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At Capital Weekly 08 September 2008

At Capital Weekly 08 September 2008

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Published by ashek ishtiak haq
Key themes in this issue are:
Bangladesh:
• We discuss the dispute between Prof Yunus and Telenor on Grameenphone’s control
that will undoubtedly give many foreign investors significant concerns.
• 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
• However the battle in the court of public opinion runs a number of risks for the IPO.
• One potential investor fear is event risk of future bad news/unforeseen accusations if
Professor Yunus continues to attack GP’s business practices/ ethics in the press.
• Another question will be: What is the business model a GP majority owned by
Grameen is likely to follow in the future. Will act more like an NGO with a not-for-profit
ethos at the expense of other shareholders?
• There is also potential uncertainty over not only the potential distribution of dividends
but also whether a greater emphasis on social responsibility might come at the
expense of profit-maximization.
• We would argue that it is in the interest of both Telenor and Prof Yunus to reach an
agreement behind closed doors and publish a binding statement as to their intent to
reassure prospective investors. Otherwise they risk short-circuiting what is
undoubtedly a seminal event in the evolution of Bangladesh’s capital markets.
Global Markets:
• US August unemployment rate spikes
• GSE Semi-Nationalization imminent
• PIMCO's Bill Gross on need for broader government intervention
• Roger Lowenstein on lessons not learnt after LTCM
Key themes in this issue are:
Bangladesh:
• We discuss the dispute between Prof Yunus and Telenor on Grameenphone’s control
that will undoubtedly give many foreign investors significant concerns.
• 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
• However the battle in the court of public opinion runs a number of risks for the IPO.
• One potential investor fear is event risk of future bad news/unforeseen accusations if
Professor Yunus continues to attack GP’s business practices/ ethics in the press.
• Another question will be: What is the business model a GP majority owned by
Grameen is likely to follow in the future. Will act more like an NGO with a not-for-profit
ethos at the expense of other shareholders?
• There is also potential uncertainty over not only the potential distribution of dividends
but also whether a greater emphasis on social responsibility might come at the
expense of profit-maximization.
• We would argue that it is in the interest of both Telenor and Prof Yunus to reach an
agreement behind closed doors and publish a binding statement as to their intent to
reassure prospective investors. Otherwise they risk short-circuiting what is
undoubtedly a seminal event in the evolution of Bangladesh’s capital markets.
Global Markets:
• US August unemployment rate spikes
• GSE Semi-Nationalization imminent
• PIMCO's Bill Gross on need for broader government intervention
• Roger Lowenstein on lessons not learnt after LTCM

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08 September 2008

AT CAPITAL RESEARCH
AT Capital Weekly Update

Weekly News Update News

Key themes in this issue are:
Bangladesh:
• • • • • We discuss the dispute between Prof Yunus and Telenor on Grameenphone’s control that will undoubtedly give many foreign investors significant concerns. 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 However the battle in the court of public opinion runs a number of risks for the IPO. One potential investor fear is event risk of future bad news/unforeseen accusations if Professor Yunus continues to attack GP’s business practices/ ethics in the press. Another question will be: What is the business model a GP majority owned by Grameen is likely to follow in the future. Will act more like an NGO with a not-for-profit ethos at the expense of other shareholders? There is also potential uncertainty over not only the potential distribution of dividends but also whether a greater emphasis on social responsibility might come at the expense of profit-maximization. We would argue that it is in the interest of both Telenor and Prof Yunus to reach an agreement behind closed doors and publish a binding statement as to their intent to reassure prospective investors. Otherwise they risk short-circuiting what is undoubtedly a seminal event in the evolution of Bangladesh’s capital markets.

Global Markets:
• • • • US August unemployment rate spikes GSE Semi-Nationalization imminent PIMCO's Bill Gross on need for broader government intervention Roger Lowenstein on lessons not learnt after LTCM

Asian Tiger Capital Partners

EDITORS

Ifty Islam Managing Partner ifty.islam@at-capital.com Syeed Khan Partner syeed.khan@at-capital.com Professor Jahangir Sultan Senior Advisor jahangir.sultan@at-capital.com

Hopefully not the Grameenphone shareholder discussion

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

08 September 2008

AT CAPITAL RESEARCH
Contents Page
3 3 3 4

Overview – Bangladesh
The Grameen saga – Shakespearian high drama risks more than IPO delay Battle of words on GP business ethics and terms of ownership agreement Current dispute undoubtedly risks damaging prospective overseas investor in GP issue

Overview – Global Markets
US Government plan’s semi-nationalization of GSEs Weak August US labour report triggered another round of investor gloom Bill Gross of PIMCO highlighted need for new balance sheet capital from Government What happens during delevering Roger Lowenstein on similarities between LTCM crisis of 1998 and 2008 subprime shock Long term capital: it’s a short term memory Brad Stetser on petro surpluses 6 6 7 7 8 8 11

Stock Market Weekly
Weekly Stock Market Commentary Stock Market News

12 13 13

Economics
Economic News

16 17

Sector News

18

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AT Capital Weekly Update 2

08 September 2008

AT CAPITAL RESEARCH
possibility, a remote possibility…We are not the kind of people Ifty Islam, Managing Partner to rush to the courts."
ifty.islam@at-capital.com

Overview – Bangladesh
Shakespea The Grameen saga – Shakespearian high drama risks more than IPO delay As we have highlighted in previous issues of the ATC Weekly, Grameenphone’s (GP) proposed IPO is 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), but also that: 1) Greater Supply: The GP IPO will likely encourage other corporates in Bangladesh to come to market as they become more convinced that the regulators are allowing “fairer” or market-driven valuations. We will also likely see greater supply from other Telecoms companies and potentially privatization issues. 2) More Overseas Demand: It is 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, the events over the past few days will undoubtedly give many foreign investors significant concerns. On September 7, Securities and Exchange Commission Chairman Faruq Ahmad Siddiqi told bdnews24.com, "The information GP sent to the Commission is not enough. We asked for more details… It may not be possible to complete the process for GP to offload shares by the end of this year”. He went on to state that the SEC would make a final decision on the matter after examining all relevant information on the company.“ His statement was consistent with Telenor spokesman Dag Melgaard who told Reuters Friday that "The IPO could be this year or next... at the moment, things are a bit unpredictable." If the debate was on whether the 17-times face value was aggressive, or if there were any more technical considerations then investors would likely be more understanding. But it is difficult to blame the SEC for caution given what can only be described as “high drama” and a number of statements and counter-statements between Grameen founder Professor Yunus and Telenor about the issue of the Norwegian company giving up management control. Battle of words on GP business ethics and terms of ethics ownership agreement 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

Grameenphone shareholder debate

But there is little doubt that the Grameen founder is appealing to what he calls the “court of public opinion” in stating that, "I am confident the people of Norway will see to it that the companies that they own and control honour their written intention, in all cases, and especially when dealing with the poor women of Bangladesh.” Professor Yunus also highlighted a lapse in business ethics as a reason why Telenor should transfer management ownership to Grameen. Among other comments, he said that although both Telenor and Grameen Telecom were seeking growth in the phone company, Telenor's agenda to "maximize returns for the benefit of its owners" was in conflict with the "social and non-profit agenda of Grameen Telecom". He also highlighted that Telenor has also faced criticism over safety conditions and use of child labour by its subcontractors in Bangladesh. A new report from public broadcaster NRK on Thursday disclosed another incident of child labour at a subcontractor to a Grameenphone supplier. Dr. Yunus commented that "Grameen and I cannot be identified with this.” "In light of the recent alleged illegal activity, that transfer should now occur as soon as possible before further damage is inflicted on the Grameen name. Although Grameen Telecom will see that social objectives will be implemented in the management of the phone company, Grameenphone, it will seek to maintain and expand the growth and the profits in the phone company.” 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." 3

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AT Capital Weekly Update

08 September 2008
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." The professor was particularly scathing about Telenor's way of doing business or running Grameenphone. "The agenda of Telenor to maximize returns for the benefit of its owners is, however, in conflict with the social and non-profit agenda of Grameen Telecom… Unfortunately, the telephone company recently has been criticized for labour violations by its contractors, for violation of environmental law and for engaging in illegal telecom activities in Bangladesh. Journalists have recently revealed cases where children have been working for the subcontractors of Grameenphone." He also referred to the telecoms regulators fining the company for rogue operations. "Bangladeshi authorities on two different occasions found that the telephone company was not in compliance with Bangladeshi law. In total, the company was fined USD 60mn… USD60mn is a huge amount of money. In Bangladesh, USD 60mn is enough to pay for over 2 million cataract eye operations, giving that many people get their sight back… It is enough to educate over 500,000 girls for one year… The breach of Bangladeshi law imposed a risk of loss of the company's license as a telephone operator. Furthermore, I personally have been condemned by the Bangladeshi media for this violation of Bangladeshi laws and have been accused of making illegal money… We recently have received the police report from the authorities' investigation of the illegal activities. Another company, Malaysian-based DiGi Telecom Ltd., is accused of contributing to the illegal activities. DiGi Telecom also is accused of laundering money through an account in Singapore. DiGi Telecom Ltd is owned 61% by Telenor… It can be perceived to the committee members that the majority shareholders of Grameenphone Ltd are involved in encouraging the illegal VoIP business in the international field… The reputation of Grameen and the hard and honest work of its now 300,000 telephone ladies have been an important factor in the success of the phone company in Bangladesh… The telephone ladies became internationally acclaimed as successful entrepreneurs through mobile technology, and Telenor reaped financial benefits from this… Now the goodwill the Grameen name provides to the telephone is being undermined by these alleged illegal activities." 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.

