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At Capital Weekly 10 Aug 2008

At Capital Weekly 10 Aug 2008

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Published by ashek ishtiak haq
Key themes in this issue are:
Bangladesh:
• In this issue we discuss recent news about Middle Eastern interest in investing in BD Real
estate.
• We assess potential lessons from a regulatory and finance perspective from developments
in real estate financing in both India and Pakistan.
• It is also typically the case, as we highlight below in the case of India and Pakistan, that
foreign developers will rarely enter a new and unknown foreign market without a local
partner with the necessary localized knowledge of regulations, market dynamics and
pricing.
• Clearly the country needs to form a set of regulations that attracts high quality real estate
investment that will develop infrastructure and steer away from “hot money” that is
speculative in nature and risks exaggerating property cycles.
• Bangladesh needs to develop greater systematic research on both real estate prices and
the drivers of the property values. But there is every reason to remain optimistic that the
country can attract both overseas financing and redirect local savings.
Global markets:
• A strong week for US stocks with the Dow posting a 3.6% gain. The move was the Dow's
second 300-point move this week and the sixth move of at least 200 points in the last ten
trading days. The primary driver was the collapse in oil prices in particular and the broader
commodity complex in general, offsetting further signs of bad news on the credit crunch.
Special Focus on the Textiles sector
Key themes in this issue are:
Bangladesh:
• In this issue we discuss recent news about Middle Eastern interest in investing in BD Real
estate.
• We assess potential lessons from a regulatory and finance perspective from developments
in real estate financing in both India and Pakistan.
• It is also typically the case, as we highlight below in the case of India and Pakistan, that
foreign developers will rarely enter a new and unknown foreign market without a local
partner with the necessary localized knowledge of regulations, market dynamics and
pricing.
• Clearly the country needs to form a set of regulations that attracts high quality real estate
investment that will develop infrastructure and steer away from “hot money” that is
speculative in nature and risks exaggerating property cycles.
• Bangladesh needs to develop greater systematic research on both real estate prices and
the drivers of the property values. But there is every reason to remain optimistic that the
country can attract both overseas financing and redirect local savings.
Global markets:
• A strong week for US stocks with the Dow posting a 3.6% gain. The move was the Dow's
second 300-point move this week and the sixth move of at least 200 points in the last ten
trading days. The primary driver was the collapse in oil prices in particular and the broader
commodity complex in general, offsetting further signs of bad news on the credit crunch.
Special Focus on the Textiles sector

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10 August 2008

AT CAPITAL RESEARCH
AT Capital Weekly Update

Weekly News Update

Key themes in this issue are:
Bangladesh:
• • • In this issue we discuss recent news about Middle Eastern interest in investing in BD Real estate. We assess potential lessons from a regulatory and finance perspective from developments in real estate financing in both India and Pakistan. It is also typically the case, as we highlight below in the case of India and Pakistan, that foreign developers will rarely enter a new and unknown foreign market without a local partner with the necessary localized knowledge of regulations, market dynamics and pricing. Clearly the country needs to form a set of regulations that attracts high quality real estate investment that will develop infrastructure and steer away from “hot money” that is speculative in nature and risks exaggerating property cycles. Bangladesh needs to develop greater systematic research on both real estate prices and the drivers of the property values. But there is every reason to remain optimistic that the country can attract both overseas financing and redirect local savings.

markets: Global markets:
• A strong week for US stocks with the Dow posting a 3.6% gain. The move was the Dow's second 300-point move this week and the sixth move of at least 200 points in the last ten trading days. The primary driver was the collapse in oil prices in particular and the broader commodity complex in general, offsetting further signs of bad news on the credit crunch.

Asian Tiger Capital Partners

EDITORS

Textiles Special Focus on the Textiles sector

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

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

10 August 2008

AT CAPITAL RESEARCH
Contents Page No.
3 3 3 3 3 4 4 5 5 5 6 6 6 6 7 8 8 8 9 10 10 10 11 11 13 14 14 16 17 18 23

Overview - Bangladesh
REITS, REHAB and Ras-Al-Khaimah – Some perspectives on the prospects for Bangladesh Real Estate Finance Is the Real Estate Sector Capital constrained? More Bangladesh real estate investment needed? Whither foreign real estate development? Pakistan embraces overseas real estate investment Lessons from India part One – Real Estate FDI regulations Lessons from India Part Two – Private Equity Funds and REITS regulations Perspectives on Real Estate Finance Trends in India Private debt Private equity Public debt Public equity The explosion of satellite cities in India Conclusions

Overview - Global Markets
US Equities Rally on further collapse in oil prices Oil price declines may be offset by ongoing housing/credit crunch drag on global economy Synergies of the unpleasant kind: recessions, credit crunches and housing busts

Special Focus: Textiles
Bangladesh’s Textile and Clothing Sector: Emerging from the shadows into the sunlight Basics versus high value added apparel Lead time: Getting the products to the customers as soon as possible Backward Linkage

Stock Market Weekly
Weekly Stock Market Commentary Stock Market News

Economics
Economic News

Sector News Appendix

_______________________________________________________________________________________ AT Capital Weekly Update 2

10 August 2008

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

Overview – Bangladesh
Ras-AlREITS, REHAB and Ras-Al-Khaimah – Some perspectives on the prospects for Bangladesh Real Estate Finance In the midst of the global wreckage from the collapse of one of the largest US housing bubbles in history, it may seem a little odd for us to focus on the importance of attracting greater foreign, and indeed domestic, capital to the Bangladesh real estate market. But while the country’s 150mn people and median age under 25 is one of its greatest strengths, the density of its population and increased urbanization underline the need for real estate development as well as broader investment in infrastructure. By 2020, some forecasters suggest Dhaka will be the fifth largest city in the world with nearly 20mn residents in the greater metropolis area. We clearly need a set of policies that encourage greater access to capital but also a more efficient approach to large-scale real estate development.

More Bangladesh real estate investment needed?

United Nations Forecast for Bangladesh Population (000s) Year Population 2005 153,281 2010 166,638 2015 180,114 2020 193,333 2025 206,024 2030 217932 2035 228,836 2040 238,600 2045 247,073 2050 254,084
Source: UNDP World population prospects the 2006 update

Whither Whither foreign real estate development? The catalyst for the latest debate on foreign real investment in Bangladesh was the news of a large Middle Eastern real estate proposal that has apparently been sanctioned by the authorities. A report in the Aug 10 Daily Star suggested that the Ras Al Khaimah-based Rakeen Development Company has already got approval from the Board of Investment (BoI) to establish two proposed townships in Dhaka's suburb areas, with up to 6,000 apartments. However, there appears to be significant resistance from local developers. Real Estate and Housing Association of Bangladesh (REHAB) President Tanveerul Haque Probal stated that: “We have a lot of projects in the pipeline. Now we need low-cost funds both from local and foreign sources to keep the project cost under limit so that middle income group of the country can afford the flats and plots offered by us.” He went on to re-iterate that “The main problem of the sector is not investment but availability of low-cost funds”. It is unclear what the distinction between “investment” and “access to low cost funds…from foreign sources” really means in the context of the above REHAB statement. It seems extremely unlikely that Bangladesh Bank will allow local real estate developers to take foreign currency loans at lower interest rates. So access to lower cost funds almost certainly must be in the form of equity financing from real estate funds and/or joint ventures with foreign real estate developers. It might be argued that foreign developers like Rakeen, if they entered the Bangladesh market, would be an additional source of competition for limited plots of land with local real estate developers. Perhaps they would also push up the cost

Is the Real Estate Sector Capital constrained? Since the anti-corruption drive got into full swing post 1/11, the DSE has benefited from capital re-allocation from real estate to equities on the basis of lesser scrutiny on stock investments relative to apartments. It seems likely that after the elections, the property market is likely to recover at least part of these capital flows at the expense of the DSE. Nonetheless, the relatively modest scale of even the largest property developers in Bangladesh relative to those in some of our regional neighbours suggest that the real estate sector is somewhat capital constrained. This is in terms of both the cost of loans as well as the aggregate availability of financing in the sector. In the next section we discuss the merits of encouraging greater overseas investment in real estate. We then discuss domestic real estate fund development trends in neighbouring countries in the form of Real Estate Investment Trusts (REITs) and whether that is a policy the Bangladeshi regulatory authorities should also be pursuing.

_______________________________________________________________________________________ AT Capital Weekly Update 3

10 August 2008
of labour and raw materials. But, presumably, some proportion of materials costs, insofar as it was imported, is set by global and not local supply/demand conditions. On the other hand, a sizeable increase in real estate foreign funding would push up the aggregate value of the Bangladesh real estate sector to the benefit of a large number of holders of real estate land banks. This would include at least some members of REHAB. It is also typically the case, as we highlight below in the case of India and Pakistan, that foreign developers will rarely enter a new and unknown foreign market without a local partner with the necessary localized knowledge of regulations, market dynamics and pricing. So many leading REHAB members can benefit by forming strategic alliances with the larger foreign real estate developers. A good example of this was the Joint Venture (JV) between Emaar, the leading real estate company from Dubai and MGF, a large Indian real estate firm which was formed in 2005. Emaar-MGF planned to launch a USD 1.8bn IPO on the Indian stock market in February 2008. Although, in the event, the IPO was cancelled due to weak market conditions in both equities and real estate, the fact that they were able to develop so rapidly in the space of just over two years underlines the opportunities for JVs. Pakistan embraces overseas real estate investment In Pakistan, Emaar has been similarly ambitious. In May 2006 Emaar announced three real estate developments in the cities of Islamabad and Karachi in Pakistan. The projects, with a total investment of AED 8.8bn (USD 2.4bn), will include a series of planned communities that will set new standards in commercial, residential and retail property within Pakistan. All three projects are expected to be completed in the next four to five years. It is also worth highlighting a segment from a presentation last year by Mr. Arif Elahi, the Director General of the Pakistan Board of Investment, entitled “Investing in Real 1 Estate in Pakistan: The Next Big Growth Area” . But it was notable that Mr. Elahi actually listed specific pieces of land available in Pakistan for foreign developers to invest in. One excerpt worth highlighting states that: “During the last couple of years various housing as well as commercial projects were launched that included some projects in collaboration with foreign technical partners. Al GhurairGroup launched a residential apartment project in Islamabad –Al GhurairGIGA. Due to immense public demand most projects are equity based. Major developers and contractors including HabibRafiq Group, BahriaTown (JV with Al-Habtoorin one project) etc are contemplating launching residential and commercial Projects. Emaar has already announced USD 45bn real estate projects in Pakistan for the next ten years; Dubai World & Government of Pakistan has discussed Real Estate Investment in Industrial Infrastructure, Free Zones, Oil & Gas Projects, Airports and Sea Ports. Dubai World is the world’s third
1 The full presentation can be seen at:

AT CAPITAL RESEARCH
largest port operator, also owner of P&O, Nakheel, Istithmarand JebelAli Free Zone. Dubai World has announced plans to invest in massive projects worth USD 10bn in Pakistan.” So rather than resistance, it is noteworthy that the Pakistani authorities are welcoming foreign real estate investors.

