have declined in the wholesale market, it is yet to have any impact on the retail market. Price of palm oil went up by BDT 100 (USD 1.45) and was selling at BDT 1,700 (USD 24.37) a maund, whereas the wholesale price of non-branded edible oil including soya bean and super palm oil declined by BDT 200 (USD 2.9) to BDT 700 (USD 10.1) per maund (37.32 Kg) within a week due to an increase in supply and a sharp fall in prices in the international market. But price declines are yet to have any impact on retail markets as traders were selling from old stocks, according to wholesalers. http://www.thedailystar.net/story.php?nid=69631

Fertilizer price hike hampers potato production in Northern Northern district districts ricts

The Financial Express, Thursday, January 1, 2008 Potato growers of Northern districts (Rangpur and Dinajpur region) fear that if prices of fertilizers continue to increase, potato cultivation will be badly affected. At present a sack of Tripple Super Phosphate (TSP) is being sold at BDT 3,800 (USD 55.1) up from BDT 1,800 (USD 26.1); a sack of Muriate of Potash (MOP) is sold at BDT 2,200 (USD 31.9) up from BDT 1,000 (USD 14.5) previously. A sack of urea fertilizer is being sold at BDT 600 (USD 8.7) up from BDT 300 (USD 4.3). Thus poor farmers are being compelled to use less than the necessary quantity of fertilizers. The Department of Agriculture Extension (DAE) sources said potato cultivation target had been fixed at 176,900 hectares of land in eight districts of greater Rangpur, Dinajpur region with production target of 3,007,300 MT. Sources also said that a number of traders, taking advantage of the higher demand for fertilizers, have been selling sub-standard fertilizers at cheaper rates. http://www.thefinancialexpressbd.info/search_index.php?page=detail_news&news_id=54738

Grape cultivation gains popularity in Northern Northern region of Bangladesh

http://www.thefinancialexpress-bd.com/2008/12/31/54641.html

Agri credit credit disbursement posts 27.2% 27.2% growth in JulJul-Nov

The Financial Express, Monday, December 29, 2008 Agricultural credit disbursement recorded a robust growth of 27.2% in the first five months of the current fiscal year. Eight state-owned banks and financial institutions along with private commercial banks (PCBs) disbursed BDT 33.77bn (USD 493mn) as agri credit during the July-November period of FY 09 compared to BDT 26.55bn (USD 387.5mn) during the corresponding period of FY 08, according to the central bank statistics. The loans have been given to eight agro-based sub-sectors such as crops, irrigation equipment, livestock, agricultural products marketing, and fisheries. Banks and financial institutions have achieved 36.02% of their annual agri credit disbursement target, which has been fixed at BDT 94bn (USD 1.37bn). http://www.thefinancialexpress-bd.com/2008/12/29/54469.html

Aviation Biman back in the black after four years The Daily Star, Sunday January 04, 2009

Biman Bangladesh Airlines returned to the black in fiscal year 2007-08 with a BDT 190mn (USD 2.75mn) profit after four years, as the national flag carrier improved its overall efficiency in maintaining routes and flight schedule, and stopping pilferage. The carrier has incurred losses from 2004, mainly due to mismanagement, corruption and fuelguzzling and decade-old aircrafts. Profits increased due to an improvement in efficiency in route planning, such as flight reduction on routes, temporary suspension of flights on unprofitable routes and flight schedule maintenance. Reduction in maintenance costs and an overall return of discipline to the Biman administration also contributed to profitability.