AT CAPITAL RESEARCH

Current dispute undoubtedly risks damaging prospective overseas overseas investor in GP issue 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. Among other things, one can imagine that foreign investors might be concerned about: 1) Event risk of bad news and unforeseen accusations if Professor Yunus continues to attack GP’s business practices or ethics in the press. As Bangladesh’s first Nobel Prize winner, his comments clearly carry a great deal of weight in terms of domestic and critically, international opinion. 2) What is the business model a GP majority-owned by Grameen likely to follow in the future? Will it act more like an NGO with a not-for-profit ethos at the expense of other shareholders? 3) There is potential uncertainty over not only the potential distribution of dividends, but also whether a greater emphasis on social responsibility might come at the expense of profit-maximization. There is clearly nothing wrong with this corporate objective and much to admire in its ethos. But financial investors must have clarity on what business model they are investing in. Clearly one potential outcome that Telenor are rejecting at the moment is a Grameen buyout of 12.1% of their stake by Grameen to give the latter majority control. As Grameen Bank has a USD 1bn balance sheet with USD 850mn of capital and little bank borrowing, they can undoubtedly afford the cost based on a USD 3.2bn proposed valuation for the whole company. It might be argued that GP already faces a number of business challenges that potential investors will be focusing on including: 1) Prospective threat from WiMAX companies as they compete in voice, as well as data

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AT Capital Weekly Update 4

08 September 2008
2) Intense competition on price given six competitors. Landline operators also likely to be given licenses to enter mobile market in 2011 3) Potential support for Aktel in 3G space from NTT Docomo, who are buying a 30% stake and one of the world’s leaders in 3G technology As more foreign investors buy into the Bangladesh stock market, there will undoubtedly be greater scrutiny of news, information and risk assessment. You can guarantee that almost every major Telecoms research and deal team in Asia from all the major global and regional investment banks will be analyzing and publishing their thoughts on the implications of the latest fallout between the two major stakeholders for valuations and whether their clients should be buying into the IPO and at what price. We would argue that it is in the interest of both Telenor and Professor Yunus to reach an agreement behind closed doors and publish a binding statement as to their intent to reassure prospective investors. Otherwise they risk short-circuiting what is undoubtedly a seminal event in the evolution of Bangladesh’s capital markets. Appendix Grameenphone • • • • • • • • • • 28 November, 1996: Received License to operate mobile phone operation in Bangladesh 26 March 1997: Launched service in Dhaka September 1997: Leased railway fiber optics June 1998: Launched services in Chittagong July 1999: Signed loan agreement with IFC, CDC & ADB of USD 50mn August 1999: Launched first prepaid service May 2000: First month of net profit January 2002: Reached 500,000 subscriber base October 2003: First dividend payout Grameenphone ownership: Prior to 2004 Since 2004

AT CAPITAL RESEARCH

Grameenphone subscriber Growth:

Source: Grameenphone
• • 16 November 2006, Grameenphone changed its logo to match its parent company Telenor’s logo Telenor has mobile operators in 12 countries:

Source: Telenor

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AT Capital Weekly Update 5

08 September 2008

AT CAPITAL RESEARCH
Ifty Islam, Managing Partner
ifty.islam@at-capital.com

Overview Overview – Global Markets
emiUS Government plan’s semi-nationalization of GSEs In the most dramatic market intervention since the S&L crisis, on Sep 7 the U.S. government seized Fannie Mae and Freddie Mac, the two US largest financial companies, taking direct responsibility for firms that provide funding for around three-quarters of new home mortgages. Treasury Secretary Henry Paulson announced a plan to replace the companies' chief executives and provide up to USD 200bn in capital to restore the firms to financial health. The Treasury's plan puts the two companies under a conservatorship, giving management control to their regulator, the Federal Housing Finance Agency, or FHFA. In return for agreeing to provide as much equity capital as needed later to cover losses stemming from mortgage defaults, the Treasury gets USD 1bn of preferred stock in each company without providing any immediate cash.

The move is also likely to nudge down mortgage interest rates for households and help prevent a deepening of what is already the worst housing slump since the 1930s. Despite steep interest-rate cuts by the Federal Reserve, the cost of a typical 30-year fixed-rate mortgage has remained well over 6% for most of the past year. To bolster the mortgage market, Treasury said it will buy, on the open market, at least USD 5bn of new mortgage-backed securities issued by Fannie and Freddie. The government rescue of Fannie and Freddie is likely to result in billions in losses for stock holders, including major US banks. But it protects the investments of bondholders, including mutual funds, foreign central banks and government investment funds that own large amount debt issued by the two companies. It is unclear how much the government's intervention will ultimately cost taxpayers. In exchange for agreeing to provide as much capital as needed to the companies as they cope with heavy losses on mortgage defaults, the Treasury will acquire USD 1bn of preferred shares in each company. It has obtained warrants that give it the right to a stake of 79.9% for a nominal sum. The Treasury's preferred shares will be senior to those earlier issued, meaning the government will have the first right to receive dividends. The new overseers will also eliminate dividends on billions of common and preferred stock, moves that are expected to drive down the price of those shares, which have already dropped precipitously this year. The issue of additional preferred shares will dilute common shares. The Treasury's move doesn't answer what could be the USD 5 trillion question of what ultimately happens to Fannie and Freddie. Under the conservatorship of their regulator, the companies will still have their shares listed on the New York Stock Exchange, but management control goes to the regulator until it deems the companies financially healthy. Congress ultimately will have to decide in what form Fannie and Freddie will be re-launched or whether they will be replaced by different types of entities. The Treasury plan limits the size of each company's mortgage portfolios to a maximum of USD 850bn as of the end of 2009. After that, the Treasury intends for the mortgage holdings to shrink about 10% a year until they reach about USD 250bn at each company. Many economists and analysts believe the government had to wade deeper into the mortgage market because for now "private markets are just not willing to put up the capital" for home mortgages at prices U.S. consumers could afford. Without government support for the mortgage market, home prices would fall much farther, exposing the country as a whole to greater economic strain. Fannie and Freddie's credit problems are largely a reflection of the overall weakness in the housing market. Some 9.2% of mortgages on one-to-four family homes were at least a month overdue or in the foreclosure process in the second quarter, according to the latest survey of the Mortgage

With that, the U.S. mortgage crisis entered a new and uncharted phase, potentially saddling American taxpayers with billions of dollars in losses from home loans made by the private sector. Mr. Paulson noted that more than USD 5 trillion of debt and mortgage-backed securities issued by Fannie and Freddie is owned by central banks and other investors world-wide. He stated that "Failure of either of them would cause great turmoil in our financial markets here at home and around the globe," Mr. Paulson said. As the Wall Street Journal has noted, by taking this action, the government has seized control of the vast bulk of the secondary market for home mortgages, where these loans are sold to investors, and will have a more direct responsibility than ever for solving the housing crisis. The intervention also marks the failure of the public-private experiment that was created to boost home ownership among Americans. Though Fannie and Freddie were created by Congress to help prop up the housing market, they have long been owned by private shareholders seeking to maximize profits.

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AT Capital Weekly Update 6

08 September 2008
Bankers Association. That is the highest percentage in the 39 years that the trade group has been doing the surveys. As the Financial Times noted on September 8 in their Lex Column: ”The US government's decision to place Fannie Mae and Freddie Mac into "conservatorship" came without a specific cause – such as a failed debt refinancing – but rather a sense they were both failing to provide affordable mortgage debt while also threatening to upend the US financial system. The looming election, combined with increasing reluctance by foreign central banks to buy US mortgage-backed paper, may also have helped prompt his early intervention.” How much might it cost taxpayers? The Treasury can inject as much as USD 100bn into each GSE to help support their combined USD 5,400bn portfolio of bonds – although it is unlikely to need to do so. It may even make a profit from the GSE mortgage-backed debt that it buys directly and then holds to maturity. Even so, the bailout is potentially huge, although it will probably not be the US's biggest: the cost to the taxpayer from the savings and loan crisis was USD 300bn in today's money. Against that – and billed as saving the global financial system from unimaginable turmoil – the expense of saving the mortgage financiers may even prove moderate.

AT CAPITAL RESEARCH
The economy expanded in the second quarter at a healthy annual rate of 3.3%, a response in part to families spending their rebate checks from the first stimulus package and to a surge in exports as the dollar weakened. Now the dollar is rising, the last of the stimulus checks were mailed weeks ago, and the credit crisis — particularly the reluctance of banks and other financial institutions to lend to consumers and businesses alike — is restricting economic activity. Given these pressures, many economists expect thirdquarter growth to be barely positive. In any case, the government is not scheduled to announce the third-quarter number until late October, just days before the election. The August jobs report seemed to suggest that the deterioration in the economy is accelerating. The unemployment rate has risen 1.4% points over the last year and is now at its highest level since September 2003, when the economy was just beginning to emerge from a jobless recovery. What’s more, those who swelled the unemployment rolls last month were adults, many over the age of 45, and not teenagers, who were the main contributors to the jump in unemployment in May, when the rate rose to 5.5% from 5% in April. The nearly 600,000 people added to the unemployment roles in August included almost as many college graduates as those with only a high school degree. Manufacturing companies shed the most jobs last month, 61,000, mostly at auto plants and in housing-related industries. There were also sharp cutbacks in the use of temporary workers, and across most of the work force hourly and weekly wages once again failed to keep pace with inflation. Bill Gross of PIMCO highlighted need for new balance sheet capital from Government Bill Gross is the Co-Chief Investment Officer of PIMCO which is the largest bond fund in the world with USD 830bn of assets under management. He is genuinely one of the few players in global financial markets beyond central banks and government that can move investor sentiment. His comments below from his September 2008 PIMCO Investment Outlook, provide a valuable perspective on why the government will be forced to bail out not only Fannie Mae and Freddie Mac but US households more broadly. In the absence of this, the US housing downturn, and hence the prospects for a global recession, will persist. “So the lesson must be to go forth and find the bull market, wherever it is. Almost always – but not now because in a global financial marketplace in the process of delevering, assets that go up in price are rare diamonds as opposed to grains of sand. For the past several months our PIMCO Investment Committee blackboard has continued to display the following lesson plan: happens What happens during delevering?

abou Weak August US labour report triggered another round of investor gloom The unemployment rate jumped to 6.1 percent in August, its highest level in five years, pushing the troubles of American workers to the center of the political debate as the presidential campaign enters its final weeks. For the eighth consecutive month, the nation’s employers shed jobs, 84,000 last month, the Bureau of Labor Statistics reported Friday. In all, 605,000 jobs have been lost since January. The steady rise in unemployment, from 5.7% in July and 5% in April, is one that many economists associate with recession. Apart from the 84,000 jobs lost in August, the bureau yesterday revised its original estimates for June and July, saying that an additional 58,000 jobs had disappeared in those months. Nearly all represented cutbacks by state and local governments struggling with lower tax revenues in a

Risk spreads, liquidity spreads, volatility, term premiums – they all go up. Delevering slows/stops when assets have been liquidated and/or sufficient capital has been raised to produce an equilibrium. The raising of sufficient capital now