Lessons from India part one – Real Estate FDI regulations One of the potential issues that has been raised is whether the FDI in real estate should be treated the same as industrial FDI. From the perspective of the central bank, as the guardian of the country’s foreign exchange reserves, they need to be comfortable with repatriation. Can investors hypothetically invest USD 1bn in 2008 in real estate projects and repatriate, say USD 1.5bn, in 2011 to reflect capital gains. Is that not a net loss of FX reserves that the country can ill afford? Well we would argue that it depends on the impact of the real estate development on the economic potential of the country. If the real estate investment adds to the infrastructure and productive capacity of the economy then the export potential of Bangladesh might be enhanced. In addition, by allowing free repatriation, the Bangladesh policy framework is likely to encourage greater future real estate investment. That is, in the above example, foreign investors might repatriate the USD 1.5bn from the original investment but follow that up with many further billions of dollars in real estate financing reinforced by their confidence of free repatriation as well as the underlying attractiveness of the asset class in Bangladesh. Nonetheless there are some lessons from India in terms of their regulations on a more constrained or limited form of real estate FDI policy on repatriation. Specifically, the Indian government issued press note 2 (2005 series) on March 3, 2005 (Press Note) and permitted 100% foreign direct investment (FDI) under the automatic route to develop townships, housing, built-up infrastructure and construction-development projects, including, without restriction, housing, commercial premises, hotels, resorts, hospitals, educational institutions, recreational facilities, and

http://www.ipeconline.biz/presentations/day1/INVESTING%20IN%20REAL%20ESTATE%20PAKISTAN%20T HE%20NEXT%20BIG%20GROWTH%20AREA%20By%20Mr%20Arif%20Elahi.pdf

_______________________________________________________________________________________ AT Capital Weekly Update 4

10 August 2008
city and regional level infrastructure. Under the Press Note, a foreign investor must develop a minimum of 10 hectares for serviced housing plots and 50,000 sq. meters for construction-development projects. Previously, under press note 3 (2002 series), foreign investors could, after obtaining prior government approval, develop integrated townships of a minimum 100 acres in size or containing a minimum of 2000 dwelling units. Press note 3 (2002 series) significantly restricted the inflow of foreign investment in the sector, and only nine FDI proposals were approved between 2002 and 2005. This led the government to open up the sector to 100% FDI and issue the Press Note. However, there are some bottlenecks in the Press Note, which may hamper investment in this sector: 1. The Press Note prohibits repatriation of the original investment for a period of three years after capitalization. However, the foreign investor may apply to the Foreign Investment Promotion Board (FIPB) for a waiver of this condition. Press note 3 (2002 series) also contained a similar provision. Therefore, the position pertaining to exit remains unchanged, and as no parameters have been defined, the FIPB has significant discretion. 2. Real property laws in India vary widely from state to state. Various proposals have been put forth to convert all the state laws into a central law, so as to ensure easier comprehension and uniformity. However, nothing concrete has been done so far. As a result, foreign investors will have to comply with different state laws and obtain state- and cityspecific approvals, depending on where the project is undertaken. In addition, stamp duty levies (which can be very high) need to be calculated state-wise. 3. The Press Note mandates that 50% of the project must be developed within five years from the date all statutory clearances are obtained. Such a requirement seems unreasonable, especially if the project has a long gestation period. 4. The Press Note also retains the condition of minimum capitalization of USD 10mn for wholly owned subsidiaries and USD 5mn for joint ventures with Indian partners. However, these funds may be brought in within six months of commencement of business. The minimum capitalization requirements seem to be too high and may be an issue if the cash requirement for a project is less. Lessons from India Part Two – Private Equity Funds and REITS regulations The Securities & Exchange Board of India (SEBI) regulates private equity investments in India. In 2004, SEBI amended its regulations and permitted foreign private equity investors to invest in the real estate sector, subject, however, to press note 3 (2002 series) and other government regulations (which now include the Press Note). Therefore, the net effect is that a foreign private equity investor may register with the SEBI and may invest in the real estate sector as per the guidelines prescribed in the Press Note2.

AT CAPITAL RESEARCH
Real Estate Investment Trusts (REITs) invest in real estate much in the same way as mutual funds invest in securities. To date, foreign REITs are not allowed to operate in India. (We explain how REITs operate more fully in appendix 1), this has significantly affected the inflow of foreign capital into the Indian real estate market. Further, although, domestic real estate funds are allowed to operate through the SEBI (Venture Capital Investor) Regulations, 2000), most of them (like the HDFC Property Fund set up by HDFC in association with SBI) remain beyond the reach of the retail and small investors, as the minimum investment limit is too high. For example, the minimum investment requirement for the HDFC Property Fund is INR 50mn. One of the major impediments to organized growth in the real estate sector is the absence of investors with deep pockets. Save for exceptions such as DLF in the Delhi-Gurgaon belt and Hiranandani in Mumbai, the sector is largely made up of small-to-medium sized players who have neither the resources nor the capacity, to assume the risks that come with large projects. It is important, therefore, that easy funding is made available to the sector and not too many restrictions be placed on the inflow and outflow of foreign capital. Thus, although 100% FDI is a step in the right direction, a lot more needs to be done for the real estate sector in India to attain maturity. Perspectives on Real Estate Finance Trends in India A 2006 Report from Deutsche Bank on the prospects for Indian Real Estate Markets provides a useful summary on the challenges for developing real estate finance in India. Although the report is two years old, it provides valuable lessons for the prospective development of Bangladesh’s real estate market. The authors state that: Private debt Private debt is the most important source of financing real estate in India. It accounts for more than 60% of all institutional real estate investments. Strong demand for commercial real estate lending in the last years was boosted by falling interest rates, a vibrant real estate investment market, and a rise in corporate outsourcing activity. In the past four years, bank loans for commercial real estate have increased by more than 500% to USD 2.4bn. This number is poised to grow further in the next years, despite the RBI’s desire to slow credit growth. Also because real estate loans still play only a minor role on the banks’ balance sheets, commercial real estate financing via bank loans is very likely to continue its growth trend.
3

2

The latest version of the rules from Indian SEBI

3

“Building up India” by Deutsche Bank Research

http://www.sebi.gov.in/commreport/RealEstateReg.pdf

http://www.dbresearch.com/PROD/DBR_INTERNET_EN-PROD/PROD0000000000198335.pdf

_______________________________________________________________________________________ AT Capital Weekly Update 5

10 August 2008
Private equity Private investors play an important role in the Indian investment market. At the end of 2005 the total Indian private equity volume was roughly USD 1.6bn, accounting for 40% of the Indian real estate capital market. This market is rapidly growing. In 2005, private property companies and individuals’ holdings of real estate grew by 40% year on year. The Indian pension fund system is still poorly developed. Its investment strategy can be characterised by a high degree of risk aversion. Regulation mandates that at least 60% of asset allocation is in government securities or other approved securities. In the private equity category, it still counts as the second largest investor group, but its exposure to the real estate sector is still very small. Changes in the pension funds’ asset allocation strategy will largely be driven by congruent changes in regulation. In its absence, pension funds are likely to keep their large positions in government bonds and other approved securities. This holds for insurance companies as well, given that Indian insurance authorities still regard real estate investment as risky. Regulation for insurance companies’ investment strategies remains restrictive, explaining their small exposure to real estate (USD 10 min 2005). This will hardly change in the near future unless the regulatory bodies ease the rules. The Security Exchange Board of India (SEBI) approved the Real Estate Fund (REF) in 2005. However, it will be sometime before retail investors actually begin investing in real estate funds. At present, REF is only open to high net-worth individuals, institutional investors and global investors, such as HDFC Property Fund and ICICI Venture. The demand for REF is strong, and this could be the catalyst for the future development of Real Estate Investment Trusts (REITs). REITs might be introduced in 2007. Public debt The public debt market, which here only comprises outstanding corporate bonds and Commercial MortgageBacked Securities (CMBS), is in the very early stages of its development in India. In 2005, the total value of public debt stood at no more than USD 6mn, and this is solely accounted for by the listed corporate bonds. In the last years there have been no CMBS issuances in the Indian market, implying that the entire Mortgage-Backed Securities (MBS) market is dominated by Residential Mortgage-Backed Securities (RMBS). These have indeed played an important role in Indian securitisation in the past 5 years because of the fast growing residential sector and low cost of financing. The inexistence of a functioning CMBS market can be explained by investors’ uncertainty over foreclosures under the Indian legal system and by tax implications associated with securitisation. In addition, restrictions on profit-taking as well as on capital relief may act as a hurdle for the growth of the CMBS market. However, the rapid growth for other Indian structured finance products such as asset-back securities (ABS) and RMBS shows that there might be growth potential also in the CMBS market in the future. In the last three years the growth rate for ABS and RMBS averaged 150% and 250% year on year respectively – although admittedly from low levels. Public equity

AT CAPITAL RESEARCH
Neither Real Estate Investment Trusts (REITs) nor Real Estate Mutual Funds (REMFs) exist in India, implying that the real estate public markets are still limited. The only way to invest in real estate in the public market is through listed property companies, but there are only a handful of these currently. Public equity holdings on a pure equity basis reached USD 7mn in 2005, unchanged from 2004. DLF Universal, India's largest property developer, is set to rise about USD 2bn in June 2006, representing the largest initial public offering (IPO) in India so far. RREEF/DB Real Estate Research believes that this IPO might boost the limited current listed property sector. Generally speaking, the creation of REITs will improve transparency and liquidity on the real estate capital market. In India, recent news indicates that the potential introduction of Indian REITs and/or REMFs in 2007 might provide investors with a comfort zone to reduce the transparency and liquidity risks. This will also provide a wider range of choices for investors to engage in real estate investment, considering the current limitation of the public property. The explosion of satellite cities in India The Indian experience also underlines the potential for rapid growth in satellite towns, especially when focused around economic zones or parks. The classic example is dramatic development of Gurgaon as a satellite of Delhi. The Deutsche Report notes that Gurgaon was the first nonmetropolitan location in which an international IT company (IBM) opened an office. Its far bigger supply of space and low office rents make it extremely attractive, a fact increasingly recognised by copy cat companies (Microsoft, Nortel, Samsung etc). Offices were followed by housing for the staff, giving rise to a satellite town with high-grade infrastructure that is also conveniently located for the international airport. The only hurdle is that the motorway to Delhi is not yet open. Meanwhile, though, construction work can no longer keep up with demand growth and as reserves of space shrink, so office rents are beginning to climb in Gurgaon, too.