The Financial Express, Wednesday, December 31, 2008 Grape cultivation is becoming popular in the northern region of Bangladesh, as growers are earning good profits. According to agriculturists, the soil and climate of Dinajpur, Rangpur, Thakurgaon and Panchagarh1 are suitable for grape cultivation. Presently, grapes are being cultivated on a limited scale due to inadequate supply of seeds and other facilities. According to local growers, proper training along with financial and technical assistance can pave the way for large-scale commercial production of grapes across the northern region. Most of the grapes produced in the areas are in the moderate grade variety called 'Jatka'. They also cultivate a number of high-grade varieties like Black Ruby, http://www.thedailystar.net/newDesign/news-details.php?nid=69956 1

Areas in the Northern region of Bangladesh

_______________________________________________________________________________________ AT Capital Weekly Update

16

4 January 2009

AT CAPITAL RESEARCH

GMG adds aircraft to fleet The Daily Star, Sunday January 04, 2009

GMG Airlines yesterday added an MD-83 aircraft to its fleet, totaling its number of planes to six. Shahab Sattar, managing director of GMG, said the MD-83 aircraft with 150-passenger seating capacity and powerful engines, would help open new routes for the private airline. The airline’s destinations include Singapore, Bangkok, Karachi and Dubai. http://www.thedailystar.net/newDesign/news-details.php?nid=69930

Banking Meltdown expected to reduce central bank's profit The Financial Express, Sunday January 4th, 2009

According to Bangladesh Bank (BB) officials, the global financial meltdown has affected the central bank's income, following the withdrawal of its investments from international banks. "Almost 90% of the bank's investments have already been withdrawn from international banks," stated BB’s executive director, Yasin Ali. The BB earned a record profit of BDT 25bn (USD 362.8mn) in FY 08, and more than 72% of the earning was given to the government exchequer. "But the BB income from investments in foreign banks and financial institutions has become almost nil after those were withdrawn following the onslaught of the global financial crisis," said the official.

The operating profit of Al-Arafah Islami Bank rose by 97.5% to BDT1580mn (USD 22.9mn) in 2008 from BDT 800mn (USD 11.6mn) in 2007. In 2008 profits of Shahjalal Bank and Islami Bank increased by 57% and 55%, respectively. National Credit and Commerce Bank recorded a 33% rise in operating profit to BDT 2360mn (USD 34.25mn) in 2008 from a year ago. Profits of UCB and NBL, two first-generation PCBs, grew by 24% and 28%, respectively, in 2008. In 2008 operating profits of BRAC Bank, a third-generation private bank, also increased by over 23% to BDT 2000mn (USD 29mn). Prime Bank's operating profit soared to BDT 4100mn (USD 59.5mn) in 2008 from BDT 3260mn (USD 47.3mn) in 2007. Southeast Bank posted BDT 3000mn (USD 43.54mn) in operating profit, up from BD 2910 (USD 42.2mn) in 2007. EXIM earned BDT 2600mn (USD 37.73), Dhaka Bank BDT 2540mn (USD 36.86mn), Dutch-Bangla BDT 2210mn (USD 32.07), Mercantile BDT 1900mn (27.57mn), IFIC BDT 1770mn (USD 25.69), Basic BDT 1750mn (USD 25.39), Standard Bank BDT 1560mn (USD 22.64mn), Trust Bank BDT 1380mn (USD 20mn), Jamuna Bank BDT 1200mn (USD 17.41mn), One Bank BDT 1100mn (USD 15.96) and Social Investment Bank BDT 1000mn (USD 14.51mn). AB Bank's operating profit however declined by BDT150mn (USD 2.17mn) to BDT 4500mn (USD 65mn) in 2008. The operating profit of PCBs increased by nearly BDT 1,5000mn (USD 21.8mn) to BDT 5,2000mn (USD 754.7mn) in 2007. http://www.thedailystar.net/story.php?nid=69626

Many US and European banks have already been hit by the worst global recession since the 1930s.

IBBL deposit records records 21pc, remittance 67 per cent growth

Credit ratings agency Standard & Poor's last week slashed the ratings on 11 U.S. and European banks and cut the outlook of another bank due the meltdown, according to Bloomberg.

The total deposit of Islami Bank Bangladesh Limited reached BDT 201.1bn (USD 2.91bn) at the end of 2008, growing by 21% from a year ago.