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AT Capital Weekly Update 7

08 September 2008
depends on the entrance of new balance sheets. Absent that, prices of almost all assets will go down.

AT CAPITAL RESEARCH
in the form of monthly mortgage payments (many of which are in-creasing due to adjustable or option-related contractual provisions) lead to foreclosures, which in turn cause a debt liquidation. The bank in this case, takes possession of the home and dumps it back on the market, lowering the price even further, which leads to more foreclosures, which leads to…. This rarely observed systematic debt liquidation is what confronts the U.S. and perhaps even the global financial system at the current time. Unchecked, it can turn a campfire into a forest fire, a mild asset bear market into a destructive financial Tsunami. Central bankers, of course, adopting the cloak and demeanor of firefighters or perhaps lifeguards, have been hard at work over the past 12 months to contain the damage. And the private market, in its attempt to anticipate a bear market bottom and snap up "bargains," has been constructive as well. Over USD 400bn in bank- and finance-related capital has been raised during the past year, a decent amount of it, by the way, having been bought by yours truly and my associates at PIMCO. Too bad for us and for everyone else who bought too soon. There are few of these deals now priced at par or above, which is bondspeak for "they are all underwater." We, as well as our SWF and central bank counterparts, are reluctant to make additional commitments. Step 2 on our delevering blackboard therefore has stalled and is inevitably morphing towards Step 3. Assets are still being liquidated but there is an increasing reluctance on the part of the private market to risk any more of its own capital. Liquidity is drying up; risk appetites are anorexic; asset prices, despite a temporarily resurgent stock market, are mainly going down; now even oil and commodity prices are drowning. There may be a Jim Cramer bull market somewhere, but it's primarily a mirage unless and until we get the entrance of new balance sheets, and a new source of liquidity willing to support asset prices. If we are to prevent a continuing asset and debt liquidation of near historic proportions, we will require policies that open up the balance sheet of the U.S. Treasury – not only to Freddie and Fannie but to Mom and Pop on Main Street U.S.A., via subsidized home loans issued by the FHA and other government institutions. Roger Lowenstein on similarities between LTCM crisis of subprime 1998 and 2008 subprime shock Roger Lowenstein is the author of “When Genius Failed” the story of when hedge fund Long-Term Capital Management (LTCM) collapsed and almost brought down the global financial system. In the article below written for the Sep 7 New York Times, he compares the similarities between the current crisis of 2008 and the events almost exactly 10 years ago. His comments on why markets fail to learn from past experience are extremely illuminating. Long term capital: it’s a short term memory A financial firm borrows billions of dollars to make big bets on esoteric securities. Markets turn and the bets go sour. Overnight, the firm loses most of its money, and Wall Street suddenly shuns it. Fearing that its collapse could set off a full-scale market meltdown, the government intervenes and encourages private interests to bail it out. 8

The above might seem simplistic to us at PIMCO but it is not necessarily clear to all readers. Term premiums? Risk spreads? Volatility? What do they have to do with bull or bear markets? Well, what Step 1 really says is that as GSEs, banks, investment banks, global hedge funds and even individual households delever their balance sheets by shedding assets, they lower the prices of not just what they are selling, but other securities that are arbitrageable within the marketplace. The past 12 months, for instance, have focused on subprime and alt-A mortgages and their drastically lowered prices. Stocks of companies that own them are of course marked down, but so are other assets of impeccable quality. Because junk mortgages now in some cases yield 15%, money at the margin is pulled out of the agency mortgage market where implicit guarantees and explicit Treasury promises to provide standby capital lead to bona fide AAA quality ratings. We estimate that the process of delevering has lowered the price on FNMA and FHLMC mortgages by as much as 3-4% and raised the yield on their 30-year fixed paper by as much as 75 basis points. Similarly, the volatility associated with asset liquidation as well as the observable lack of liquidity adds additional risk spread premia, which in turn lower the price of almost any stock, bond or piece of real estate that you or anyone else owns. In combination, the current delevering has managed to sink all three primary asset classes in aggregate, as shown in Chart 1. At first, one might wonder why all the fuss. As the chart demonstrates, there have been prior periods when this trio has not done well and the U.S. economy has hardly blinked. However, the current year-over-year decline of over 10% has never really been witnessed since the Great Depression. That, in and of itself, is a potential red flag. Yet a 10% aggregate asset price decline does more than make us all 10% less wealthy. Because many of these assets are leveraged and margined, the more they decline, the more frequent and frenzied the margin calls, and if the additional cash flow is not provided, not only an asset liquidation but a debt liquidation follows. It is the debt liquidation that potentially turns a stagnant/recessionary economy into something much worse. In the housing market for instance, it is one thing to observe a 15% national decline in home prices. It is much more serious however, when margin calls AT Capital Weekly Update

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08 September 2008
The firm isn’t Bear Stearns — it was Long-Term Capital Management, the hedge fund based in Greenwich, Conn., and the rescue occurred ten years ago this month. The Long-Term Capital fiasco momentarily shocked Wall Street out of its complacent trust in financial models, and was replete with lessons, for Washington as well as for Wall Street. But the lessons were ignored, and in this decade, the mistakes were repeated with far more harmful consequences. Instead of learning from the past, Wall Street has re-enacted it in larger form, in the mortgage debacle cum credit crisis. In the wake of Long-Term Capital’s failure, Wall Street professed to have learned that even models designed by “geniuses” were subject to error and to the uncertainties that inevitably afflict human forecasts. It also professed a newfound respect for the perils of borrowing. Whether this wisdom endured may be judged by events of the past year, when not only Bear Stearns but also scores of banks and financial institutions have written off hundreds of billions of dollars — a result of blithe faith in models of the housing industry, not to mention a voracious hunger to do business on credit. Regulators, too, have seemed to replay the past without gaining from the experience. What of the warning that obscure derivatives needed to be better regulated and understood? What of the evident risk that intervention from Washington would foster yet more speculative behavior — and possibly lead to a string of bailouts? Indeed, through the lens of today’s more widespread failure, the Long-Term Capital collapse looks like a small dress rehearsal. But at the time, it sent tremors of fear through the corridors of Wall Street, along the electronic byways of finance and around the globe. Somehow, a geeky band of bond traders was able to throw the financial world off kilter. In its first four years, Long-Term Capital achieved phenomenal profits with virtually no downside. Thanks to its seemingly flawless computer models, as well as its formidable arbitrageurs — including two Nobel laureates and a former vice chairman of the Federal Reserve — it quadrupled its capital without having a single losing quarter. But in the summer of ’98, its fortunes took a frightful downturn. With terrifying suddenness, bond markets turned skittish and all the fund’s gambits ran into trouble. As Long-Term Capital teetered, Wall Street feared that its unraveling could set off a systemic meltdown, and William J. McDonough, president of the Federal Reserve Bank of New York, agreed. On Sept. 22 and 23 — by which time LongTerm had lost almost USD 4.5bn — he summoned the heads of the major Wall Street firms, along with senior bankers from Europe, to a conference at the Fed. Fearing chaos, 14 banks — Bear Stearns, ironically, was the lone naysayer — agreed to rescue Long-Term by investing USD 3.65bn. Within a few weeks, calm returned and the crisis passed. No firm had a closer view of Long-Term Capital than Bear Stearns, the broker that cleared its trades. And it was Bear that sounded the first shot in the current mortgage crisis. In summer 2007, amid a sharp rise in delinquencies on subprime mortgages, two hedge funds sponsored by Bear AT Capital Weekly Update

AT CAPITAL RESEARCH
that invested in high-rated mortgage securities imploded. As foreclosures kept rising, other institutions suffered losses and the crisis spread. Bear was warned to raise more capital by selling stock, but its senior executives, led by James E. Cayne, the chief executive, thought the company’s stock was cheap and refused. Mr. Cayne, who was an original investor in LongTerm Capital, should have remembered that the hedge fund’s most obvious flaw was its excessive borrowing, or leverage. Before its annus horribilis, Long-Term had intentionally reduced its equity to a mere 3% of assets. It was a fatal mistake. This time around, Bear gambled that it could survive with a weak balance sheet — its equity-to-assets ratio was an identical 3 percent. By March, worries that Bear was overleveraged prompted a run on its stock and pushed it to the brink of bankruptcy. Again, Wall Street feared that a chaotic collapse could jeopardize the financial system, and the Fed orchestrated a rescue. AS striking as the parallel is to Bear, Long-Term Capital’s echo is far more profound. Its strategy was grounded in the notion that markets could be modeled. Thus, in August 1998, the hedge fund calculated that its daily “value at risk” — meaning the total it could lose — was only USD 35mn. Later that month, it dropped USD 550mn in a day. How could the fund have been so far off? Such “risk management” calculations were and are a central tenet of modern finance. “Risk” is said to be a function of potential market movement, based on historical market data. But this conceit is false, since history is at best an imprecise guide. Risk — say, in a card game — can be quantified, but financial markets are subject to uncertainty, which is far less precise. We can calculate that the odds of drawing the queen of spades are 1 in 52, because we know that each deck offers 52 choices. But the number of historical possibilities keeps changing. Before 1929, a computer would have calculated very slim odds of a Great Depression; after it, considerably greater odds. Just so, before August 1998, Russia had never defaulted on its debt — or not since 1917, at any rate. When it did, credit markets behaved in ways that Long-Term didn’t predict and wasn’t prepared for. This was the same mistake that scores of lenders would make in the housing industry. The United States had never suffered a nationwide contraction in housing prices; they assumed that the pattern would hold. Modern finance is an antiseptic discipline; it eschews anecdotes and examples, which are messy and possibly misleading — but nonetheless real. It favors abstraction, which is perfect but theoretical. Rather than evaluate financial assets case by case, financial models rely on the notion of randomness, which has huge implications for diversification. It means two investments are safer than one, three safer than two. The theory of option pricing, the Black-Scholes formula, is the cornerstone of modern finance and was devised by two Long-Term Capital partners, Robert C. Merton and Myron S.