_______________________________________________________________________________________ AT Capital Weekly Update 6

10 August 2008
The shortage of space in Gurgaon makes other out-of-town locations of interest as well. Noida and Greater Noida are to the east of Delhi; Noida is about 10 km from the city, and greater Noida is being built another 20 km east of Noida. Both towns, like Gurgaon, are based on a master plan assigning individual districts specific purposes. Whereas a large number of buildings are already complete in Noida, Greater Noida is still in the making. The infrastructure is already in place (expressway to Delhi), but work on offices and apartments is still in an early phase. As in Gurgaon, a new satellite town is being fashioned with office blocks, shopping malls and housing estates. This rapid development of satellites around Delhi clearly provides a roadmap for development opportunities around Dhaka over the next five to ten years. Conclusions Bangladesh has one of the most densely populated populations in the world, a median age of less than 25, and the prospects for rapid urbanization. This underlines the need for a more far-sighted perspective on facilitating greater access to lower cost real estate financing from both international funds and domestic sources. Clearly the country needs to form a set of regulations that attracts high quality real estate investment that will development infrastructure and steer away from “hot money” that is speculative in nature and risks exaggerating property cycles. The Indian SEBI approach to real estate FDI regulations might provide a valuable template. But the authorities should also begin the process of establishing a framework so that domestic real estate funds and eventually REITs can also be established. The Pakistan authorities have just published their REIT regulations in August 2008. They have emphasized that with only 3mn of 160mn population owning real estate directly that they see REITs as a means of spreading property ownership. Bangladesh needs to develop greater systematic research on both real estate prices and the drivers of the property values. But there is every reason to remain optimistic that the country can attract both overseas financing and redirect local savings towards a sector that will remain strategically important for economic development for the foreseeable future.

AT CAPITAL RESEARCH

_______________________________________________________________________________________ AT Capital Weekly Update 7

10 August 2008

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

Overview – Global Markets
US Equities Rally on further collapse in oil prices A strong week for US stocks with the Dow posting a 3.6% gain. The move was the Dow's second 300-point move this week and the sixth move of at least 200 points in the last ten trading days. The primary driver was the collapse in oil prices in particular, and the broader commodity complex in general, offsetting further signs of bad news on the credit crunch with UBS, Citi and Merrill agreeing to buy back tens of billions of dollars of Auction Rate Securities (ARS) along with poor earnings releases from AIG, Fannie Mae and Freddie Mac. Crude oil dipped to USD 114.62 a barrel as prices for commodities including metals and crops fell amid the dollar's gain. Crude has declined more than USD 32 from its July record on speculation that slower global economic growth will cut demand. It has been argued by some analysts that the resilience of the US Dollar was also a driver of the drop in commodities. The dollar posted its biggest weekly gain against the euro since January 2005 after European Central Bank President Jean- Claude Trichet said risks to economic growth are ``materializing,'' reducing expectations of higher interest rates. The euro fell to USD 1.4998, the lowest since February 27. Gold for immediate delivery touched a three-month low of USD 851.37 an ounce, an eight week low, on speculation dollar gains will spur sales by investors who bought the metal as an alternative to earlier declines in the U.S. currency. Silver dropped to its lowest level in six months. The metal traded below its 40-, 100- and 200-day movingaverages for the first time in a year, a sign it may fall further, according to traders who follow technical charts. Silver fell 40 cents, or 2.5%, to USD 15.80 an ounce after earlier dropping to USD 15.77 an ounce, the lowest since January 23. Prices are down 9.4% this week, the biggest drop since March 21. Platinum fell USD 7.50 to USD 1,568 an ounce and palladium declined USD 3.25 to USD 345.25 an ounce. Corn and soybean futures also fell. Commodities, as measured by the Reuters/Jefferies CRB Index of 19 raw materials, dropped to their lowest level in four months. The CRB fell 12.12, or 3%, to 387.42, down 18% from a record 473.97 on July 3. Heightened geopolitical tensions, the traditional catalyst for a rebound in commodity prices, have offered little relief this time around despite the fact it is occurring in a region of significant oil vulnerability. Russian Prime Minister Vladimir Putin said ``war has started'' over the breakaway region of South Ossetia as Georgian President Mikheil Saakashvili accused its neighbor of a ``well-planned invasion.'' Georgian President Saakashvili said in a television interview on Friday that his nation of 4.6mn people is ``fighting to secure its borders'' amid ``full-blown military aggression'' involving thousands of Russian troop. The fact that oil prices gained little benefit from the escalation of hostilities in Georgia suggests that bear sentiment is firmly entrenched. Oil price declines may be offset by ongoing housing/credit crunch drag on global economy As we have highlighted in previous issues of the AT Capital Weekly, the surge in energy prices and the negative correlation between oil and the US dollar has made the Fed’s and indeed other Asian central banks, work that much harder. A rise in oil depresses growth and also boosts inflation with a weaker US dollar adding to price pressures. So the decline in oil prices seen in the past few weeks will be welcomed by central banks around the world.

But in our view, it is premature to chase the global equity market rally until there is greater clarification that we are seeing some stabilization in US house prices. The balance sheets of many banks globally remain vulnerable to the potential need for capital injections/further rights issues. US Household spending is also likely to flag as the temporary stimulus effects of the tax rebate wear off. Collapsing house prices is also adding to both nervousness and the perceived need to rebuild savings with the US personal savings rate at 0.6% remaining one of the lowest in the world. Recession has already hit the UK, Ireland and Spain and is almost certainly likely to spread through the rest of Europe. This was the clear catalyst for the fall in the Euro. In the next section, we highlight some interesting new research that explains how asset price deflation can extend the severity of recessions in the US.

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10 August 2008
the Synergies of the unpleasant kind: recessions, credit crunches and housing busts Some new research from a group of IMF economists discusses the linkages between recessions and financial variables. The paper4 by Stijn Claessens, M. Ayhan Kose and Marco E. Terrones, entitled "What Happens During Recessions, Crunches and Busts?" provides a comprehensive empirical characterization of the linkages between key macroeconomic and financial variables around business and financial cycles for 21 OECD countries over the 1960-2007 period. In particular, they analyze the implications of 122 recessions, 112 (28) credit contraction (crunch) episodes, 114 (28) episodes of house price declines (busts), 234 (58) episodes of equity price declines (busts) and their various overlaps in these countries over the sample period. They document a rich set of stylized facts about the behavior of key macroeconomic and financial variables during these various events. Their results indicate that interactions between macroeconomic and financial variables can play major roles in determining the severity and duration of a recession. In particular, they show that recessions associated with credit crunches and house price busts are deeper and last longer than other recessions are. In light of their findings, they examine the implications of recent macroeconomic and financial developments in the United States for the future path of its economy. With respect to ongoing events in the United States, they write: “These comparisons suggest that, while the current slowdown may share some features with the onsets of typical US and OECD recession, it is worse in some dimensions, particularly in terms of speed of credit contraction, drop in residential investment and decline in house prices. We therefore also compare the developments in credit and housing markets in the United States to date to those in the past episodes of credit contractions and house price declines. Tables 2B and 3B showed that such credit contraction (crunch) and house price decline (bust) episodes on average lasted 6 (10) and 8 (18) quarters, respectively. If these statistics, based on a large number of episodes, provide any guidance, they suggest that the adjustments of credit and housing markets in the United States are only in the early stages relative to historical norms and might still take a long time. The earlier episodes suggest that the process of adjustment in the United States might persist in the coming months with further difficulties in credit markets and drops in house prices. This could bode consequently poor for the path of overall output, which, as we showed, falls more in recessions associated with credit crunches and house price busts than in recessions without such events.” Excerpt from Figure 9 from Claessens, Stijn and Terrones. The solid line denotes the current US slowdown. The light solid line is the median of all recessions in OECD countries

AT CAPITAL RESEARCH

(except the United States) while the dotted lines correspond to upper and lower quartiles of these recessions. The dashed line is the median of all US recessions. Zero is the quarter after which a recession begins (peak in the level of output). Short term interest rate is the change in the level.

The analysis does at least suggest that relative to past recessions, the housing downturn is well extended. But it might be argued that the housing bubble that preceded the current bust was far larger than most if not all other previous bubbles so the collapse in house prices will be more severe. The bottom line is that the US economy is likely to remain in a recessionary phase for some time and one should not read too much into last week’s rally in equities as a signal that an economic turnaround is imminent.

4

The full paper can be found at the website of American Enterprise Institute

www.aei.org.

_______________________________________________________________________________________ AT Capital Weekly Update 9

10 August 2008

AT CAPITAL RESEARCH
Junaid Khan, Investment Advisor
junaid.khan@at-capital.com

Special Focus: Textiles
Bangladesh’s Textile and Clothing Sector: Emerging from the shadows into the sunlight The post-MFA era has witnessed Bangladesh emerge as one of the most competitive destinations for clothing manufacturing in the world. From a modest base of USD 3.5mn exports in 1981, Bangladesh’s textile and clothing exports were worth USD 9.98bn in the year to May 2008, a 15.8% increase from the prior year, accounting for 80% of exports and 10.5% of GDP.

