Credit Rating Report

Grameenphone Ltd.
[Surveillance]
Particulars Grameenphone Ltd. BDT 20,570.00 million aggregate fund based limit BDT 24,953.00 million aggregate non-fund based limit Rating outlook Ratings AAA ST-1 ST-1 Stable Remarks Please see Appendix-1 for details _ Entity

ST-Short Term
Date of Rating: 30 January 2013 Validity: The entity rating is valid up to 30 December 2013 and loan ratings are valid up to limit expiry date of respective credit facilities or 30 December 2013 whichever is earlier. Rating based on: Unaudited Financial Statement as on 30 Sep 2012, Audited financial statement as on 31 Dec 2011, Bank Liability position as on 31 December 2012 and other relevant quantitative as well as qualitative information up to the date of rating declaration. Methodology: CRABs Corporate Rating Methodology (www.crab.com.bd) Analysts: Mohammad Reeshad Rahman reeshad@crab.com.bd Mavin Ahmed mavin@crab.com.bd Credit Rating Agen

RATIONALE be added later

Credit Rating Agency of Bangladesh Limited has affirmed AAA (Pronounced as Triple A) rating to Grameenphone Ltd. in the long term based on the recent performance of the Company. CRAB has also affirmed ST-1 rating to BDT 20,570.00 million aggregate fund based limits and to BDT 24,953.00 million aggregate non fund based limits in the short term. The rating affirmation recognizes the revenue growth as well as present subscriber base, the support of the sponsor, Telenor a leading telecommunications company of Norway listed in the Oslo stock exchange having operation in 11 markets and in additionally 18 markets through their ownership in VimpelCom Ltd. The rating of GP is also further supported by the strengthening governance structure of GP emanating from oversight of its board and robust internal control framework. GPs rating has been affirmed due to its sustainable financial position, proactive strategy to capitalize on market share in telecom industry, listed company in the capital market, highly qualified management team, governance structure as well as social responsibility it undertakes in the business operation in Bangladesh.

PROFILE
Company) is a GSM based mobile

Grameenphone Ltd. (hereinafter referred to as GP or the telecommunication service provider in the country. The Company started its operation on 26 March 1997. At the end of November 2012, GP has a subscriber base of 40.24 million ranking as the largest mobile operator in the telecommunication industry of Bangladesh. The Grameenphone network has covered almost the entire population under its coverage in all 64 districts.
www.crabrating.com, www.crab.com.bd

The

telecom

industry

of

Bangladesh

has

been

experiencing a growth trend during recent years. The industry had 97.48 million subscribers (which GP has 40.24 million, 41.3% of market share) in November 2012 indicating the market is going towards maturity within few years in the voice call segment; however, data and internet service is now at growth stage. Pricing competition among the wireless operators has been intense and pressured operating margins as the markets are mostly maturing.
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Report Report Rating Rating CRAB CRAB

opportunity, continuing of its leadership position in the

Telecommunication Corporate

Grameenphone Ltd.

In addition, average revenue per user in most markets has continued to decline, especially in emerging markets, as subscriber growth is coming from low-segment users. However, threats from the smaller operators are expected to subside as their profitability and cash flows are vulnerable due to their low economics of scale and limited financial flexibility to the current economic turmoil. As a result, while we expect further erosion of operating margins, it will be at a moderate rate and major operators are likely to keep the margins at their previous level. GP showed around 19.0% revenue growth in 2011 amounting BDT 89,006.70 million mainly supported by the promotional campaigns/changed package structure, subscriber growth and increase in network coverage position during the period. This led to higher subscriber acquisition although the ARPU has come down to BDT 214 in 2011 from BDT 231 in 2010. Stable revenue is observed in 2012 (up to 30 Sep 2012, revenue was recorded BDT 69,272.90 million). Net profit after tax margin increased to 19.1% in 2011 from 14.4% in 2010 due to increase in revenue and lower depreciation expenses. GP improved its asset utilization in 2011 as Asset turnover ratio increased from 68.25% to 81.96% and such growth indicated efficient use of its assets to some extent. In 2011, capital expenditure was spent mainly in base station, transmission equipment and network modernization and this may increase in maintenance expenses in next years. Several factors impacted GPs liquidity position mainly for paying of final dividend for the year 2010, interim dividend for 2011 and the first instalment of renewal fees for 2G license and spectrum. As for mainly paying dividends, equity decreased by BDT 8,987.34 million which led to increase in borrowed fund to equity 0.41x in 2011 compared to 0.35x in 2010. GP has maintained positive cash flow for FFO and CFO, but due to higher capital expenditure, its FCF was observed negative in 2011. Net Financial expenses increased as borrowed fund utilization increased in the period of Jan 2012 to Sep 2012, value BDT 2,375.16 million due to financial expenses in relation to acquire 2G telecom license 2011. This lead to higher leverage position to some extent as borrowed fund to EBITDA increased to 0.88x on 30 Sep 2012 from 0.33x in 2011.