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9

08 September 2008
Scholes, along with one other scholar. It is based on the idea that each new price is random, like a coin flip. Long-Term Capital’s partners were shocked that their trades, spanning multiple asset classes, crashed in unison. But markets aren’t so random. In times of stress, the correlations rise. People in a panic sell stocks — all stocks. Lenders who are under pressure tighten credit to all. And Long-Term Capital’s investments were far more correlated than it realized. In different markets, it made essentially the same bet: that risk premiums — the amount lenders charge for riskier assets — would fall. Was it so surprising that when Russia defaulted, risk premiums everywhere rose? More recently, housing lenders — and the rating agencies who put triple-A seals on mortgage securities — similarly misjudged the correlations. The housing market of California was said to be distinct from Florida’s; Arizona’s was not like Michigan’s. And though one subprime holder might default, the odds that three or six would default were exponentially less. Randomness ensured (or so it was believed) a diverse performance; diversity guaranteed safety. After Long-Term Capital’s fall, many commentators blamed a lack of liquidity. They said panic selling in thin markets pushed its assets below their economic value. That’s why leverage is dangerous; if you operate with borrowed money, you lack the luxury of waiting until prices correct. The fund’s partners likened their disaster to a “100-year flood”— a freak event like Katrina or the Chicago Cubs winning the World Series. (The Cubs last won in 1908; right on schedule, they are in contention to repeat.) But their strategies would have lost big money this year, too. John W. Meriwether, the fund’s founder, later organized a new fund, which suffered big losses early this year, according to press reports. If 100-year floods visit markets every decade or so, it is because our knowledge of the cards in history’s deck keeps expanding. When perceptions change, liquidity evaporates quickly. Indeed, the belief that one can safely get out of a “liquid” market is one of the great fallacies of investing. This lesson went unlearned. Banks like Citigroup and Merrill Lynch felt comfortable owning mortgage securities not because they knew anything about the underlying properties, but because the market for mortgages was supposedly “liquid.” Each firm would write down the value of its mortgage investments by more than USD 40bn. Such stupefying losses suggest the biggest difference between 1998 and today. In ’98, though credit markets froze and stocks plunged, they recovered quickly. Long-Term Capital was wholly a financial episode; it left no scar on Main Street. The current crisis has its roots in housing, a mainstay of the economy, and with the bubble’s bursting the damage has been enduring and severe. But Long-Term Capital’s influence on regulatory practice is anything but forgotten. Alan Greenspan conceded at the time that the fund’s rescue could lead to “moral hazard,” meaning

AT CAPITAL RESEARCH
it could tempt financial players to take excessive risk. The warning was ignored. And the notion that a private hedge fund with but 16 partners and fewer than 200 employees could cause lasting harm was never truly examined. It was simply accepted. The concept of too-big-to-fail, exceptional in 1998, is now a staple in the regulators’ playbook. Bear Stearns and, by implication, other troubled investment banks have been taken under Washington’s protective skirts; Fannie Mae and Freddie Mac, too. The Federal Deposit Insurance Corporation is pushing for easier terms for millions of homeowners; auto companies are demanding loan guarantees. Where does it end? If individual responsibility is to be fully excised from American capitalism, the free-market enthusiasts who founded Long-Term Capital deserve no little credit. The shock of their failure was such that hedge funds have been regarded as especially suspect ever since. This, too, is a misbegotten lesson; an investment bank (Bear Stearns) could and did wreak similar havoc. Long-Term Capital’s woes had less to do with who was trading than with the kind of assets they were playing with, namely that potent tinder of modern finance: derivatives (these are off-balance sheet agreements whose value “derives” from that of underlying assets like stocks or bonds). In traditional finance, borrowers borrow and lenders lend. The only firms exposed to, say, home mortgages, are the banks that issue them. Thanks to derivatives, a firm with exposure can pass it off, and a firm with no exposure can assume it. Markets thus have less information about where risk lies. This results in periodic market shocks. Put differently, derivatives, which allow individual firms to manage risk, may accentuate risk for the group. Markets were stunned to discover that Long-Term Capital owned outsized portions of obscure derivatives. They dealt with that shock in typical fashion: they panicked. Incredibly, six months after the Long-Term Capital affair, Mr. Greenspan called for less burdensome derivatives regulation, arguing that banks could police themselves. In the last year, he has been disproved to a fault. Investors have no confidence in banks or in their disclosures. How much will each downward tick in housing prices hurt the bottom line? No one knows. Failing to inspire confidence, banks cannot raise (enough) capital; thus, they do not lend. Bear Stearns had on its books USD 2.5 trillion of a derivative known as a credit default swap. Perplexed and alarmed, investors dumped the stock. And Bear was party to a hopelessly complex web of such derivative deals. Rather than let its contracts fail, regulators forced it to merge. What we need from Washington now is not a promise of help after the next bust, but a show of wisdom before it. Requiring full, meaningful derivatives disclosure would be a good start. Investors, meanwhile, could help themselves by preparing for the next 100-year flood. Rest assured, it will arrive before then.

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AT Capital Weekly Update 10

08 September 2008
Brad Stetser on petro surpluses
International Macro watcher Brad Stetser makes the following useful observations oil surpluses in the face of the current softening in commodity prices: “The recent fall in oil prices seems to have caused a wee bit of trouble at a few commodity hedge funds. But it is important to keep the fall in perspective. If oil stays around USD 110 for the rest of the year, the sweet light stuff should average about USD 112-113 dollars in 2008, about USD 40 a barrel more than it averaged in 2007. If it slides to around USD 100, oil will still average close to USD 110 dollars this year, or almost USD 40 a barrel more than in 2007. I did some very ballpark math to calculate the annual increase in oil export revenues associated with oil price moves since 1990. To keep everything simple, I assumed the big oil exporters exported a constant 40 mbd during the entire period. I know that is wrong, but I don’t have an “net oil exports of the big oil exporters by month” (or even by year) going back to 1990 readily available. It isn’t wildly off though, and it tells the story well. A USD 112 average oil prices means the oil exporters should have about USD 500bn more than in 2007. That is probably a bit low, as I suspect net oil exporters of the big oil exporters are now a bit over 40 mbd (oil experts, please chime in!) And just to be clear, despite the chart’s title, the chart shows the estimated change in oil export revenues for all oil exporters, not just the Saudis.

AT CAPITAL RESEARCH
sometimes seemed jealous of Dubai’s ability to draw attention to itself,” I get a sense that the al-Nahyan family got tired of seeing all the talk of big “Dubai” wealth funds . Abu Dhabi certainly hasn’t been trying to hide its wealth recently — which is something of a change. It also calls into question why Abu Dhabi continues to avoid disclosing ADIA’s size. The argument that Abu Dhabi doesn’t want to attract too much attention doesn’t really cut it these days.”

Incidentally, the oil exporters probably now need an oil price of around USD 70 a barrel to cover their import bill, so USD 500 billion plus isn’t a bad estimate for their combined current account surplus — or for their official asset growth — in 2008. I’ll be interested to see the IMF’s estimate of this in the WEO. The Saudis don’t have a thing to worry about it oil stays at its current level. They can spend more at home and buy more assets abroad. And Abu Dhabi can continue its current spending (oops, investment) spree — and make sure the world knows that Abu Dhabi, not Dubai, has the real cash. Like Landon Thomas, who recently wrote “Abu Dhabi has

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AT Capital Weekly Update 11

08 September 2008

AT CAPITAL RESEARCH
Market news

Stock Market Weekly
weeks DSE performance: 52 weeks

• •

Grameenphone IPO unlikely by December Dr. Mirza Azizul Islam suggests suspension of Z category share trading Ananda Shipyard to go public by year-end to finance its expansion Body formed to reduce IPO processing time International Leasing's brokerage house begins journey

• •

DSE performance: 30 days

Regional stock market performance (last week)

Market summary
Index performance Opening of this week Closing of this week Change within a week (%) Change within a week (Point) DSE General Index 2,765.5 2,803.0 1.4% 37.5 This Week 5 14.44 202 40 82 16 Last Week 4 14.07 156 39 61 15 This Week 117 129 5 37 DSE 20 2,425.9 2,410.0 -0.7% -15.9 % Change 2.6% 29.4% 3.5% 33.1% 6.5% Last Week 178 54 13 42

Valuation snapshot
Sector P/E Apr-08 May-08 22.2 22.6 14.7 17.6 43.7 42.7 38.9 41.4 28.2 28.5 25.8 26.2 28.1 32.4 64.9 65.2 18.4 17.6 16.4 16.0 23.0 25.9 9.2 9.5 26.7 29.8 20.5 19.5 25.1 23.1 14.9 14.4 Jun-08 21.7 12.4 42.0 39.1 13.2 23.6 26.9 53.1 20.0 16.0 23.2 9.2 28.1 20.8 19.8 15.2 Jul-08 19.2 11.2 50.3 38.4 19.3 16.1 22.8 33.5 20.3 16.3 25.2 7.9 25.6 20.5 21.3 16.3

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 20.26 Last Week 20.12 % Change 0.70% *Weighted on Market Cap.

Issues Advanced Declined Unchanged Not Traded

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

Source: Dhaka Stock Exchange

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AT Capital Weekly Update 12

08 September 2008 Weekly Stock Market Commentary
This week the market extended the gains that it made in the earlier week. The benchmark DGEN index gained 1.36 %. The average trading volume in the week was up by 3.5%. This week the markets largest mutual fund made its debut Grameen 1: Scheme 2 started trading on September 2. The BDT 1.25 billion (USD 18.2mn) fund, managed by Aims started trading at a premium of 330%. Two months ago, the 2nd largest mutual fund, managed by ICB Asset Management nd Company - a BDT 1 billion (USD 14.6mn) fund, called 2 NRB mutual fund, started trading at a premium of 80%. We have previously queried the rationality, or rather, the irrationality of such high premiums. On the face of it one would, thinking rather simplistically expect the mutual funds to trade at around the ‘marked to market’ net asset values of the fund – after all a fund is merely a collection of traded stocks. Why is there a difference in premiums of the two mutual funds which have similar investment objectives?

AT CAPITAL RESEARCH
theoretically similar collective value. Although it seems their rationale works – a self fulfilling prophesy! And finally, the Grameenphone IPO continues to make the headlines - the much talked about marquee IPO may not happen by the end of this year. Noble laureate Professor Yunus who represents, Grameen Bank group, the 38% owner of Grameenphone, has threatened that he will sue Telenor, the majority owner. According to Professor Yunus, there was an agreement in 1996 that Telenor would relinquish control to Grameen Bank after six years. Not good news given the approaching deadline. And furthermore, to add salt to wounds, the SEC Chairman told the media that they need clarifications on certain points before they approve the IPO. The listing process normally takes couple of months even after SEC approval. Please see overview for further commentary.