We believe there are significant investment opportunities in: • Backward linkages into spinning, dyeing and finishing mills • Diversification into high-end apparel manufacture • Diversification into niche clothing items • Textile and fashion design training institutes Basics versus high value added apparel In Bangladesh, there has been a natural progression in the production of clothing from low to high value items and from less sophistication to more sophistication. Some successful entrepreneurs have established direct contacts with their ultimate buyers (retailers) and have developed sophisticated marketing strategies. Some of them have already made a successful transition to high value apparel product such as dresses and suits. However, low value items constitute by far the largest section of the market, and abandoning this market is neither possible, nor desirable, in the near future. Bangladesh’s clothing manufacturers have successfully contested the market for standard items and its share of global exports has increased year on year – a clear signal of where its comparative advantage lies - cost. Countries concentrating on the market for high value clothing are generally more technologically advanced, skilled and efficient producers of apparel items. For example, Turkey and Italy produce high value clothing. To secure a niche in this market, Bangladeshi clothing producers will have to compete against the highly sophisticated clothing manufacturers of the developed countries and such developing countries as China, Sri Lanka and Turkey. To be successful in the high value end of the market the domestic RMG producers will need to develop and harness skills, technology and capacity. As it has in China, Sri Lanka and Cambodia, FDI may facilitate the process. Policies and practice suggests that Bangladesh has been a reluctant receiver of FDI at least in the RMG sector as, until recently, FDI in RMG firms was limited to Export Processing Zones (EPZ) only, while the domestic sector was kept off limits for foreign equity or partnerships. Unlike many developing countries such as Cambodia, Mauritius and Mongolia, where many of the garment firms are part of larger multinational corporations in the form of foreign direct investment, less than 15% of Bangladesh garment firms have foreign equity. This is partly due to the restrictive policy condition which required that any FDI in RMG be associated with simultaneous investment in a backward linkage facility (spinning, weaving, and/or dyeing and finishing). The ostensible reason for this restriction was to safeguard rents from quota allocations to Bangladeshi entrepreneurs. This policy could have been responsible for insufficient productivity improvements in the RMG sector - something that would have stood Bangladesh in good stead in the post-MFA competitive environment.

Knit and Woven exports

Source: BGMEA and BKMEA

Bangladesh has one of the most liberal investment regimes in South Asia with few limitations on foreign equity participation, supportive fiscal incentives, and a relatively cheap and abundant trainable labour force. The sector has grown significantly over the last two decades, placing itself at the top of the list for many companies wishing to fill their shelves at the lower end of the value chain. We see this trend with wage inflation continuing to exert pressure on neighbouring manufacturing giants India and China, while Bangladesh continues to extend its competitive edge. Challenges remain with poor infrastructure, both transport and power, a lack of significant investment in backward linkage, lengthy lead times and it has yet to make significant inroads up the value chain into higher end items and further diversification into niche areas. Compliance uptake needs to improve, limiting buyers ability to source products, and unionisation and labour unrest persists as a worry for factory owners. Global food prices increases have forced manufacturers to increase wages, but still remain at relative discounts to competitors, as they face similar pressures. The world textile and clothing trade was worth USD 530bn in 2006. While Bangladesh has made significant inroads into the global market, there remain significant opportunities for further growth in Bangladeshi textile and apparel exports provided Bangladesh can maintain its competitive advantage with the lowest labour costs in the world.

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10 August 2008
The restriction on FDI was finally removed in the Industrial Policy 2005; but perhaps the Bangladesh RMG sector missed out on certain benefits that came from the presence of FDI in a sector. Conventional wisdom has it that firms with foreign equity tend to be more productive. This could be due to the firm specific tangible assets such as exclusive technology and product designs, or the intangible know-how embodied in foreign equity such as superior management, marketing, networking and sourcing. Lead time: Getting the products to the customers as soon as possible Lead times are a critical competitive factor in the industry and an area where Bangladesh needs to improve. They vary between 90-120 days (for woven garments) while they are considerably shorter for knitwear items (45-60 days) since most raw materials (yam and knitted fabric) are procured domestically. Typical lead time components for Bangladesh (days)
Days taken after ceding step NonOptimal Non-optimal 0 0 4 6 7 26 4 1 20 28 15 30 7 2 30 30

AT CAPITAL RESEARCH
Lead time for servicing an order for RMG
Country Cambodia China Indonesia Malaysia Thailand Vietnam Bangladesh (days) Lead time (days) 90-120 45-60 60-90 60-90 60-90 60-90 90-120
Source: The World Bank

If the raw materials could be sourced locally the time required to receive them at the factory gate could be reduced from 4260 days to just one or two weeks. Hence, local sourcing could reduce the total lead time to 55-75 days. This would make the lead time of Bangladeshi garment exporters comparable to that of its major competitors. The discussion above clearly suggests that the best option for reducing lead time is to have the raw materials of RMG industry produced domestically. During the last decade and half Bangladesh has become almost self-sufficient in the production of many accessories items. It now produces, according to BKMEA leadership, 90% of the knit fabric requirements of the export-oriented knit garment manufacturers. This enabled the sector to reduce the average lead time to only 50-60 days. However, despite all the incentives and large protective barriers, the woven fabric section of the textile sector has not been able to reduce the demand-supply gap. It can meet only about 35%-45% of the total requirement of the woven RMG sector, and this situation has not changed much for the last five years. The excess demand for woven fabric (over and above domestic supply) has increased over the years. The unavailability of domestic woven fabric not only increases lead time, but also causes GSP related disadvantages. It poses a serious constraint to export competitiveness. Although it may not be possible to increase domestic supply of fabric at par or in excess of the increase in demand within a short period, it might be possible to meet part of the demand by increasing the capacity of dyeing and finishing industries. If these industries are allowed to stock up grey fabric in advance of orders, they could supply finished fabric to the woven garment manufacturers at fairly short notice. The lead time would not be greater than when domestic fabric is used. This option should receive serious consideration. Backward Linkage The ready-made garments industry grew up in Bangladesh without the benefit of either backward (upstream) or forward (downstream) linkage industries. During the early years, the RMG industry in Bangladesh purchased almost all its material inputs such as accessories and fabric from overseas. This was also the period of most rapid growth of RMG export. As the production of RMG increased by leaps and bounds, so did the import of these inputs. Local entrepreneurs perceived profit-earning opportunities in the manufacture of these inputs. Since the investment cost of manufacturing accessories is relatively low, this was the first area exploited by domestic entrepreneurs. The local accessories industry now supplies most of the requirements of the RMG industry and is also exporting small quantities.

Exporter receives confirmed LC Raw material supplier receives LC Raw material supplier produces and ships goods Ship berths at port of import Raw material is unloaded and taken delivery from port Consignment reaches factory Garment packed and shipped Consignment reaches buyer's port

Source: The World Bank

On average, it takes a clothing manufacturer 42-60 days to receive the raw materials (essentially fabric) at its premises from the time it receives a confirmed Letter of Credit (LC). Several factors contribute to this length of time required to receive the raw materials. First, most of the fabric requirements of woven RMG (80% or more) are imported from countries as China, India, Korea and Taiwan. Given the geographic position of Bangladesh and the prevailing shipping routes, it takes considerable time for shipments from these countries to reach ports in Bangladesh. The time requirement is further lengthened by the fact that goods have to be brought from China and elsewhere through transshipment at Singapore or Malaysia as goods cannot be shipped directly to Bangladesh from these countries. Consequently, it takes 25-30 days for the consignment to reach local ports. Poor port facilities and bureaucratic process can add to the time it takes to take delivery of the consignments. Due to Chittagong and Mongla ports being off the main shipping lanes of mother vessels, the export consignments have to be sent by feeder vessels to Singapore or Malaysia to be loaded into mother vessels to carry them to their final destinations in USA and Europe. As such it takes about 28-30 days for export shipment. The time is reduced by about a week or so if more expensive, faster vessels are used for shipment.

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10 August 2008
The increase in import of fabric also encouraged domestic entrepreneurs to move into the primary textile sector, which was then dominated by loss-making public enterprises. This was helped by generous cash incentives given to textile production for exports or deemed export and the duty-free access to EU market. However, the two sections of the clothing industry, knit and woven, did not benefit equally from the expansion of domestic fabric production. Most of the fabric sold to the clothing industry was used by the knit section of the industry. The production of knit fabric has expanded sufficiently to meet most of the demand for such fabric (more than 90%) by the knit industry. In contrast, woven garment industry is still overwhelmingly dependent on imported woven fabric and about 35% of the fabric is produced locally. Domestic fabric producers are unable to meet the demand of the woven sector, which is by far the larger section of the RMG industry accounting for about 60% of the total value of exports (and output) of RMG. SelfSelf-sufficiency of Different Sectors
Self sufficiency woven garments in %
Prod. Step Spinning Weaving Finishing Clothing Prod. BD 20 20 20 100 China 70 70 70 100 India 10 95 95 100 Indonesia 30 30 30 100 Pakistan 100 100 100 100 Sri Lanka 20 20 20 100

AT CAPITAL RESEARCH
know-how, better management practices and wider linkages with the international market. Successful operation of the dyeing and finishing units would critically depend on the availability of grey fabric. Large stocks of grey fabric of the most common constructions would, therefore, need to be held to supply the processing units as and when demanded. It is clear that measures other than the existing individual bonded warehouse system, where fabric can be imported only against confirmed letter of credit, will have to be devised to make large-scale fabric processing worthwhile for investors. One such system is Central Bonded Warehouse which would increase handling efficiency of the items. Since an internationally competitive domestic primary textile sector contributes to the competitive strength of local RMG by reducing cost and lead time, a favorable environment for their growth should be ensured by removing any constraints. However, this should not mean adopting (or not adopting) such measures that would raise the cost of inputs for the RMG industry or prevent them from reducing the lead time. Industry assistance could take the form of availability of long term loans at reasonable rates through reforms of the financial sector, the development of more efficient infrastructure, and greater emphasis on skill development through education5.

sufficiency Self sufficiency cut and sew knitted garments in % Prod. Step Spinning Weaving Finishing Garment P. BD 70 95 95 100 China 90 90 90 100 India 100 100 100 100 Indonesia 80 80 80 # Pakistan 100 100 100 100 Sri Lanka 30 70 80 100

Self sufficiency knitted garments in % Prod. Step Spinning Weaving Finishing Garment P. BD 10 20 100 100 China 100 100 100 100 India 100 100 100 100 Indonesia 60 90 100 100 Pakistan 100 100 100 100 Sri Lanka 40 70 100 100

Source: GTZ/PROGRESS

The large investment requirements of primary textile manufacturing and low international prices due to worldwide excess capacity limited the growth of woven fabric manufacturing. It has barely managed to retain its share of the demand of woven fabric at around 15%. The trend of consumption of domestic fabric by the woven sub-sector seems to suggest that the domestic primary textile sector will be unable to supply the greater part of the total demand for fabric of woven RMG in the near future. However, substantial FDI in this sector could change the picture very quickly. There are some encouraging signs that foreign textile manufacturers are showing interest in establishing production facilities in Bangladesh. FDI will also help the overall productivity of the sector by bringing in advanced technical
5 The article above is a short extract of the AT Capital Textiles Report. The report can be found at the following link:
http://at-capital.com/index.php?option=com_content&task=view&id=38&Itemid=63