It cut ratings for Bank of America, Barclays Bank, Citibank, Credit Suisse, Deutsche Bank, Goldman Sachs, JPMorgan Chase Bank, Morgan Stanley, Royal Bank of Scotland, UBS and Wells Fargo Bank. HSBC Bank's outlook was revised to negative, though its rating remained unchanged. Amid such a gloomy scenario in the US and Europe, the BB officials stated that the central bank was forced to withdraw its investments from the leading international investment banks. http://www.thefinancialexpress-bd.info/2009/01/04/55055.html

PCBs post rise in profit

The Financial Express, Friday January 2nd, 2009

In 2008 the bank’s total investment was BDT 198.7bn (USD 2.87bn), growing by 14% from 2007. The largest private commercial bank handled BDT 402.7bn (USD 5.85bn) worth of foreign trade in 2008 (an increase of 40% since 2007); this included import income of BDT 168.3bn (USD 2.43bn) (rose 23%), export earnings of BDT 93.96bn (USD 1.36bn) (rose 41%) and remittance income of BDT 140.4bn (USD 2bn) (rose 67%). http://www.thefinancialexpressbd.info/search_index.php?page=detail_news&news_id=54854

The Daily Star, Friday January 2nd, 2009

BaselBasel-II comes into effect today to consolidate capital base of banks

Private commercial banks (PCBs) performed well in 2008 despite a global and domestic slowdown in business activity, according to data received from different PCBs. Profits of PCBs rose considerably in 2008 - the highest increase in operating profits was 97%, while the lowest was 23%.

The Financial Express, Thursday January 1st, 2009

According to bankers, profits increased in 2008 due to a rise in prices of commodities.

The Basel-II accord will come into effect in Bangladesh from today (Thursday) alongside the Basel-I to consolidate capital base of banks. “The banks will be allowed to follow both Basel-II and BaselI frameworks for 2009 to calculate their capital adequacy. But the banks will have to implement the Basel-II framework from

_______________________________________________________________________________________ AT Capital Weekly Update

17

AT CAPITAL RESEARCH

4 January 2009 January 2010.” a senior official of Bangladesh Bank (BB) told the FE.

and will be useful for all government and non-government hospitals.

The central bank issued guidelines on 'Risk-based Capital Adequacy for Banks' on Wednesday aiming to start implementation of the Basel-II framework in the country's banking system.

http://www.thedailystar.net/newDesign/news-details.php?nid=69441

The new Basel accord has been prepared on the basis of three pillars: minimum capital requirement, supervisory review process and market discipline. Three types of risks -- credit risk, market risk and operational risk -- have to be considered under the minimum capital requirement. A study carried out by local banks suggested that the Basel-II should initially be implemented with three specific approaches - a standardized approach for calculating risk weighted assets (RWA) against credit risk, a standardized (rule-based) approach for calculating RAW against market risk, and a basic indicator approach for calculating RWA against operational risk. Credit rating is to be determined on the basis of risk profile assessed by the External Credit Assessment Institutions (ECAIs), according to the standardized approach of the riskbased capital adequacy framework of the Basel-II. The central bank earlier issued guidelines for recognition of eligible ECAIs to assess credit risks in line with the Basel-II framework. Currently, two local credit rating agencies - Credit Rating Information and Services Limited (CRISL) and Credit Rating Agency of Bangladesh (CRAB) - are operating in Bangladesh. The central bank has already increased the amount of the required minimum capital for commercial banks to 10% of their risk-weighted assets from 9.0% to consolidate its capital base, aiming to implement the Basel-II framework. Bangladesh is now following Basel-I framework for the banks' capital adequacy requirement. Risk-based capital ratio was 8.0% when it was first adopted in 1996. In 2002, the ratio was increased to 9.0%. http://www.thefinancialexpressbd.info/search_index.php?page=detail_news&news_id=54730

Healthcare National National guideline for management of malnourished children launched The Daily Star, Sunday December 31, 2008

A national guideline prepared by the Institute of Public Health and Nutrition (IPHN) for management of severely th malnourished children was launched on the 30 of December. Speaking at the launching ceremony, Health Adviser AMM Shawkat Ali suggested publishing the Bengali version of the guideline so that common people can understand it easily. The guideline has been prepared by local consultants and is applicable for underweight children

Infrastructure & Energy Power distribution companie companies mpanies propose tariff hike The Daily Star, Friday January 2, 2009