BACKGROUND

Grameenphone Ltd. was the first company to introduce GSM technology in Bangladesh when it launched its services on 26 March 1997. GP is market leader in the cellular telecommunication industry of Bangladesh with a market share of ~41.3% (November 2012) obtained cellular license on November 28, 1996 in Bangladesh from the Ministry of Posts and Telecommunications. GP is a joint venture enterprise between Telenor Mobile Communication AS (55.8%), a telecommunications service provider in Norway, and Grameen Telecom Corporation (34.2%), a non-profit sister concern of the internationally acclaimed micro-credit pioneer Grameen Bank. The other 10% shares belong to general retail and institutional investors. The Grameenphone network has covered almost the entire population under its coverage in all 64 districts. The entire GP network is EDGE/GPRS enabled that provides its subscribers access to Internet and data services from anywhere within the coverage area. Telenor Mobile Communications (TMC) TMC, a company organized under the laws of the kingdom of Norway, seeks to develop and invest in telecommunications solutions through direct and indirect ownership of companies and to enter into national and international alliances relating to telecommunications. It is a subsidiary of Telenor mobile holdings as and an affiliate of Telenor. Telenor as is the leading integrated telecommunications provider in Norway listed in the Oslo stock exchange. It delivers a full range of services and products, as well as a broad range of wholesale services. It owns 55.80% shares of Grameenphone Ltd. Telenor's strong international expansion in recent years has been based on leading-edge expertise, acquired in the Norwegian and Nordic markets, which are among the most highly developed technology markets in the world. It has substantial international operations in mobile telephony, satellite operations and pay television services. In addition to Norway and Bangladesh, Telenor provides wireless services, reporting close to 150 million mobile subscribers as of 30 September 2012 operating in 11 markets and additionally is operating in 18 markets through their ownership in VimpelCom Ltd. As part of the conversion of Grameenphone from a private limited to a public limited company, Telenor mobile communications as transferred 10 shares each on may 31, 2007 to its three (3) affiliate organizations namely NYE

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Grameenphone Ltd.

Telenor Mobile communications II as, Norway; Telenor Asia Pte. Ltd., Singapore; and NYE Telenor Mobile communications III as, Norway. Grameen Telecom Grameen Telecom, owns 34.20% of the shares of GP, is a nonprofit company in Bangladesh, working in close collaboration with Grameen Bank, winner of the Nobel peace prize in 2006 along with its founder, Professor Muhammad Yunus. The internationally reputed bank for the poor has the most extensive rural banking network and expertise in microfinance. Grameen Telecoms mandate is to provide easy access to GSM cellular services in rural Bangladesh and creating new opportunities for income generation through self-employment by providing villagers, mostly to the poor rural women with access to modern information and communication-based technologies. As part of the conversion of Grameenphone from a private limited to a public limited company, Grameen Telecom transferred one share each on 31 May 2007 to its two affiliate organizations namely Grameen Kalyan and Grameen Shakti.

Figure 1 Subscriber Base of the operators (Jan, 2011 to Jun 2012)

OPERATION, BUSINESS & FINANCIAL RISK PROFILE

Business Model Grameenphone showed consistence revenue growth since its incorporation which is mainly driven by traffic revenue; e.g.; increasing number of subscribers during the period. At the end of 2011, total subscriber was 36.49 million which was raised to 40.24 million in November 2012. GP has several different dimensions: product lines, customer segments and geographic reach, all of which enable GP to mitigate the effects of variation in demand or pricing in a given product or market. GPs diversified business model is robust because technological changes continue at a fast pace and an operator with strong wireless business is best positioned to evolve with such changes. The diversified player has a sounder platform for adopting a range of new products. It has the ability to strategically invest in emerging technologies and raise investments, depending on market acceptance of the new technologies, widening the opportunity for success. In assessing the level of competitive challenges, CRAB looks at, among other things, revenue trends, number of players, rate of access line change relative to demand growth as well as gross additions, churn levels and ARPU trends, data and internet service etc. GP is still a dominant provider of voice and data, with a heavy
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Grameenphone Ltd.