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10 August 2008

AT CAPITAL RESEARCH

Stock Market Weekly
DSE performance: 52 weeks Market news
Aktel announces listing by the end of the year Market fell for the 10 consecutive week Titas gas finally gets good response from investors HSBC will help NRBs invest in stock market High Court stays SEC ban on issuance of bonus, rights shares by mutual funds SEC approves new issuances of National Housing and Mutual Trust Bank
th

• • • • • •

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 2,761.1 2,732.0 -1.1% -29.0 This Week 5 13.90 191 38 87 17 Last Week 5 13.96 232 46 110 22 This Week 41 205 5 36 DSE 20 2,526.2 2,490.6 -1.4% -35.6 % Change -0.4% -17.5% -17.5% -20.9% -20.9% Last Week 63 183 8 33

Valuation snapshot
Sector P/E Mar-08 Apr-08 21.9 22.2 14.7 14.7 43.2 43.7 33.7 38.9 24.5 28.2 28.3 25.8 23.0 28.1 40.5 64.9 18.3 18.4 18.6 16.4 22.3 23.0 11.0 9.2 25.0 26.7 10.8 20.5 19.9 25.1 14.6 14.9 May-08 22.6 17.6 42.7 41.4 28.5 26.2 32.4 65.2 17.6 16.0 25.9 9.5 29.8 19.5 23.1 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

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 20.61 Last Week 21.02 % Change -1.95% *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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10 August 2008 Weekly Stock Market Commentary
Last week’s close marked the tenth consecutive weekly fall in the DGEN. On Sunday 3 August it fell 2.6%, the penultimate day of a seven-day losing streak, before it gained 2% on Tuesday and 0.75% on Wednesday. The rebound however was short lived with a fall of 0.1% on Thursday. There were high intraday volatilities throughout the week and daily trading volume fluctuated sharply. The market closed at 2732 - 12% down from the beginning of the year. The Titas Gas direct listing continued its poor run till Monday. Under the direct listing rules, Titas needs to sell 10% of its shares (roughly 8.6mn shares) within 30 working days of listing. In 23 working days it had only sold 9% of what they needed to sell. Titas’s application for an extension was declined by the SEC this week. However, it seems that the extension is no longer required, as much to many observers’ surprise, the stock suddenly became flavor of the month when its share price shot up by 17.5% on Tuesday with 4mn shares bought in a day, taking them closer to the finishing line. Titas: Daily Price and Volume Trends

AT CAPITAL RESEARCH
We also feel the market will benefit from the new insurance ordinance which stipulates that insurance companies increase their paid up capital significantly. Unlisted insurance companies are expected to expedite their listings and many of the listed companies are expected to issue rights shares. We remain bullish on the sector, with significant opportunities in product development, improved asset-liability management and market penetration, which is currently amongst the lowest in the world.

Stock Market News
yearAktel share offloading by year-end

The Daily Star, Wednesday, August 6, 2008
Aktel, the country's third largest mobile operator, has announced its plan for an IPO by year end. The company officials said the commitment made earlier to the Securities and Exchange Commission (SEC) about listing a portion of its shares will be followed. "We had a roadmap to go for public by the end of the year. We are working on it," the CFO of Aktel, told The Daily Star. If the plan goes ahead, Aktel will be the second telecom company to be listed following GrameenPhone (GP) planned listing, by September.
http://www.thedailystar.net/story.php?nid=49109

SEC okays Nat'l Housing IPO, Mutual Trust Bank's right share offer
The Daily Star, Wednesday, August 6, 2008

National Housing Finance and Investment Ltd received SEC approval on August 5 from to raise BDT 50mn (USD 0.73mn) through an IPO. The market regulator also approved the right share offer of Mutual Trust Bank. The bank will offer one right share at BDT 100 for every five shares held. Mutual funds continue to hit the headlines, when the High Court (HC) stayed (for three months) the SEC’s decision, in July, to disallow close ended mutual funds to increase their fund size by issuing right shares or bonus shares. The SEC’s original decision prompted large declines in the shares of mutual funds. To avoid potential price volatility following this week’s HC decision, the DSE suspended the trading of mutual funds on Tuesday. Trading recommenced on Thursday. Contrary to general expectations, most of the mutual funds declined, with Aims 1st Mutual Fund & Grameen One Mutual Fund, the two most actively traded funds, suffering 14% and 8% declines respectively. The market clearly has taken the HC judgment as purely a revision in timing. Following GP announcing their imminent listing last month, Aktel, the country’s number three mobile operator, is following suit. The CFO of Aktel, in an interview with a newspaper announced they are working towards a listing by the end of the year. Earlier, the company was valued at more than USD 1bn when AK Khan and Company agreed to sell its 30% stake in the company to NTT Docomo for USD 350mn. The market will surely benefit from the listings of GP and Aktel, both good quality large caps.
http://www.thedailystar.net/story.php?nid=49071

High Court stays SEC ban on issuance of bonus, rights shares for mutual funds
The Daily Star, Tuesday, August 5, 2008

On August 4, the High Court (HC) postponed for three months the SEC’s ban on the issuance of bonus shares or rights issues for close-end mutual funds. The HC also stayed the dividend declaration by all mutual fund managers until the new rules come into force. The mutual funds, which already declared dividends, will also fall under this rule, meaning the mutual funds cannot disburse the declared dividends to the unit holders until the rules come into force.. Earlier on July 22 this year, the SEC formally approved the changes in mutual fund rules that barred close-end mutual funds from offering bonus shares as dividends or offer right issues in order to increase their capital base. Following the decision, prices of mutual funds, which were skyrocketing on rumours that some of the funds were going to declare rights or bonus shares to increase their capital base, witnessed a significant fall.
http://www.thedailystar.net/story.php?nid=48954

_______________________________________________________________________________________ AT Capital Weekly Update 14

10 August 2008 DGEN Performance LTM

AT CAPITAL RESEARCH
DGEN Performance YTD

Turnover leaders (All figures in mn) BDT 2,250 Titas Gas 876 Beximco Pharma 721 BEXIMCO 699 Lankabangla Finance 530 Square Pharma 484 UCBL 398 Keya Cosmetics 369 BATBC 349 Aims 1st M.F. 337 ACI Limited. Market cap. by sector* Banks Pharmaceuticals Fuel & Power Insurance Cement Miscellaneous Engineering Textile Foods Tannery Service & Real Estate IT Ceramics Paper & Printing Jute Total

Best performers* USD 32.9 12.8 10.5 10.2 7.7 7.1 5.8 5.4 5.1 4.9 Titas Gas Modern Industries Maq Paper Sonali Paper Rahman Chemicals Bd.Thai Aluminium Rahima Food ICB Aims 1st M.F. CMC Kamal % Change 26.6 20 18.3 13.2 10.8 10.5 9.4 9.1 9.1 8.8

Worst performers* % Change Metalex Corporation -32.4 Wata Chemicals -23.5 Meghna Life Insurance -20.7 BEXIMCO -16.3 Apex Spinning -16.3 Apex Adelchi Footwear -15.7 Popular Life -14.6 Meghna Shrimp -13.9 Chittagong Vegetable -12.9 BD Zipper Ind. -12.5
*By closing price

54.96% 11.21% 9.65% 6.85% 5.43% 2.68% 2.59% 1.91% 1.70% 1.40% 0.92% 0.45% 0.13% 0.07% 0.03% 100%
*As of June 30, 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 Rashed Hasan Research Associate rashed.hasan@at-capital.com Shahidul Islam Investment Manager shahid.islam@at-capital.com Syed Najibullah Research Assistant syed.najibullah@at-capital.com

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10 August 2008

AT CAPITAL RESEARCH

Economics
Export figures across different sectors (USD millions)
Particulars
Raw jute Jute goods (excl. carpets) Tea Frozen food Leather RMG woven RMG knit Chemical products Agro products Engineering & electronic goods Others

Market Market news • Bangladeshi exports exceed USD 14bn in 200708 fiscal • Budget fails to ignite prices as inflation reaches 7.8% in June • Remittances and exports likely to offset depreciation of the taka • Government to start FTA talks with India, Pakistan, Sri Lanka • BoI directed to redesign strategic plan to attract investment • Bangladesh July foreign exchange reserves fall from record high

JulJul-Apr 20062006-07
124.84 268.62 5.21 416.87 221.79 3,814.45 3,661.00 144.26 45.64 196.03 1,014.08

JulJul-Apr 20072007-08
143.36 265.96 13.96 449.39 236.75 4,185.50 4,392.71 153.20 74.76 176.47 1,273.67

Growth
14.83% -0.99% 167.95% 7.80% 6.75% 9.73% 19.99% 6.20% 63.80% -9.98% 25.60%

Source: Export Promotion Bureau

Recent export trends (USD millions)
A. Annual exports 2004-05 8,654.52 (+13.83) Month July August September October November December January February March April May JulyJuly-May 2005-06 10,526.16 (+21.63) 2007-08 902.33 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 12,638.86 (+15.33) 2006-07 12,177.86 (15.69) 2006-07 1,143.36 1,155.85 950.07 870.78 916.04 1,174.88 816.39 979.23 1,010.05 875.04 1,043.95 10,958.62 (+16.56)

B. Monthly exports

Bangladesh foreign exchange reserves (USD billions)

Source: Export Promotion Bureau

Top Bangladeshi export destinations

S Adeeb Shams Research Associate

adeeb.shams@at-capital.com

_______________________________________________________________________________________ AT Capital Weekly Update 16

10 August 2008 Economic News
Bangladeshi 2007Bangladeshi exports exceed USD 14bn in 2007-08 fiscal
The Financial Express, Wednesday August 6, 2008

AT CAPITAL RESEARCH
Remittances and exports likely to offset depreciation of the taka
The Financial Express, Thursday August 7, 2008

The country’s exports in 2007-08 fiscal year totaled USD 14.1bn, representing an increase of 15.9%. According to the Export Promotion Bureau (EPB), goods worth USD 1.5bn were shipped out of the country in June, a 20.65% increase over the same period last year. This was the highest ever monthly export figure. According to Md. Khalilur Rahman, Director General of EPB, exports made a comeback in the last nine months of the period, with both the knitwear and woven garments sectors experiencing significant growth. Knitwear and woven garments, comprising 76% of Bangladesh's total exports, grew by 16% to USD 10.7bn. This was also the first time that garments exports crossed the USD 10bn mark. Individually the knit and woven sectors grew at 21.5% and 11%, respectively. Officials reported that export orders boomed in the latter part of the fiscal year, as global buyers switched their focus towards Bangladesh, because of a combination of a weaker taka and external factors, such as currency appreciation and wage hikes in China and India. Anwar-ul Alam Chowdhury Parvez, President of Bangladesh Garment Manufacturers and Exporters Association (BGMEA), is optimistic that the country’s total garments exports will grow to USD 18bn by 2011, with the right environment and competitive advantages. EPB data also revealed that most of the other major export items fared well, despite the recent global economic downturn. Frozen food exports, the second largest export item, grew by 3.6% to USD 534.1mn. Footwear experienced a 24.8% increase to USD 169.6mn, whereas Pharmaceuticals grew 53.4% to USD 39.5mn.
http://www.thefinancialexpressbd.info/search_index.php?page=detail_news&news_id=41872