Dhaka Power Distribution Company Ltd (DPDC), West Zone Power Distribution Company Ltd (WZPDC) and Dhaka Electric Supply Company Ltd (DESCO) have proposed tariff hikes at the consumer level, of 14.77%, 15.18% and 14.77% respectively. The Bangladesh Energy Regulatory Commission (BERC) considered the proposals and decided to hold open meetings individually with the companies. The Rural Electrification Board (REB) has also submitted a proposal for a tariff increase of 11.52% at the subscriber level. But the BERC found the proposal to be incomplete and asked for a new proposal from the REB. http://www.thedailystar.net/story.php?nid=69674

GTCL earns BDT 2.73bn (USD 39.65mn) as prepre-tax profit in FY 08 The Financial Express, Tuesday December 30, 2008

Gas Transmission Company Limited (GTCL) earned BDT 2.73bn (USD 39.65mn) as pre-tax profit in FY 08. The company earned BDT 4.17bn (USD 60.57mn) on account of transport of gas and condensate which is up 18.3% from a year ago. http://www.thefinancialexpressbd.com/search_index.php?page=detail_news&news_id=54530

Indian ships leave Bangladesh waters The Daily Star, Sunday December 28, 2008

Tension over India's trespassing into Bangladeshi maritime boundary mitigated on December 27 as the three Indian oil and gas survey ships withdrew from Bangladeshi waters. Navy sources said immediately after the survey ships left, an Indian coastguard vessel went to the spot and asked the Bangladeshi offshore patrol vessels there to leave the spot claiming it to be Indian waters. Foreign Secretary Touhid Hossain, who lodged the formal government protest, said that the Indian high commission was asked to stop any survey or development activities and remove the ships from the area until disputes regarding the maritime boundary are settled by "mutual agreement". The Indian envoy proposed that Bangladesh send a technical team to India as soon as possible to discuss the maritime issue as the two countries started talks on delimitation of the maritime boundary in September 2008 after a lapse of 22 years. The location is seven miles into Bangladeshi maritime boundary, which is also situated within Bangladeshi deepsea oil and gas exploration Block-14. http://www.thedailystar.net/story.php?nid=69074

_______________________________________________________________________________________ AT Capital Weekly Update

18

AT CAPITAL RESEARCH

4 January 2009 Pharmaceuticals Aristopharma to add 3 more export destinations in 2009 2009

The Financial Express, Sunday, December 28, 2008 One of the leading pharmaceuticals manufacturers, Aristopharma, has set a sales target of BDT 3bn (USD 43.8mn) for 2009, as the local drug manufacturer aims to strengthen its position among the top 10 players in the country. The company would like to add three more export destinations, namely, Malaysia, Lebanon and Nigeria to its current list of nine export countries. This year, the company became the first pharmaceutical manufacturer in Bangladesh to conduct bio-equivalence research for its medicine. The company has introduced 30 new products in the market, and has grown by more than 20%, which is almost twice as much as the overall growth of this industry in the country. Aristopharma’s current market share is about 5.2%, and the company aims to establish itself as one of the top five players by the end of 2009. http://www.thefinancialexpress-bd.com/2008/12/28/54352.html

Telecoms Telecoms Grameenphone to introduce BillPay for DESCO subscribers soon

The Financial Express, Tuesday, December 30, 2008 All subscribers of the Dhaka Electric Supply Company (DESCO) will soon be able to pay their electric bills either from their Grameenphone (GP) handset or from any GPauthorized BillPay outlets at anytime from any location. Earlier this year, GP won the contract through an open bid initiated by the DESCO. The service aims to remove consumers' hassles associated with standing in long queues, travelling, limited payment hours and various post payment harassment. In the initial phase, DESCO consumers will enjoy easy access to BillPay outlets at convenient locations. Consumers with mobile phones will get an immediate confirmation of bill payment from DESCO when bills are paid. Customers will also be able to make queries regarding present and past bill status via SMS or can receive assistance from GP's BillPay helpdesk. DESCO will enjoy fully automated reconciliation processes, reduced time between bill receipt and posting - resulting in faster available funds as well as improved cash-flows and reduction of manual processing costs and errors. http://www.thefinancialexpress-bd.com/2008/12/30/54540.html