Stock Market News
Grameenphone IPO unlikely by December December
bdnews24.com, Saturday, September 06, 2008

The stock market debut of Grameenphone is unlikely this year as the country's largest mobile phone operator has not sent all required information to the capital market regulator, according to a senior SEC official. Following this statement a Telenor spokesperson was quoted saying that things are a bit unpredictable and the IPO might be either this year or the next year. However, the SEC Chairman has not completely ruled out the possibility of the Grameenphone listing by year-end.
http://bdnews24.com/details.php?id=61673&cid=4

A general market observation first: the phenomenon of wild valuations is not surprising in Bangladesh. The P/E multiples of companies in the same industry and similar fundamentals sometime range between 7 and 70. In case of these two mutual funds, a number of factors may have contributed to the difference in the valuations: Firstly, the size of the holding of general investors may be a factor. General investors currently hold 80% of the stock of nd the 2 NRB fund while they hold only 25% of Grameen 1: Scheme 2. One could conclude that the limited freefloat in the latter fund is causing price distortion due to illiquidity of the stock. Secondly, the timing of commencement of trading may have played some role. The market was experiencing a downtrend when the NRB fund started trading while the market was somewhat bullish at the time of the debut of the other fund. Thirdly, though it is counterintuitive, the denomination of share value may have played a significant role. The face value of the NRB fund share is BDT 100 while the face value of the Grameen fund is BDT 10. Earlier, we have seen how a change in denomination can prompt a rally in the market. Islami Bank has risen by about 48% to date since it declared that it will split its shares 1:10. In the first three days since the declaration the share gained by 23%. In this market it seems that retail investors believe they are getting better value when they hold a higher number of shares albeit, with a AT Capital Weekly Update

Body formed to reduce IPO processing time
The Financial Express, Wednesday, September 03, 2008

The Securities and Exchange Commission (SEC) formed a 10-member committee tasked to reduce the time taken to process an IPO. The committee will submit its recommendations by September 25 next.Currently, it takes seven weeks to complete the IPO processing which discourages many companies to go public.
http://www.thefinancialexpressbd.info/search_index.php?page=detail_news&news_id=44430

house International Leasing's brokerage house begins journey
The Financial Express, Wednesday, September 03, 2008

International Leasing Securities Limited (ILSL), a fully owned subsidiary company of International Leasing and Financial Services Ltd (ILFSL) commenced operations as a full-fledged brokerage house, says a press release. ILSL has started its functions with some value added services like 24-hour phone banking, daily electronic trade-statement transmission and other trade related information and telephonic order processing.
http://www.thefinancialexpressbd.info/search_index.php?page=detail_news&news_id=44434

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13

08 September 2008
Azizul Dr. Mirza Azizul Islam suggests suspension of Z category share trading
The Financial Express, Sunday, August 31, 2008

AT CAPITAL RESEARCH
Government Government eyes stock market for Padma bridge fund
The Daily Star, Sunday, August 31, 2008

Speaking about the development of the capital markets the Finance Adviser, Dr. Mirza Azizul Islam strongly criticised the performance of Z category companies, suggesting suspension of trading of their shares, and promoted the development of a bond market. The finance adviser was speaking at a seminar on 'Contemporary Issues in The Capital Market and The Road Ahead' organised by the Citibank, N.A. He said: "Representation of various sectors is insignificant in the market, dominated by only financial institutions. But in order to widen the depth of the market, participation of other sectors like manufacturing, services and other sectors are required." Expressing dissatisfaction about entrepreneurs' reluctance list their companies on the stock markets, he suggested, entrepreneurs are reluctant to raise capital from the stock markets due to perceived hassle and also due to concerns about achieving IPO fair pricing "But it is their misconception as the situation has changed, I believe," he said. "It is necessary to convince the entrepreneurs that SEC does not determine the prices of the IPO. But the IPO prices are determined in line with the company's financial strength," he added.
http://www.thefinancialexpressbd.info/search_index.php?page=detail_news&news_id=44174

The Finance Adviser said, the government plans to part fund, the country's largest civil engineering project, the Padma Multipurpose Bridge, from the stock market. "Apart from external financing, we will have to collect around BDT 40bn (USD 584mn) from internal sources to construct the bridge. There is a possibility to raise a portion of the fund from the capital market," said Dr. AB Mirza Azizul at a conference 'Contemporary Issues in the Capital Market and the Road Ahead', organised by Citibank, N.A. The 6.01km bridge between Mawa and Jajira over the river Padma will cost USD 1.8bn, with USD 1.15bn to be provided by international lenders, including Asian Development Bank, World Bank, Islamic Development Bank and the Japan Bank of International Corporation.
http://www.thedailystar.net/story.php?nid=52625

yearAnanda Shipyard to go public by year-end to finance its expansion
The Financial Express, Sunday, August 31, 2008

Bangladesh's pioneer shipbuilder Ananda Shipyard and Slipways Limited (ASSL) plans to go public by year-end to raise to finance its massive expansion drive, its chief executive said Saturday. "We are deluged with orders from European countries. But we don't have enough fund to expand our manufacturing capacity," Abdullahel Bari, chairman of ASSL told the FE. The company, which has export orders for 22 ocean-going vessels worth USD 150mn till 2012, borrowed BDT 1.81bn (USD 26mn) from AB Bank last week to finance part its expansion plans. "But still, we need more fund to set up more slipways and manufacturing facilities. At present, we can build ships weighing 10,000 tonnes a year. We want to increase the capacity to 35,000 tonnes a year," he said. "By going public, we will also be able to cut operational costs as we will enjoy a corporate tax benefit," he said, adding the new facilities would raise the company's number of workers from 1000 to 2500 by November this year.
http://www.thefinancialexpressbd.info/search_index.php?page=detail_news&news_id=44179

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AT Capital Weekly Update 14

08 September 2008 DGEN Performance LTM

AT CAPITAL RESEARCH
DGEN DGEN Performance YTD

Turnover leaders (All figures in mn) BDT 1,908 Titas Gas 780 ACI Limited. 607 BEXIMCO 550 Grameen One: Scheme2 450 Beximco Pharma 384 Lankabangla Finance 348 Islami Bank 329 ICB AMCL 2nd NRB M.F. 318 Square Pharma 290 BATBC

Best performers* USD 27.9 11.4 8.9 8.0 6.6 5.6 5.1 4.8 4.6 4.2 Bd.Thai Aluminium Pragati Insurance ICB Islamic Bank Ltd. Delta-Brac Housing Titas Gas Chittagong Vegetable Pragati life Insurance AMCL (Pran) Dandy Dyeing Saleh Carpet % Change 41.3 23.9 22.3 22.2 21.2 19.2 14.1 12.8 12.8 12.5

Worst performers* % Change Mutual Trust Bank Ltd. -13.1 Monno Stafllers -9.5 Rahima Food -8.3 Dynamic Textile -8.2 Rupali Bank -7.5 National Polymer -7.5 Eastern Cables -7.3 Fu-Wang Ceramic -7.2 Bengal Fine Ceramic -7.1 Prime Insurance -6.7
*By closing price Source: Dhaka Stock Exchange

Source: Dhaka Stock Exchange

Market cap. by sector* Banks Fuel & Power Pharmaceuticals Cement Insurance Miscellaneous Engineering Foods Textile Tannery Service & Real Estate IT Ceramics Paper & Printing Jute Total 52.6% 12.2% 10.4% 5.7% 5.7% 3.0% 2.6% 2.4% 2.1% 1.5% 1.0% 0.5% 0.1% 0.1% 0.03% 100%
*As of July 31, 2008

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

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

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

KSE 100

DSE

1.00 -0.07 0.07 0.07 -0.12

1.00 0.53 0.24 0.17

1.00 0.29 0.12

1.00 0.16

1.00

*Based on the last 65 monthly returns

Research Team
Professor Jahangir Sultan Senior Advisor jahangir.sultan@at-capital.com Shahidul Islam Investment Manager shahid.islam@at-capital.com Syed Najibullah Research Assistant syed.najibullah@at-capital.com

Rashed Hasan Research Associate rashed.hasan@at-capital.com

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AT Capital Weekly Update 15

08 September 2008

AT CAPITAL RESEARCH

Economics
Annual and monthly trends in remittances (USD mn)
20052005-06 Annual remittances 4,801.88 (+24.78%) Month July August September October November December Monthly remittances January February March April May June JulyJuly-June Month July 20062006-07 5,978.47 (+24.50%) 20072007-08 567.11 470.95 590.67 559.05 617.39 635.34 710.74 689.26 808.72 781.71 730.26 753.58 7,914.78 (+32.39%) 20082008-09 829.50 (+46.27%) 20072007-08 7,914.78 (+32.39%) 20062006-07 412.80 471.22 446.00 377.34 598.73 555.08 462.55 500.32 537.29 543.74 557.02 516.38 5,978.47 (+24.50%) 20072007-08 567.11 (+37.38)

Market news • • Iftar prices shoot up by 30% FBCCI to seek law-enforcers' help if price gap is not narrowed • Dhaka targets USD 1bn exports to Turkey in few years • Higher import payments put pressure on foreign exchange reserves • Macro-economic unit under Foreign Ministry to commence operations Annual and monthly trends in exports (USD mn)
20042004-05 Annual exports 8,654.52 (+13.83%) Month July August September October November 20052005-06 10,526.16 (+21.63%) 20072007-08 924.86 1,129.08 1,042.85 941.48 1,144.47 1,329.70 1,231.97 1,198.91 1,224.65 1,203.97 1,269.35 1,469.51 14,110.80 (+15.87%) (+15.87%) 20062006-07 12,177.86 (+15.69%) 20062006-07 1,167.55 1,155.85 950.07 870.78 916.04 1,174.88 816.39 979.23 1,010.05 875.04 1,043.95 1,218.03 12,177.86 (+15.69%)

Source: Bangladesh Bank

Monetary and credit developments
Monthly exports
Outstanding Stock (USD billions) June-06 Domestic credit Broad money 25.96 26.46 June-07 29.83 30.96 June-08 36.12 36.41

December January February March April May June JulyJuly-June
6.29 (+21.08) 5.45 (+17.59)

Changes in outstanding stock (USD billions) FY 2006-07 3.87 Domestic credit (+14.92) 4.50 Broad money (+17.02) FY 2007-08