Some commentators expect the taka is unlikely to depreciate against the dollar in the near future, due to a combination of strong inflows of remittances and record exports thus offsetting the import-driven demand. During 2007-08, exports rose 16%, whereas remittances reached an all-time high of USD 8bn.
http://www.thefinancialexpressbd.info/search_index.php?page=detail_news&news_id=41958

Govt to start FTA talks with India, Pakistan, Sri Lanka
The Daily Star, Monday August 4, 2008

The government has decided to start bilateral free trade agreement talks (FTA) with India, Pakistan and Sri Lanka. The decision was made during a high-level meeting, held at the Commerce Ministry. India, Pakistan and Sri Lanka have long been pushing Bangladesh to sign an FTA with them. A decision was also made on forming a multi stakeholder working group with the objective of identifying the different pros and cons under an FTA. It was proposed that the group will consist of both public and private sector representatives, and trade experts.
http://www.thedailystar.net/story.php?nid=48803

BoI directed to redesign strategic plan to attract investment
The Financial Express, Sunday August 10, 2008

Chief Adviser Dr. Fakhruddin Ahmed has directed the Board of Investment (BoI) to redesign its strategic plan by incorporating new ideas, practical suggestions and forwardlooking proposals as a means to enhance investment. He also asked the Board for placing the restructured strategic plan in the next BoI meeting. The overall development of BoI including updating its organogram, amendment to investment-related laws and the process of approval of investment projects and enhancing the capacity and efficiency of the organization were also discussed.
http://www.thefinancialexpressbd.info/search_index.php?page=detail_news&news_id=42167

Budget fails to ignite prices as inflation reaches 7.8% in June
The Financial Express, Monday August 4, 2008

Point-to-point inflation in June edged up slightly to 7.8%, as the caretaker government’s trillion taka budget has not stoked prices as much as expected, according to a senior Finance Ministry official. Point-to-point inflation data recorded in April and May were 7.6% and 7.4% respectively. This was very uncharacteristic of previous occasions, where new budget have spurred inflation. Average monthly inflation however, stood at 9.8%, owing largely to high food prices, despite a record yield of 17mn tonnes of rice in the outgoing boro harvest. Average inflation recorded in the first nine months of the outgoing fiscal year was in excess of 10%.
http://www.thefinancialexpressbd.info/search_index.php?page=detail_news&news_id=41661

Bangladesh July FX reserves fall from record high
Reuters, Sunday August 3, 2008

Bangladesh's foreign exchange reserves fell to USD 5.8bn at the end of July, from an all-time high of USD 6.2bn in June, according to Bangladesh Bank. The fall was attributed mostly to increased cost of imports. However, this was offset owing to higher inflows of remittances from Bangladeshis working abroad.
http://in.reuters.com/article/companyNews/idINDHA1249520080803

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10 August 2008

AT CAPITAL RESEARCH

Sector News
Agriculture
Rice price reducing both in domestic and international market
Prothom Alo, Saturday, August 09, 2008

Bangladesh exported USD 449mn of frozen foods, mostly shrimp, in the first ten months of this year against USD 691mn target for the full year.
http://www.thedailystar.net/story.php?nid=48949

Farmers in Bangladesh have started harvesting Aus variety rice and are expected to harvest in the crop in about two months time, leading experts to predict an abundant supply of rice in the domestic market following the bumper harvest in Boro variety. The officials are expecting to get 1.5 to 2.0mmt rice from the Aus harvest and 13.6mmt from the Aman harvest. The favourable climate has also helped the farmers in rice cultivation. If 80% of the expectation is fulfilled there will be no rice crisis in the country. Rice prices in the local market have decreased by BDT 2-3 per kg in the last few days. Two months ago, rice prices in international markets were closer to USD 1,000 per ton, which are now as low as USD 525 in Thailand and Vietnam.
http://www.prothomalo.com/archive/news_details_home.php?dt=2008-0809&issue_id=1009&nid=MTgwMzY

No hike in edible oil prices in Ramadan
The Daily Star, Thursday August 07, 2008

Representatives of edible oil refiners and importers have assured the government that the prices of oils will not increase during the upcoming holy month of Ramadan. The assurance came at a meeting held between the government and the leaders of the Bangladesh Edible Oil Millers and Importers Association in Dhaka. The government will also take initiatives to reduce the existing prices of edible oil despite price increases in international markets. There are currently domestic reserves of 250,000 metric tons of edible oil, while another 50,000 metric tons are in the import pipeline. The country's monthly demand averages 125,000 metric tons.
http://www.thedailystar.net/story.php?nid=49249

Export price of maize fixed at USD 600
The Daily Star, Wednesday August o6, 2008

Aviation
Airfreight business booming

The government moved to restrict the export of locally produced maize by fixing its minimum export price at USD 600 per tonne. Poultry feed producers' have been calling for a ban on the export of maize. Maize production had almost doubled to about 2.2mmt this year from about 1.2mmt last year. Already two trading houses have exported about 0.43mmt of maize to Malaysia and Indonesia at over BDT 18,000 (USD 263) per ton. With the news of maize export spreading among the traders, suppliers have kept their stocks on hold waiting for the price to rise. At present, the price of a ton of maize stands between BDT 12,000 and13,000 (USD 175 and 190) in the local market.
http://www.thedailystar.net/story.php?nid=49112

The Daily Star, Friday August 8, 2008
Private airfreight business in the country is booming as domestic and international trade has grown recently, according to industry sources. Since 1998, seven local private airfreight companies have been operating on both domestic and international routes. The operators carrying goods and equipment on domestic routes include Zoom Airlines, Voyager Airlines, MGH Airlines, Galaxy Airways and Best Air, while Bismillah Airlines and South Asian Airlines Ltd (SAAL) fly international routes. Additionally, SAAL carried United Nations relief goods from Bangladesh to Tsunami ravaged areas last year. Private air transport is also used for carrying equipment used in the telecommunications sector, as well as garments and perishable items. Domestically, the airfreight companies operate primarily between Cox's Bazar and Jessore, carrying mainly shrimp fry.
http://www.thedailystar.net/story.php?nid=49492

Suspension of shrimp import likely
The Daily Star, Tuesday August 05, 2008

The European Commission has given an ultimatum to Bangladesh that it will suspend shrimp imports if it fails to effectively implement its residue-monitoring plan before the next inspection takes place in November this year. The Bangladesh government in a meeting with a EU representative on April 24 this year assured that it will effectively implement the residue monitoring plan and test all the consignments of crustaceans prior to their exports to the EU member states. Bangladesh promised it would implement the 'Method validation' and HACCP (hazard analysis and critical control points) standards to ensure all sources of harmful substances are checked.

Banking
Warid and BRAC Bank sign SMS banking deal

The New Nation, Friday, August 08, 2008
Warid Telecom, the fourth largest mobile phone operator in the country, on August 06 signed an agreement with BRAC Bank to introduce the SMS banking services for its subscribers. Warid subscribers, who maintain accounts with BRAC Bank, will be able to get basic banking information on

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their mobile phones via Short Message Service (SMS) and will be able to check information including account balances, and latest transaction details. http://nation.ittefaq.com/issues/2008/08/09/news0390.htm Bangladesh Bank to review key rates to tame inflation

AT CAPITAL RESEARCH
Commercial Bank of Ceylon gets AA+ rating
The Daily Star, Tuesday, August 05, 2008

The Commercial Bank of Ceylon (CBC) was awarded a rating of AA+ for long term and ST-1 for short term, based on its 2007 balance sheet by Credit Rating Information and services Ltd (CRISL), said a press release. The previous rating of AA held by CBC was enhanced to AA+ based on its asset quality, capital adequacy, liquidity, diversification in product lines, IT infrastructure and corporate governance. Analysts, view CBC positively, with a stable outlook with expected steady business growth, stable financial and operating performance.
http://www.thedailystar.net/story.php?nid=48923

Reuters, Friday, August 08, 2008
Bangladesh Bank plans to review key interest rates to curb inflation as it aims to achieve slightly faster economic growth of 6.5% this fiscal year. Bangladesh achieved growth of 6.2% in the previous fiscal year ended in June. The policy rates, including those for repurchase agreements, reverse repurchase agreements and government approved securities, will also be reviewed to anchor inflation expectations, the central bank said in its latest April-June quarterly report. The central bank has left key rates, the repo rate, unchanged at 8.50% and the reverse repo rate at 6.50% for more than a year. Bangladesh Bank will closely monitor the monetary aggregates such as reserve money, broad money, and credit growth and shall take corrective measures if necessary, it added.
http://in.reuters.com/article/domesticNews/idINDHA2255282008080 8

Infrastructure & Energy
BERC issues licences to 50 captive power generators
The Financial Express, Saturday 9 August, 2008

16 banks fail to cut interest rates
The Daily Star, Friday, August 08, 2008

Sixteen private commercial banks (PCBs), out of 30, have failed to keep their commitment to cut the lending rates by Bangladesh Bank (BB) June deadline, flouting both central bank and bank owners association's advice. “These banks did not go by their own commitment despite a passage of one month from the deadline,” a senior BB official said quoting the bank's July lending rates. Bangladesh Association of Banks (BAB), a platform of bank owners, said they have nothing to do with the issue, as they cannot enforce banks to revise their rates. Businesses however asked the BB to be more active and stringent in ensuring banks honour their own pledges. The banks that have failed to cut the interest rates are; Pubali, Uttara, AB, Islami, UCBL, ICB Islamic (Oriental), Prime, Dhaka, Al-Arafah, Social Investment, Premier, First Security, Standard, Bank Asia, Bangladesh Commerce and Jamuna Bank. Earlier in March, BAB and the Association of Bankers Bangladesh, a forum of managing directors of PCBs, pledged to reduce the maximum rate for term loans for large and medium industries at a joint meeting with the BB, by over one-percentage point capped at a maximum of 14% to be effective within three months, till June. BB on July 30 warned these 16 PCBs for not reducing the lending rates and sent letters to the bank managing directors asking them to take immediate steps resolve the issue.
http://www.thedailystar.net/story.php?nid=49490