Textiles BGMEA calls for reducing reducing Chittagong port service charges

The Financial Express, Tuesday, December 30, 2008 The Bangladesh Garments Manufactures and Exporters' Association (BGMEA) has asked for a reduction in charges for different services offered by the Chittagong Port (CP). The Chittagong Port Authority (CPA) raised different port charges last June, resulting in increased garments owners’ expenses for exporting their products. Freight charges of 20 feet containers rose to USD 6 from USD 1.5 and that of 40 feet containers was re-fixed at USD

12 from USD 3. The charge for importing goods was increased to BDT 816 (USD 11.9) from BDT 408 (USD 6) export charges rose to BDT 368 (USD 5.4) from BDT 184 (USD 2.7). http://www.thefinancialexpress-bd.com/2008/12/30/54533.html 2

2 Indian company company to invest USD 5.86m 5.86mn in Karnaphuli EPZ

The Financial Express, Tuesday, December 30, 2008 An Indian company will set up a knit garments manufacturing factory in the Karnaphuli Export Processing Zone (EPZ). M/s White House Clothing BD (Pvt) Limited, a 100% Indian company, will invest USD 5.86mn in the project. The company will create employment opportunity for 1,203 people, including 24 foreign nationals. http://www.thefinancialexpress-bd.com/2008/12/30/54546.html

Export growth of woven subsub-sector declines

The Financial Express, Monday, December 29, 2008 The country's apparel sector, especially the woven subsector, suffered slightly in November 2008, as import by the foreign countries declined due to the ongoing financial crisis. According to industry insiders, the industry is now waiting for orders to be negotiated in January-February when retail stores will reopen in foreign countries after the Christmas and year-end sales. The flow of new orders will determine whether the local textiles sector remains safe in face of the global financial turmoil. http://www.thefinancialexpress-bd.com/2008/12/29/54432.html

Tourism Search for Sheraton operator hits snags The Daily Star, Sunday January 04, 2009

The government's search for a new company to operate and manage Dhaka Sheraton Hotel is being held up temporarily. The hotel requires a one-year closure, which means profit loss for the government and temporary job losses for the hotel's 600 employees. The government continues talks with Ramada Plaza, a three-star hotel of US-based international chain Wyndham Worldwide, and Marriott International. A Marriott team is expected to arrive in Dhaka by the end of this week for negotiations. The government has bargained with at least seven international hotel chains in the last six months mainly on renovating Sheraton without closing it. The cost of renovations will be around USD 20mn. In November, Starwood, the management company of Dhaka Sheraton, extended its contract with the government till March 31. Starwood's 25-year deal expired on December 31. Sheraton made an operating profit of USD 4.16mn last year and forecasts 10% profit growth this year, according to Trevor MacDonald, general manager of Dhaka Sheraton. http://www.thedailystar.net/newDesign/news-details.php?nid=69959

2

One of the top EPZ’s at Chittagong

_______________________________________________________________________________________ AT Capital Weekly Update

19

AT CAPITAL RESEARCH

4 January 2009

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]

Jisha Sarwar

Senior Research Associate

(880-2)-8155144, ext. 119

[email protected]

Mohammad Emran Hasan

Senior Associate

(880-2)-8155144, ext. 120

[email protected]

Ahmad Sajid

Research Associate

(880-2)-8155144, ext. 135

[email protected] [email protected]

Abdullah-Al-Farooq

Research Analyst

(880-2)-8155144, ext. 133

M. Emrul Hasan

Research Analyst

(880-2)-8155144, ext. 138

[email protected]

Md. Zahidur Rahman

IT Analyst

(880-2)-8155144, ext. 140

[email protected]

Sohana Alam Seraj

Office Manager

(880-2)-8155144, ext. 132

[email protected]

AT Capital Team – North America/Asia 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]

Robert Kraybill

Senior Advisor

[email protected]

© Copyright 2008. Asian Tiger 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

20