Source: Bangladesh Bank

S Adeeb Shams Research Associate

Source: Bangladesh Bank

adeeb.shams@at-capital.com

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AT Capital Weekly Update 16

08 September 2008 Economic News
Iftar prices shoot up by 30%

AT CAPITAL RESEARCH
payments Higher import payments put pressure on foreign exchange reserves
The Financial Express, Friday September 5, 2008

The Daily Star, Wednesday September 3, 2008
Fasting residents around the city very enthusiastically snapped up traditional iftar items on the first day of Ramadan, completely undeterred by soaring food prices. The prices of iftar items were 20 to 30% higher this year as a result of the price increases of commodities. It was reported that people in certain areas purchased less iftar items compared to the amount in the previous year, said market sources. As usual, hundreds of makeshift iftar shops sprung up at different places in front of markets and mosques, at intersections and beside lanes. The prices of jilapi, a very popular iftar item, rose by BDT 2030 (USD 0.29-0.44) per kg this year, with a kilogram of jilapi now sold between BDT 80-100 (USD 1.17-1.46). Puffed rice too marked a sharp rise this year- the price now stands at BDT 55-90/kg (USD 0.80-1.31/kg) compared to BDT 3050/kg (USD 0.44-0.73/kg) last year. Having become pricier this year, people have reportedly expressed less interest in fruits.
http://www.thedailystar.net/story.php?nid=53108

Bangladesh's foreign exchange reserves have fallen to USD 5.24bn, owing mainly to higher import payments for petroleum products, fertilisers and food grains. In addition to this, falling inward remittances in August, compared to July, put pressure on the reserves. Bangladesh Bank is providing support to commercial banks, particularly the state-owned commercial banks (SCBs), by using different monetary tools such as overdraft facilities, to keep the country's inter-bank foreign exchange market stable. The country's overall imports grew 23.6% during the first month of the current fiscal year, compared to the corresponding previous period. Import L/Cs worth USD 1.8bn were settled in the month of July of fiscal 2008-09. The flow of inward remittances fell by 10.7% in August from that of the previous month, due to the labour unrest in two Middle Eastern countries caused a number of Bangladeshi workers to return home. The figure fell to USD 733mn in August from a record USD 820.7mn in July.
http://www.thefinancialexpressbd.info/search_index.php?page=detail_news&news_id=44582

lawFBCCI to seek law-enforcers' help if price gap is not narrowed

MacroMacro-economic unit to start functioning today
The Financial Express, Sunday September 7, 2008

The Financial Express, Wednesday September 3, 2008
Annisul Huq, President of Federation of Bangladesh Chambers of Commerce and Industry (FBCCI), has warned that the assistance of different law-enforcing agencies would be sought if the price gap between retail and wholesale levels is not narrowed. An FBCCI team visited the two main kitchen markets of Dhaka, Karwan Bazar and New Market, as part of the trade body's market monitoring programme to rein in the prices of food and other essential commodities. The prices of food and other commodities rose sharply with the advent of Ramadan. It has been alleged that the traders are making higher profits by taking advantage of the surging demand for commodities.
http://www.thefinancialexpressbd.info/search_index.php?page=detail_news&news_id=44468

A newly established macro-economic unit under the Finance Ministry will start functioning from September 7, with the objective of assisting the central bank with the formulation of the country's monetary policy. A meeting is to be held at the finance ministry to mark the beginning of the unit that has been created in consultation with the International Monetary Fund.The country's monetary policy has been prepared and announced by the Bangladesh Bank on a half-yearly basis for the last three years. The central bank will now exchange its views and analysis with the unit.
http://www.thefinancialexpressbd.info/search_index.php?page=detail_news&news_id=44826

Dhaka targets USD 1bn exports to Turkey in few years

The Daily Star, Tuesday September 2, 2008
Commerce Adviser Dr. Hossain Zillur Rahman expects Bangladesh's exports to Turkey to reach USD 1bn within a few years. The country's exports to Turkey reached USD 350mn in the first eight months of 2008, compared to a figure of USD 120mn in 2007,exceeding the export target of USD 220mn for 2008. Bangladesh exports primarily jute and jute goods, leather products and readymade garments to Turkey. It is believed that rubber and pharmaceuticals have significant potential.
http://www.thedailystar.net/story.php?nid=52906

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AT Capital Weekly Update 17

08 September 2008

AT CAPITAL RESEARCH
although businesspeople had committed earlier that they would keep the prices at tolerable level. Market operators said the prices could not be contained due to weak performance of some state-owned agencies that were meant to ensure fair prices of commodities.
http://www.thedailystar.net/story.php?nid=53039 http://www.newagebd.com/2008/sep/02/front.html#2

Sector News
Agriculture Bangladesh eyes doubling rubber output by 2020
The Daily Star, Wednesday, September 3, 2008

Bangladesh is targeting doubling its natural rubber production to 60,000 tons a year by 2020 to tap the growing potential in its export market. Around 25mmt rubber was produced throughout the world in 2007. Of which, around 42 percent was natural. The bulk of the rubber produced is the synthetic variety, which is derived from petroleum. Asia is the main source of natural rubber today, accounting for around 94 percent of output in 2005. The three largest producing countries are: Indonesia, Malaysia and Thailand -- together account for around 72 percent of all natural rubber production. Currently, the country has a capacity to produce about 30,000 tons of rubber a year, butonly10,000 tons were produced in 2007 because of the limited market demand. There are 1,300 rubber gardens across the country. Bangladeshi rubber is less costly than the imported one. One kilogram of locally produced rubber costs BDT 110-120 (USD 1.60-1.75), while it is BDT 200 (USD 2.92) for the imported rubber.
http://www.thedailystar.net/story.php?nid=53041

Aviation Best Air plans Dubai flight for Sept 8
The Daily Star, Sunday September 7, 2008

Best Air, the country's third largest private airliner, is likely to start operating flights from Dhaka to Dubai from September 8.A Best Air spokesperson said that flights on the route would be operated on Mondays, Wednesdays, Thursdays and Saturdays with a newly procured 162-seated MD-83 aircraft. One-way tickets will cost USD 285, while the return flights have been priced at USD 550, exclusive of taxes.
http://www.thedailystar.net/story.php?nid=53623

United Airways to operate international flights
The Daily Star, Friday September 5, 2008

SmallSmall-scale tea farming wins firm foothold in Panchagarh
The Daily Star, Tuesday, September 2, 2008

According to a survey, conducted by Bangladesh Tea Board (BTB), there are 16,000 hectares of land suitable for tea farming in Panchagarh and nearly 2,000 acres have been brought under tea farming in the area since 2002. Tea farming is expanding by the year in Panchagarh and its adjoining areas thanks to growing interest among the smallscale and marginal farmers. The growing tea sector has raised hopes for enhancing the standards of socio-economic life and women empowerment in Panchagarh and adjoining districts in future, industry insiders said. Officials and experts have suggested further government assistance, setting up more tea processing plants, competitive markets for tea leaves and resolving the power crisis to accelerate further growth of the sector. Over 8,000 skilled and unskilled workers, mostly women, have been working in 246 tea gardens, including 18 big estates, 13 medium and 215 small gardens on about 2,000 acres in Tetulia and its surrounding areas. http://www.thedailystar.net/story.php?nid=52914 Price shock marks Ramadan
The Daily Star, Wednesday, September 3, 2008 New Age, Tuesday, September 2, 2008

United Airways is scheduled to commence international flights from Dhaka to Kolkata on September 24, according to Chairman and Managing Director of United Airways. Flights on the route are to be operated seven days a week. The return fare for the flight has been set at BDT 13,314 (USD 195), while one-way tickets have been priced at BDT 7,009 (USD 102), inclusive of taxes. United Airways is presently operating only domestic routes with flights to Chittagong, Sylhet, Jessore and Cox's Bazar from the capital.
http://www.thedailystar.net/story.php?nid=53366

Banking HC stays fine on One Bank
The Daily Star, Thursday, September 04, 2008

The High Court has imposed a bar on a move by the Securities and Exchange Commission (SEC) to realise BDT 1.2mn in fines from the directors of One Bank. A bench of Justice Syed Mahmud Hossain and Justice Farid Ahmed passed the stay order on August 28. The HC order came after a petition was filed against the SEC move that fined 12 directors of One Bank BDT 0.1mn each for their alleged failure to submit an audited financial statement.
http://www.thedailystar.net/story.php?nid=53220

Mobile phones to turn money remitters soon
The Financial Express, Tuesday, September 02, 2008

Basic commodities were selling at higher prices in the city markets yesterday, on the onset of the month of Ramadan,

The central bank is likely to allow transfer of cash through themobile phone network. The maximum limit of each transaction will be BDT 5,000 and the rate of commission will range between BDT 10 and BDT 50 depending on the

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AT Capital Weekly Update 18

08 September 2008
amount. "The proposed system is not mobile phone banking. It's simply a mechanism to transfer money by using the mobile phone network across the country," a senior official of the Bangladesh Bank (BB) told the FE Monday. Clients will be able to send and receive the money from local bank branches, non-governmental organisations, post offices and mobile phone outlets, the official added. He said the main objective behind the introduction of the facility is enabling a large number of small earners, who do not maintain accounts with banks to send and receive such funds without having to undertake complicated processes. At present, around 13 per cent of the population have bank accounts while 35 per cent are now using mobile phones, the official said. The BB took the move to expedite domestic money transfer with minimum charges particularly in the country's remote areas through mobile phone networks that would simultaneously encourage the inflow of foreign remittances.
http://www.thefinancialexpressbd.info/search_index.php?page=detail_news&news_id=44387

AT CAPITAL RESEARCH
PCBs decline to develop and run the payment gateway for Internet banking,” said Abul Kashem Mohammad Shirin, deputy managing director of Dutch-Bangla Bank Ltd, who is also a taskforce member.
http://www.thedailystar.net/story.php?nid=53362

Infrastructure & Energy Cairn drops plan to explore gas in Magnama, Hatiya this winter
The Financial Express, Thursday September 4, 2008

Central bank to bring NBFIs under system audit from October
The Financial Express, Monday, September 01, 2008