The Bangladesh Energy Regulatory Commission (BERC) has given over 50 licences to operators of captive and standby power generators with the process of issuing 125 more licences underway. The regulatory authority is also considering reducing the existing licence fees on captive and stand-by generators to be used for industrial and business purposes, following a demand for exemption of such a levy from the country's top businesses. After preparing a concrete proposal on the reduction of such licence fees, the BERC will place it before the Ministry of Law for approval. On January 10, 2008, the BERC served a public notice, making it mandatory for the users to obtain licences for the captive/stand-by generators having over 1MW capacity.The extended deadline for obtaining or seeking licences from the BERC for captive power generators expires on August 31.
http://www.thefinancialexpressbd.info/search_index.php?page=detail_news&news_id=42110

assessment Technical assessment being done to double gas output from Bibiyana
The Financial Express, Friday August 8, 2008

The government is conducting a technical assessment for doubling gas production from the Bibiyana field, operated by international oil company Chevron, following a shortfall in supply. The US company wants to supply 600 mn cubic feet per day (mmcfd) gas from the field, which is now supplying 300 mn mmcfd. Total national production of natural gas is 1800 mmcfd compared to demand for 2,000 mmcfd leaving a shortfall of 200 mmcfd.
http://www.thefinancialexpressbd.info/search_index.php?page=detail_news&news_id=42054

BPC to import 0.15m tonnes of fuel oil from Maldives by December
The Financial Express, Friday August 8, 2008

State-owned Bangladesh Petroleum Corporation (BPC) will import 0.15 mn MT of refined petroleum oil from the Maldives

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by December 2008 to meet the country's requirement. The Maldives National Oil Company Ltd (MNOC), a state-owned company, will supply 90,000 MT of diesel, 30,000 MT of Mogas oil and another 30,000 MT of Jet A-1 fuel to Bangladesh. The premium paid for diesel from the Maldives will be USD 5.19 per barrel, USD 5.6 per barrel for Jet A-1 and USD 7.5 per barrel for Mogas oil. Bangladesh, a net oil importing country, has demand for nearly 3.8mn MT per year of which 2.8mn MT is for diesel and the remaining 1.0mn MT for other types of petroleum oil.
http://www.thefinancialexpressbd.info/search_index.php?page=detail_news&news_id=42057

AT CAPITAL RESEARCH
Bhomra in Satkhira, Darshona in Chuadanga and Haluaghat in Mymensingh will also be transferred to the private sector in the third phase after successful completion of the second phase.
http://www.thefinancialexpressbd.info/search_index.php?page=detail_news&news_id=41875

Government plans to adopt Coal Sector Master Plan

The Financial Express, Thursday August 7, 2008
The government plans to adopt the country's first Coal Sector Master Plan (CSMP) in line with the proposed national coal policy for proper utilisation of the country's large coal reserves. The coal master plan will be aimed at achieving the ultimate target of coal production in phases within the next two decades. If adopted it will be the third such master plan to develop the country's energy sector after the already adopted Power System Master Plan (PSMP) and Gas Sector Master Plan (GSMP). Due to the absence of any concrete master plan the coal reserves have remained untapped for many years.
http://www.thefinancialexpressbd.info/search_index.php?page=detail_news&news_id=41964

DhakaDhaka-Chittagong Highway project skids to a halt

The Financial Express, August 7, 2008
A three-member committee has been asked to look into alleged irregularities and corruption in the tender process for the Dhaka-Chittagong Highway project and submit a report within 15 days. The project, which was initially budgeted at BDT 17.50bn (USD 255.6mn), was first put out to tender in 2006. However, the tender process was cancelled following allegations of irregularities and corruption. When the current caretaker government came to power, the process was again initiated in January 2007, with a revised budget of BDT 21.7bn (USD 316.6mn). The process, however, again ran into difficulties, as it failed to fulfill conditions of the Public Procurement Regulations (PPR), with winning tenders being required to deposit monies within 7 days rather than the prescribed 28 days per the regulations. Following the communications ministry’s cancellation of the tenders, the winning companies filed petitions with the High Court (HC) on 21 July, challenging the legality of the cancellation where the HC ordered a stay on the cancellation order. On the 28 July a government purchase committee did not approve a re-tender proposed by the Communications Ministry. The fate of the project now hangs in the balance.
http://www.thefinancialexpressbd.info/search_index.php?page=detail_news&news_id=41963

MCCI seeks license fee withdrawal from captive power plants

The Daily Star, Wednesday August 6, 2008
The Metropolitan Chamber of Commerce and Industry (MCCI) urged the government to immediately withdraw the provision in the Bangladesh Energy Regulatory Commission License Regulations, 2006 that imposed license fees for establishing captive power plants ranging from BDT 0.5mn (USD 7,303) to BDT 2.5mn (USD 36,512). The MCCI also opposed the Power Development Board’s (PDB) proposal to raise the average electricity tariff by 40%. The MCCI publication suggested that the PDB could save around BDT 17.5bn (USD 255.6mn) a year by reducing 5% system loss in generation and transmission without increasing tariffs. http://www.thedailystar.net/story.php?nid=49102 Government set to adopt policy for merchant power plants

The Financial Express, Monday August 4, 2008
The government is set to adopt a merchant power plant policy to promote private sector investments and develop public-private partnership in the country's ailing power sector. Unlike the existing regulations of providing fuel supply and power purchase guarantees to power plant sponsors by the government, the new policy would provide liberty to the sponsors to make own arrangements for fuel and select their own customers. The private sector would also be allowed to have access to transmission and distribution lines in exchange for payment of agreed wheeling charges.
http://www.thefinancialexpressbd.info/search_index.php?page=detail_news&news_id=41669

Three more landports will be handed over to pvt operators

Financial Express, August 6, 2008
Three land ports, Tamabil in Sylhet, Akhaura in Brahmanbaria and Burimari in Lalmonirhat, will be handed over to private operators under Build-Operate-Transfer (BOT) arrangement for a period 25 years by 2009 to help boost cross border trade. The first meeting of Prequalification and Tender Evaluation Committee (PTEC) is scheduled to be held at the Bangladesh Land Port Authority (BLPA) office in Dhaka next Sunday, August 10. The government earlier decided to hand over the operations of the country's 12 land ports to the private operators in phases under the BOT arrangement. The ports that have already been transferred through open tenders to the private operators include Sona Masjid in Chapai Nawabganj, Hili in Dinajpur, Banglabandha in Panchagarh, Bibir Bazar in Comilla, Birol in Dinajpur and Teknaf in Cox's Bazar.

New power connection in rural areas uncertain

The New Nation, Monday August 4, 2008
New electricity connections in rural areas remain uncertain for the next two years, as the Rural Electrification Board

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(REB) has not taken up any expansion programme yet in 2008 due to budgetary constraints. The REB has already received over 0.7mn applications from rural people for new connections. REB has submitted six expansion projects for six divisions under 70 Palli Biddut Samity, including Rural Electrification (RE) Expansion Programme 1 in Dhaka, Chittagong, Rajshahi, Khulna, Barisal and Sylhet divisions to the Power Ministry for approval. The REB has 7.3mn consumers now where it is only able to supply 955MW of power against the demand of 1,851MW in last couple of months. http://nation.ittefaq.com/issues/2008/08/04/news0768.htm

AT CAPITAL RESEARCH
India is targetting export animation programmes business worth around USD 42bn by 2009. Bangladesh needs more entrepreneurs in the field and hundreds of studios each having the capacity of more than 20 minutes, the preferred de minimus capacity of international buyers. So far around six large studios have been set up in the Dhaka.
http://www.thefinancialexpressbd.info/search_index.php?page=detail_news&news_id=41772

Real Estate
ME firm to build 2 townships in Dhaka
The Daily Star, Sunday August 10, 2008

Insurance
Islamic, conventional insurers to get 6 months to choose any one

The Daily Star, Tuesday August 5, 2008
Insurance companies engaged in both Islamic and conventional insurance businesses will be given six months to choose between conventional and Islamic insurance, as the newly approved Insurance Ordinance 2008 will allow only one type to be practiced by a single company. A senior official of the Ministry of Commerce said that after the expiry of the timeframe of six months, actions, including cancellation of licenses, will be taken against violators. Of the 60 insurance companies that are operating in Bangladesh, six are full-fledged Islamic insurance companies. Three of them are life insurance companies and the rest are general insurance companies. Income of Islamic Insurance Companies 2007 (USD mn) NonNon-life Insurance Companies Islami Insurance Bangladesh 3.1 Takaful Islami Insurance Islami Commercial Insurance Co. Life Insurance Companies Fareast Islami Life Insurance Prime Islami Life Insurance Padma Islami Life Insurance
http://www.thedailystar.net/story.php?nid=48950

A leading Middle East-based developer is working to establish two modern townships in Dhaka. The Ras Al Khaimah-based Rakeen Development Company has already got approval from the Board of Investment (BoI) for establishing the proposed townships in Dhaka's suburb areas. They have plans of making around 6,000 flats at the proposed luxurious townships and have further plans to engage in the Bangladesh housing sector. The Ras Al Khaimah (RAK) is one of the largest housing companies in the Gulf region having an authorised capital of USD 817mn. It has stakes in property development, tourism, township building, commercial and industrial sectors. SAK Ekramuzzaman, Bangladesh Country Director of Rakeen Development said that the site selection process is currently under process and the company is conducting feasibility study for the projects at six to seven sites of the city. He mentioned that Rakeen Development wants to set quality as its USP. http://www.thedailystar.net/pf_story.php?nid=49729 Real estate agent business gains recognition
The Daily Star, Thursday August 07, 2008

2.4 1.7 34.9 11.7 9.8

Source: The Daily Star

Century 21 Reality (pvt) Ltd, a local real estate services providers has announced it is focusing on providing residential and commercial real estate agency services for foreigners. Century is one of the few companies involved in providing housing related services such as residential and commercial space rental and sales, relocation of commercial and residential units, property management, and negotiation for selling and buying of land and properties, among others. Century also provides furnished apartments to cater to the demands of the foreigners.

IT
Some IT firms see good prospects

Renewable Energy
producers Renewable energy producers allowed to supply power thru' national grid

The Financial Express, August 5, 2008
A number of IT companies in the country are now opting for the production of animation programmes, which are in high demand in local and international markets. The international animation market is estimated to be around USD 1trn a year mainly because of the rise in the cartoon-based TV channels worldwide. Companies from North America and Europe are now outsourcing their animation programmes. Outsourcing giant,

The Financial Express, Sunday, August 10, 2008
Dr M Fouzul Kabir Khan, the Power secretary announced that renewable energy producers will be able to provide electricity to their consumers through the state-controlled electricity national grid, State-owned power entities will purchase the renewable electricity offering attractive rates to encourage more production of such energy.