The central bank will introduce risk-based audit system, generally known as system audit, to replace the existing transactions based audit for the non-banking financial institutions (NBFIs) from October next. The Anti-Money Laundering Department of the Bangladesh Bank (BB) has sought additional manpower from to conduct the new audit system along with the existing core risks management guidelines. The central bank earlier identified four core risk areas of the NBFIs - credit, asset and liability, internal control and compliance and money laundering. "We will start the system audit for the NBFIs after the Eid-ulFitr festival," a BB senior official told the FE Sunday, adding that the central bank also plans to gradually bring other financial institutions including insurance companies and money changers under the regime. The central bank will prepare a list mentioning the ranking of the NBFIs on the basis of compliance status of the core risks management guidelines. "We earlier asked the NBFIs to comply with the core risks management guidelines properly by 2007," another BB official said, adding that the guidelines are yet to be fully complied by the NBFIs.
http://www.thefinancialexpressbd.info/search_index.php?page=detail_news&news_id=44230

The UK-based Cairn Energy has dropped its planned exploration in new offshore structures in Magnama and Hatiya after Petrobangla showed its apathy to increase gas prices or approve the sale of gas to private users. Cairn last month sought either a higher price for its newly discovered gas in Magnama and Hatiya structures or a go-ahead signal from the government to sell to private users. Under the existing production-sharing contract (PSC), any company exploring gas in the country will have to sell its entire production to Petrobangla, which then sells the fuel to private and state-owned users. Company officials said Cairn had asked Petrobangla to respond by August 31, as it needed enough time to conduct seismic surveys in the new structures by a France-based contractor Grant Geophysics. Petrobangla chairman Jalal Ahmed said the government is still examining Cairn's proposals, as "they are unique in nature." The country now runs supply shortfalls of 200mn cubic feet of gas a day --- around 12% of the total output --- which has resulted in shutdown of scores of industrial units and power plants. Delay in gas extraction from the two Cairn operated fields would be a big setback for the country's future gas supply plan. Cairn now operates the country's only offshore gas field Sangu some 20km off the Chittagong seashore.
http://www.thefinancialexpressbd.info/search_index.php?page=detail_news&news_id=44560

Government Government sits on hike in PDB's purchase price of ernmen Barapukuria Coal
The Daily Star, Thursday September 4, 2008

The government is sitting on a recommendation to increase the Barapukuria coal price to USD 71 from existing USD 60 for the Power Development Board (PDB), while coal prices have hit USD 210 a tonne in the international market. The PDB consumes 80% of Barapukuria's high-quality coal, the production cost of which is around USD 90 per tonne. The mine was incurring heavy losses largley due to low production. But in the last year its production has increased and the mining company now has a record inventory of 0.15mn tonnes of coal. It is expected to achieve its target to produce 0.85mn tonnes of coal this year. A committee comprising PDB, Barapukuria Coal Mine Company Ltd (BCMCL), Petrobangla and the energy ministry on revising coal price in November 2007 recommended increasing the coal tariff to USD 71 per tonne. The energy ministry then decided to forward the matter to Economic Committee for National Economic Council but the decision is yet to be made.
http://www.thedailystar.net/story.php?nid=53233

eTaskforce wants e-banking gateway in six months
The Daily Star, Friday, September 5, 2008

A taskforce committee on Internet and online banking has recommended developing a payment gateway to render the services. The taskforce suggested, the gateway could be built either by Bangladesh Bank (BB) or by a consortium of public-private commercial banks. While the private commercial banks (PCBs) want the central bank to do it, the BB remains unresponsive to the matter. “Both the BB and AT Capital Weekly Update

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19

08 September 2008
Govt approves petroleum import from Maldives
The Daily Star, Wednesday September 3, 2008

AT CAPITAL RESEARCH
Public hearing on gas prices hike proposal deferred
The Financial Express, Tuesday September 2, 2008

The Cabinet Committee on Public Purchases approved the import of 150,000 tonnes of petroleum fuel from a Maldives company at a cost of BDT 12.73bn (USD 183.44mn). The Maldives National Oil Company Ltd (MNOC) will supply the bulk fuels from its Singapore-based refinery. The premium for the import has been fixed at USD 5.19 per barrel for diesel, USD 5.60 for jet fuel and USD 7.50 for octane. The government has chosen Maldives as an alternative country for importing petroleum as they were concerned that the conventional exporting countries were exerting too much supplier power.
http://www.thedailystar.net/story.php?nid=53054

The Bangladesh Energy Regulatory Commission (BERC) has set a new date for the public hearing of the Petrobangla (Bangladesh Oil, Gas and Mineral Corporation) proposal, on 24 September, seeking permission to increase gas prices by an average of 53.76%. The Commission will take the decision on price increase by mid October. Petrobangla on June 23 applied to the BERC to allow the state-owned corporation to increase the price of natural gas BDT 142.75 (USD 2.08) from the existing rate of BDT 92.84 (USD 1.36) per thousand cubic feet. The state owned corporation buys gas from international oil companies (IOCs) at an average rate of BDT 230 (USD 3.36) per one thousand cubic feet and sells it to consumers for BDT 92.84 (USD 1.36).
http://www.thefinancialexpressbd.info/search_index.php?page=detail_news&news_id=44407

Uncertainty over selection of bidder for Bibiyana power plant persists
The Financial Express, Wednesday September 3, 2008

ADB is lead donor agency for Padma Bridge construction The power ministry facing new problems over selecting the lone bidder, Powertek consortium, for setting up the Bibiyana 450MW power plant after demands for a higher tariff from the Powertek consortium. The ministryhas sought comments from the ministries of law and finance and constituted a committee to scrutinise the legal aspects of the company's conditional offer and the issue of higher tariffs. The Powertek consortium comprising Malaysian Powertek and Korean Kepco offered a tariff rate to sell electricity at 4.53 US cents per kilowatt-hour (kWh) to the government. The tariff is higher than that of the independent power producer (IPP) AES Haripur 360MW power plant which charges a tariff of 2.72 US cents per kWh for 22 years. Gas prices for the both power plants are same.
http://www.thefinancialexpressbd.info/search_index.php?page=detail_news&news_id=44467

Financial Express, September 7, 2008
The Asian Development Bank (ADB) has been selected as the lead donor agency for the construction of the Padma Multipurpose Bridge, announced ministry officials. The Manila-based multilateral lending agency was selected last week at a meeting between the Finance and Planning Adviser Mirza Azizul Islam and Communication Adviser Ghulam Quader. The World Bank, which was the lead donor agency for construction of the 4.8 km Jamuna Multi Purpose Bridge which cost USD 962mn, also pitched for the Padma bridge. The 25-metre wide, four-lane Padma Bridge is expected to take six years to complete and contribute to the national economy by boosting GDP by 1.2 per cent. The government plans to raise some financing through the capital markets.
http://www.thefinancialexpressbd.info/search_index.php?page=detail_news&news_id=44813

65mn BB gives USD 65mn to SCB to settle fuel import bill
The Financial Express, Wednesday September 3, 2008

The Bangladesh Bank (BB) has provided USD 65 mnoverdraft (OD) facilities to a state-owned commercial bank (SCB) for settlement of its fuel oil, food grains and fertiliser import bills. On August 27 this year, the central bank sanctioned OD facilities for USD 30mn to another SCB for settlement of its fuel oil import bills. The central bank will continue to provide foreign currency support to the commercial banks for making payments of fuel oil, fertiliser and food grains purchase from overseas.
http://www.thefinancialexpressbd.info/search_index.php?page=detail_news&news_id=44432

Draft coal policy likely to get final seal in October
Weekly Economic Times, Sunday September 7, 2008

The national coal policy is set to be approved in early October 2008 as the energy ministry has planned to place the draft of the policy to the council of advisers again. The council of advisers last month sent back the draft coal policy to the energy ministry for further scrutiny of the issues related to royalty rate, mined land reclamation and environmental issues. Investments worth several billion US dollars have long been hanging over the draft national coal policy. UK-based Asia Energy, South Korean Luxon Global and USbased Global Vulcan Energy are among the foreign companies planning to initiate their project works of coalmine development and setting up coal-fired power plants. Indian business conglomerate Tata group, that had investment proposals worth USD 3bn including development of a coalmine and setting up a coal-fired power plant, recently pulled back after waiting for over two years. In the draft national coal policy it was recommended that foreign companies would be allowed to develop coalmines under a joint venture with a local coalmining partner.
http://www.weeklyeconomictimes.com/newsdetails.php?recordID=1953

AB Bank arranges term loan for Venture Energy Resources The New Age, Wednesday September 3, 2008 AB Bank has arranged a syndicated term loan of BDT 920mn (USD 13.44mn) for Venture Energy Resources Ltd to be used for setting up a power plant in Bhola. The other participating banks and financial institutions are Bangladesh Commerce Bank, Mutual Trust Bank, National Bank, Pubali Bank, Saudi Bangladesh Industrial and Agricultural Investment Company and Uttara Bank.
http://www.newagebd.com/2008/sep/03/busi.html#16

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AT Capital Weekly Update 20

08 September 2008
Government revives plan to divide Titas into three separate companies
The Financial Express, Sunday September 7, 2008

AT CAPITAL RESEARCH
http://www.thedailystar.net/story.php?nid=52910

Pharmaceuticals finds Eskayef finds road to EU market

The government has revived plan to dismantle the state-run Titas Gas into three separate companies based on their locations to increase efficiency in their marketing and distribution systems. Titas with its extensive pipelines in the eastern, central and northern parts of the country accounts for more than 70% of Bangladesh's total daily gas supply. In 2007, the company's revenue soared over USD 550mn due to increased use of gas in factories and households. The company is often criticized for an inefficient distribution system, which results in low gas pressure, inadequate supply and system loss worth millions of dollars. In 2005, the then BNP- led coalition government announced a move to dismantle the company, but was forced to back down by the union leaders of Titas. Top Titas executives said they do not expect difficulties this time as most of the union leaders have been fighting corruption charges while emergency rules have banned union activities. As per the BNP plan, Titas would be divided into -Brahmaputra Gas Distribution Company Ltd (BGDCL) to look after gas distribution in greater Mymensingh region, Titas Gas Distribution Company Ltd (TGDCL) for greater Dhaka and Shitalakkhya Gas Distribution Company Ltd (SGDCL) for Narayanganj.
http://www.thefinancialexpressbd.info/search_index.php?page=detail_news&news_id=44821