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He also mentioned that work is going on to adopt the country's first-ever renewable energy policy to attract investments for electricity generation from unconventional resources. The policy is likely to make the use of solar power systems in multi-storied buildings and apartments mandatory for lighting and water heating. http://www.thefinancialexpressbd.info/search_index.php?page 1m solar household systems by 2012 to achieve target

AT CAPITAL RESEARCH
Three IP telephony licenses for local firms by Oct
The Daily Star, Monday August 04, 2008

The Daily Star, Sunday, August 10, 2008
IDCOL, a company under the Ministry of Finance, has set a target to install 1mn Solar Household Systems (SHSs) by 2012 to help government achieve the target of providing electricity to all by 2020. IDCOL is implementing the solar electrification programme in remote areas far from the power grid since 2003 through 15 NGOs and Micro Finance Institutions (MFI) including Grameen Shakti and Brac with financial support of different development partners. Grameen Shakti, one of pioneer NGO SHS providers, has installed 1.70 lakh solar panels with an average per month installation rate of 8,000 panels. The price for the whole SHS system including PV, battery, wire and other accessories ranges between BDT 21,000(USD 307) and BDT 70,000(USD 1022) and consumers can purchase a solar home system both in cash and credit To enjoy the credit facility, a customer has to pay a minimum 10-15% of total cost of a system as down payment; and the balance can be paid by installment within two to five years. http://www.thedailystar.net/story.php?nid=49782

The country's telecoms regulator, Bangladesh Telecommunications Regulatory Authority (BTRC), has decided to issue IP (internet protocol) telephony licenses to three local internet service providers by October. In a meeting with Internet Service Provider Association of Bangladesh (ISPAB), the telecom watchdog also said it has already formulated a draft policy to introduce the internetbased telephony that uses the internet protocol's packetswitched connections to exchange voice data. This starts another chapter in BTRCs efforts to liberalize the telecommunication sector in Bangladesh. BTRC has already started to the process of issuing WiMax licenses and is expected to provide three licenses by the end of the year. The telecoms regulator is also expected to issue 3G mobile telecommunication licenses within this year.
http://www.thedailystar.net/story.php?nid=48801

Tourism
Bangladesh Parjatan Corporation trying to revive tourism sector
The Daily Star, Friday August 8, 2008

Telecoms
Obopay and Grameen Solutions Partner to Bank a Billion
Foxbusiness.com, Wednesday, August 06, 2008

Obopay, Inc., the pioneering service provider for payments via mobile phones, and Grameen Solutions, the company globally recognized for promoting economic and social development through information and communications technology, today announced a unique, first-of-its-kind alliance to use mobile technology to deliver banking services to a billion people by 2018. The Grameen-Obopay Bank A Billion Initiative will provide access to affordable financial services, including savings, cross-border remittances, money transfer, payments, and micro-credit.
http://www.foxbusiness.com/story/obopay-grameen-solutionspartner-bank-billion/

Bangladesh Parjatan Corporation (BPC) is actively identifying the different problems associated with the country's tourism sector, announced its Chairman, Shafique Alam Mehdi. The BPC is making a concerted effort to introduce multidimensional tourism, with respect to religious, natural and archaeological spots. There are also plans of appointing local and foreign tourist experts, including tour operators, architects and professionals involved within the hospitality sector. He said that BPC has major shortcomings in exploring all the places that have the potential to become tourist destinations and these spots need to be identified. A major obstacle is a lack of proper infrastructure, such as a weak communications system to various sites. The BPC plans to form a committee led by Professor Abdullah Abu Sayeed, winner of the prestigious Ramon Magasaysay Award 2004, to brand the country. The Chairman also mentioned plans to restructure the BPC. After being established in 1972, the BPC has been working to develop the country's tourism sector and maintaining commercial activities by running hotels, motels, bars, swimming pools and golf clubs. From May 2008, 15 out of 35 existing establishments have been privatized under lease agreements for 15 years. The others are to be privatized by the end of the year. The BPC has already finalised a draft Tourism Act. Upon government approval, the BPC will be converted into the National Tourism Board or the Bangladesh Tourism Board, which will be an autonomous body, maintained by an independent Board of Directors. Moreover, the government is planning to set up a tourism department, which will act as the regulatory body to the newly formed establishment. The body will oversee the development of the sector, ensure service quality, as well as coordinate public and private initiatives.
http://www.thedailystar.net/story.php?nid=49409

Aktel plans to go public by the end of the year

The Daily Star, Wednesday August 06, 2008
Aktel, the country's third largest mobile operator, has announced it plans to go public by the end of 2008. This follows Grameenphones' plans to do an IPO in Sept-Oct this year. See our stock market section for further commentary.
http://www.thedailystar.net/story.php?nid=49109

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Appendix
What are REITs? Over nearly half a century, the U.S. real estate investment trust (REIT) industry has become an important segment of the US economy and investment markets. U.S. REITs have seen their equity market capitalization soar from $90 billion to more than $300 billion in just the past 10 years. In the process, that growth has set the stage for the adoption of the REIT approach to securitized real estate investment across the globe. In many developed economies, and indeed EM, investing in income-generating real estate can be an attractive either from a stable income or portfolio diversification perspective. But for many retail investors, investing in real estate, particularly commercial real estate, is simply out of reach financially. But what if you could pool your resources with other small investors and invest in largescale commercial real estate as a group? REITs allow you to do just that. REIT stands for real estate investment trust and is sometimes called "real estate stock." Essentially, REITs are corporations that own and manage a portfolio of real estate properties and mortgages. Anyone can buy shares in a publicly traded REIT. They offer the benefits of real estate ownership without the headaches or expense of being a landlord. Investing in some types of REITs also provides the important advantages of liquidity and diversity Unlike actual real estate diversity. property, these shares can be quickly and easily sold. And because you're investing in a portfolio of properties rather than a Single building, you face less financial risk. REITs came about in the US in 1960, when Congress decided that smaller investors should also be able to invest in large-scale, income-producing real estate. It determined that the best way to do this was the follow the model of investing in other industries -the purchase of equity equity. There are a number of specific rules, especially with respect to tax, which REITs have to follow to maintain their favourable fiscal treatment. These VARY A company must distribute at least 90 percent of its taxable income to its shareholders each year to qualify as a REIT. Most REITs pay out 100 percent of their taxable income. In order to maintain its status as a pass-through entity a REIT deducts these dividends passentity, from its corporate taxable income. A pass-through entity does not have to pay corporate federal or state income tax -- it passes the responsibility of paying these taxes onto its shareholders. REITs cannot pass tax losses through to investors, however. From the 1880s to the 1930s, a similar provision was in place that allowed investors to avoid double taxation -- paying taxes on both the corporate and individual level -- because trusts were not taxed at the corporate level if income was distributed to beneficiaries. This was reversed in the 1930s, when passive investments were taxed at both the corporate level and as part of individual income tax. REIT proponents were unable to persuade legislation to overturn this decision for 30 years. Because of the high demand for real estate funds, President Eisenhower signed the 1960 real estate investment trust tax provision qualifying REITs as pass-through entities. A corporation must meet several other requirements to qualify as a REIT and gain pass-through entity status. They must: 1. 2. 3. 4. 5. 6. 7. 8. 9. Be structured as corporation, business trust, or similar association Be managed by a board of directors or trustees Offer fully transferable shares Have at least 100 shareholders Pay dividends of at least 90 percent of the REIT's taxable income Have no more than 50 percent of its shares held by five or fewer individuals during the last half of each taxable year Hold at least 75 percent of total investment assets in real estate Have no more than 20 percent of its assets consist of stocks in taxable REIT subsidiaries Derive at least 75 percent of gross income from rents or mortgage interest

At least 95 percent of a REIT's gross income must come from financial investments (in other words, it must pass the 95-percent 95test). income test These include include rents, dividends, interest and capital gains. In addition, at least 75 percent of its income must come from certain real estate sources (the 75-percent income test including rents from real property, gains from the sale or other 75test), disposition of real property, and income and gain derived from foreclosure of property Trends In its early years, the industry was dominated by mortgage REITs, which provide debt financing for commercial or residential properties through their investments in mortgages and mortgage-backed securities. The market’s interest in equity REITs, which today usually both own and manage commercial properties, initially was limited because the ownership and management of assets were required to remain separate. That restriction changed with the passage of the Tax Reform Act of 1986, which permitted REITs to both own and manage their properties as vertically integrated companies and helped set the stage for a secular wave of equity REIT IPOs in the mid-1990s. Currently, more than 90 percent of the nearly 200 publicly traded U.S. REITs are equity REITs that

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AT CAPITAL RESEARCH

own and most often manage commercial real estate and derive most of their revenue and income from rents. In aggregate, these companies own properties across all major property sectors and all major geographic regions. UK REITs The legislation laying out the rules for REITs in the United Kingdom was enacted in the Finance Act 2006 and came into effect in January 2007 when nine UK property companies converted to REIT status, including the five that were FTSE 100 members at that time: British Land, Hammerson, Land Securities, Liberty International and Slough Estates (now known as "SEGRO"). The other four were: Brixton, Great Portland Estates, Primary Health and Workspace. British REITS have to distribute 90% of their income. They must be a close-ended investment trust and be UK resident and publicly listed on a stock exchange recognised by the Financial Services Authority. Pakistan REITs Pakistan has just published their REIT Regulatory guidelines. The authorities there hope to attract $ 3bn of REIT financing over the next 3 years. A very useful paper on REITs in Pakistan, especially from a Shariah or Islamic Banking perspective, has been published by the SEC at http://www.secp.gov.pk/corporatelaws/pdf/reits_researchpaperkasbsecuritieslimited.pdf

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AT CAPITAL RESEARCH
AT Capital Team – Dhaka
Managing Partner Partner Senior Advisor Senior Advisor Investment Advisor Investment Manager Investment Manager Research Associate Research Associate Research Associate Research Associate Office Manager Research Associate Research Associate 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. 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. 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 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 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

Ifty Islam Syeed Khan Akther Ahmed Masud Khan Junaid Khan Shahidul Islam, CFA Taufique Hasan 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 Md. Zahidur Rahman Ashek Ishtiak Haq Syed Najibullah Minul Islam Rasidul Hasan

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.

_______________________________________________________________________________________ AT Capital Weekly Update 25

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