The Daily Star, Monday September 2, 2008
Eskayef Bangladesh Ltd, one of the country’s leading manufacturers and exporters of pharmaceutical products, has won accreditation from the UK Medicines and Healthcare Products Regulatory Agency (MHRA) for its new plant in Tongi. Eskayef is the third company to obtain the MHRA certificate after Square Pharma and Reneta. AM Faruque, managing director of Eskayef Bangladesh said that the MHRA approval is one of the toughest to win and it will enable Eskayef to market and distribute its pharmaceutical products in the UK and other EU countries. Eskayef currently exports pharmaceutical products to around 15 countries across four continents. This approval will also help Eskayef in its effort to enter the highly regulated markets of Australia, South Africa and GCC countries.. Evaluation for MHRA accreditation is a complex process. Inspectors from the UK agency inspected Eskayef's plant, machinery and equipment, HVAC (heating, ventilation and air-conditioning) system, purified water system and effluent treatment system. The inspectors also audited the design of the company's manufacturing plant and found Eskayef compliant.
http://www.thedailystar.net/story.php?nid=52904

Insurance
Life insurers post 34pc premium growth in '07

Renewable Energy Renewable Energy Policy on Cards
The Daily Star, Sunday September 7, 2008

The Financial Express, Sunday 7 September, 2008
The country's life insurance companies posted an impressive 34% growth in premium income in 2007 over the previous year. Premium income of 17 private life insurers and the state-run Jibon Bima Corporation (JBC) rose to nearly USD 462mn in 2007 from USD 344.8mn in 2006. The state-owned JBC currently holds around 10% of the total life insurance premium market while private insurersservice the rest of the market. Officials and market operators attributed growth in premium income to aggressive marketing drives by the insurers coupled with people's increased awareness about life insurance policies. They added that they expect growth in the overall premium market to continue in the years ahead.
http://www.thefinancialexpressbd.info/search_index.php?page=detail_news&news_id=44823

The “Renewable Energy Policy of Bangladesh” draft policy is expected to receive the green light from the council of advisors within two months. The draft policy recommends establishment of an institution named the Sustainable Energy Development Agency (SEDA) to ensure development of renewable energy sources. To encourage private sector investment, the draft policy favoured providing appropriate subsidies for the installation of solar, wind and biomass utilities. Renewable energy project sponsors, public or private, shall be exempted from corporate income tax for a period of 15 years and will also be allowed to import equipment without payment of custom duties, VAT and any other surcharges and import permit fees. It also said that a network of microcredit support systems will be established, especially in rural and remote areas, to provide affordable financing for consumer purchases of renewable energy equipment. While the private entrepreneurs welcome the government initiative to finalize the policy, they continue to demand that there be an option to supply electricity to the national grid.
http://www.thedailystar.net/story.php?nid=53364

Leather
Bata eyes 30pc rise in sales
The Daily Star, Tuesday, September 2, 2008

Bata, the country's leading shoemaker and retailer, plans to increase its sales by 30% in 2008 which was around BDT 5bn (USD 73m) in 2007. Bata is planning to introduce new machines and technologies at local factories by the end of this year to improve production capacity and quality. It is launching 350 new designs for Eid. The overall market size of footwear in the country is approximately BDT 17bn (USD 248.3mn) per annum.

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AT Capital Weekly Update 21

08 September 2008
USAID suggested engagement of local body in Energy Generation from Renewable Sources.

AT CAPITAL RESEARCH
owners Garment owners threaten shutdown
The Daily Star, Sunday, September 7, 2008

The Daily Star, Thursday September 4, 2008
In a conference, organized by the Research Triangle Institute (RTI), a USAID funded organization, the USAID mission director Denise Rollins said that local government bodies in the country should be entrusted with new tasks like power generation from renewable energy sources. Such initiates, we believe, will help to increase access to electricity of population and increase the share of renewable.
http://www.thedailystar.net/story.php?nid=53120

Telecoms Banglalink’s revenues surge 70%
The New Nation, Thursday September 4, 2008

Garment owners threatened to close their factories for an indefinite period. They sent a memorandum signed by 91 Gazipur-based RMG owners to BGMEA’s President, stating that if the government fails to provide security for the industry by September 25, they would close their factories. This followed recent violence which lasted for last 15 days and cost the factories BDT 8bn in losses and the shifting of more than 50% of foreign orders to other countries. The owners are also pushing the government to meet their eight-point charter of demands including demands for normal environment in factories, custody of attackers, security to investors, soft loans for rehabilitation and an increase in the number of police and fire-fighting stations in Gazipur.
http://www.thedailystar.net/story.php?nid=53641

Banglalink has announced its financial results for the second quarter of 2008. Banglalink's revenue during the first half of 2008 was over BDT 9.15bn (USD 134mn), a70% increase from the same period in 2007. Network quality improvement continued to be one the highest priorities for Banglalink -it invested over BDT 7830mn (USD 114mn) during the quarter, bringing its total infrastructure investment during 2008 YTD to over BTD 1,424(USD 207mn). Banglalink maintained its high growth momentum during Q2 2008, and ended the quarter (as of June 2008) with almost 9.5mn subscribers, a 83 percent increase in its subscriber base compared to June 2007. Banglalink added over 1.1mn subscribers during Q2, bringing its total subscriber additions for the first half of 2008 to almost 2.4mn, which is a 26 percent increase, compared to the first half of last year. Banglalink extended its lead as the second largest player in the market with a 21.6 percent market share - an increase of almost 4 percentage points compared to the previous year.
http://nation.ittefaq.com/issues/2008/09/04/news0617.htm

dutyRMG's duty-free access to US faces setback: African countries stand in the way
The Daily Star, Sunday, September 7, 2008

Textiles Global cotton production may fall by 6%
The New Age, Friday, September 5, 2008

Bangladeshi readymade garments sector may be obstructed in obtaining duty- and quota-free access to US market as US authorities have responded positively to the appeal of few African countries, Ghana and Mali, to exclude Bangladesh's RMG from the New Partnership Act (NPDA) 2007 which was designed to eliminate all tariffs on such products originating from LDCs. TheAfrican Countries have requested Jim McDermott, chairman of the Ways and Means Subcommittee of the US House of Representative, to exclude five categories of Bangladeshi textile and apparel products from facilities under NPDA. In response, Jim McDermott proposed the exclusion of three categories of Bangladeshi textile and apparel products. In response, the Bangladesh Chief Adviser plans to meet a number of African Leaders at the upcoming UN General Assembly to argue that Bangladesh is not their real threat in terms of apparel exports to US market - rather African LDCs will face real challenges in the textile and apparel sector from China once the US withdraws its safeguard measures in January 2009. Meanwhile, a taskforce has been formed with technical help of Centre for Policy Dialogue to assist the government on this issue.
http://www.thedailystar.net/story.php?nid=53646

World cotton production is likely to fall by 6% to 24.7mn tonnes in 2008-09 following increased competition from alternative crops according to International Cotton Advisory Committee (ICAC). The projected decrease in world production in 2008-09 can be attributed to an expected fall of 1.2mn tonnes in the US. The total world production of cotton during 2007-08 is stands at 26.24 million tons. ICAC said cotton consumption is also expected to dip marginally by 1% to 26.2 million tonnes due to slower global economic growth and higher prices of cotton compared to polyester. The cotton usage may fall in the US, China, Russia, EU, Brazil, Turkey, Mexico, Thailand and the Republic of Korea.
http://www.newagebd.com/2008/sep/05/busi.html

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AT Capital Weekly Update 22

08 September 2008

AT CAPITAL RESEARCH
AT Capital Team – Dhaka

Ifty Islam Syeed Khan Akther Ahmed Masud Khan Junaid Khan Shahidul Islam, CFA Taufique Hasan Md. Ziaush Shams Syeda Tasnuva Akhter S Adeeb Shams A. M. A. Bari Nahid Mohammad Emran Hasan Sohana Alam Seraj Ahmad Sajid S.M. Rashedul Hasan Tami Zakaria Abdullah-Al-Farooq Sanwar Ahmed M. Emrul Hasan Md. Zahidur Rahman Ashek Ishtiak Haq Syed Najibullah Minul Islam Rasidul Hasan

Managing Partner Partner Senior Advisor Senior Advisor Investment Advisor Investment Manager Investment Manager Senior Research Associate Research Associate Research Associate Research Associate Research Associate Office Manager Research Associate Research Associate Research Analyst Research Analyst Research Analyst Research Analyst IT Analyst Research Assistant Research Assistant Research Assistant Research Assistant

(880-2)-8155144, ext. 132 (880-2)-8155144, ext. 109 (880-2)-8155144, ext. 108 (880-2)-8155144, ext. 113 (880-2)-8155144, ext. 121 (880-2)-8155144, ext. 122 (880-2)-8155144, ext. 123 (880-2)-8155144, ext. 120 (880-2)-8155144, ext. 127 (880-2)-8155144, ext. 128 (880-2)-8155144, ext. 130 (880-2)-8155144, ext. 131 (880-2)-8155144, ext. 132 (880-2)-8155144, ext. 135 (880-2)-8155144, ext. 137 (880-2)-8155144, ext. 125 (880-2)-8155144, ext. 133 (880-2)-8155144, ext. 139 (880-2)-8155144, ext. 138 (880-2)-8155144, ext. 140 (880-2)-8155144, ext. 136 (880-2)-8155144, ext. 136 (880-2)-8155144, ext. 136 (880-2)-8155144, ext. 136

ifty.islam@at-capital.com syeed.khan@at-capital.com akhter.ahmed@at-capital.com masud.khan@at-capital.com junaid.khan@at-capital.com shahid.islam@at-capital.com taufique.hasan@at-capital.com zia.shams@at-capital.com syeda.tasnuva@at-capital.com adeeb.shams@at-capital.com nahid.bari@at-capital.com emran.hasan@at-capital.com sohana.alamseraj@at-capital.com ahmad.sajid@at-capital.com rashed.hasan@at-capital.com tami.zakaria@at-capital.com abdullah.farooq@at-capital.com sanwar.ahmed@at-capital.com emrul.hasan@at-capital.com zahidur.rahman@at-capital.com ashek.haq@at-capital.com syed.najibullah @at-capital.com minul.islam @at-capital.com rasidul.hasan @at-capital.com

AT Capital Team – North America
Zarif Munir Professor Jahangir Sultan, Ph.D. M. Nasim Ali Iqbal Hussain Senior Advisor Senior Advisor Senior Advisor Senior Advisor zarif.munir@at-capital.com jahangir.sultan@at-capital.com nasim.ali@at-capital.com iqbal.hussain@doctors.org.uk

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

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AT Capital Weekly Update 23

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