composition of enterprise customers and strong representation in the wireless market. Leadership Process The Human Resources Division in GP is geared to meet human resource development and training needs. In spite of its multinational characteristics, it emphasizes more on building local expertise in the telecommunication sector. Some of the leadership development plans include: training, coaching, new tasks/project work, job rotation, and others. GP has agreements with the Stockholm School of Economics in Sweden, the Singapore Institute of Management, the Hyderabad-based Indian School of Business and the British Council for providing Management Development training to GP employees. In addition, GP provides educational grants every year to 100 employees encouraging employees to go for higher education. For the current and upcoming leaders of GP, Telenor CORE Leadership Training is offered every year. This program is designed to help leaders fulfill GP leadership expectations by increasing skills in practical leadership and their motivation to lead. Management function involves planning, communicating, measuring, changing and mentoring. It has clear standard benchmark through which performance is measured and rewarded. Specific guidelines and standards are adopted as part of its leadership process for holding managers accountable for quality, including supervisors and others, which are designed for different levels and functions within the company. Customer focus and continuous quality improvement process are effectively communicated to all employees within the company. The Code of Conduct it has adopted is followed and is applicable for all of its stakeholders, which is also monitored. Senior management is very committed to all continuous improvement efforts. Strategic Planning The effective and efficient management and defined strategy are the ingredients for GPs present strong position in the market. Strategic Planning process is based on at least next three years scenario analysis. Based on the midterm plan, it also chalks out annual plan at the beginning of each year. Strategic planning is used regularly to develop goals and objectives for improving quality. The organization has established a complete strategic plan for addressing quality improvement, including mission, vision, goals, specific tasks, targets and programs. All levels of the company participate in some form of strategic planning. The compensation packages include performance bonuses for every regular employee. Performance bonus is fixed considering companys performance and individual achievements. Company performance is measured through predefined Revenue Target, Market share position as well as EBITA Margin. Individual achievement measures through predefined goals set for each individual by the management as well as performance of the team. The management at the beginning of the year set departmental goals with high priority to low priority level. GP has a dedicated team named Business Intelligence Team which is responsible for collecting and monitoring the business dynamics of the telecom market. Strategic Planning process incorporates the behavior of its competitors and based on it the brand and product design team offers competitive products and value added services from time to time. Strategic planning includes key performance indicators, surveys, benchmark data, and other quality information to ensure that strategic planning is strong and

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viable for all parts of the Company. Operating plans are developed throughout the entire company, linked to the company's overall strategy. Managers are held accountable for meeting strategic goals. Information and Analysis Fully integrated and highly sophisticated MIS system ensures the high quality data management system of GP. From its fully automated data management system it generates Monthly Financial Report, Management Report, Executive Summary of the business and operation, CAPEX Information, Divisional Profit and Loss Account, Divisional MIS, Mid-Month Forecasted Financials, and Quarterly Group Cash Flow. All reports are part of decision-making process. Reports incorporate Actual position, Budget Provision and Variance Analysis. The organization measures data through its MIS system related to customers, products, supplier performance, financial performance, and employee performance. GP tracks Market and Statistical Information and it analyses monthly operator wise subscriber base and its market share position, market growth trend, operator wise net adds, market share net adds, penetration rate, annualized churn, gross add mixing, churn mixing, subscriber mixing, Minutes of usage, AMPU, APPM services, APPM Airtime, SMS positions, SMS per subscriber etc. GP uses external benchmarks and competitive data to drive improvements, operating performances and planning. Competitive data is also found very extensive. Through its Business Intelligence Team it collects key cost, financial, operating, and other data and translating it into useful information for employees and decision makers, which supports both operating and long-term planning decisions. Human Resources Capital and Process Management Employee growth plans, including training programs, career development paths, evaluation/self-awareness processes, compensation, empowerment, and measurable results are fully implemented and integrated with strategic planning process. Human Resource Division is part of the Management Team. Process Management Processes are well documented and controlled throughout the entire company. Practices are in place to consistently evaluate and improve processes. Critical processes are subject to rigid assessments on a regular basis. Analytical techniques are in place to identify and solve process management issues. Partnerships with suppliers and other stakeholders have been established to better manage processes for the benefit of all players. Design and Introduction of Products and Services: The organization systematically gather customer needs and desires, and then translate these customer inputs into revisions, modifications, and other standards for product and service bundling. Retained highest market share over the last 11 years indicates of its success in product innovation and engineering. In 2010 to 2011, GP restructured its product offering through package variants to suit different customer needs, Xplore,

Shohoj, Aapon, Bondhu, Nishchinto, Amontron, Spondon, Smile, Myzone along with Djuice for voice service. In addition to the voice call, other services such as
internet packages through EDGE/Data Services, Content Provider Services etc. are also tailored considering the need of the customer. New products are launched through market survey and competitors move. To retain and grow its market share GP as its policy evaluate and tries to shorten design processes for new products and services.

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Grameenphone Ltd.

Production and Delivery Processes: The organization has control over processes, including control over variations and defects in processes that are used for producing and delivering products and services. The organization uses systematic and standard approach to evaluate processes for better quality, defects, and other operating performance attributes. Business and Support Service Processes: The organization manages quality control relates to routine business processes and support services such as human resources, finance, legal, payroll, public relations through pre defined goals and goal achievement indicators as well as variance analysis. Supplier Quality: GP maintains its code of conduct for all of its stakeholders. It communicates quality standards and requirements to its suppliers and it has a quality assurance process to ensure that suppliers are meeting quality requirements. The Management Team evaluated the quality requirements of the suppliers. The procurement policies are approved by the Board and the Board delegates financial and investment authority to the management based on its position. The organization has a cooperative relationship with its suppliers, including reward programs, certification and other policies, which in turn assist to build long-term relationships. Quality Assurance: The organization has internal audit department, which reports to the Board through CEO. The internal audit function encompasses on financial auditing and control. Besides, product and services audit including systems and processes are also under the purview of internal audit function. It is evident that organization practices regular follow up with assessments and effectively corrects the problem or resolves the issues that were identified. The process is also documented. Operating Results Customer satisfaction and other measurements clearly show high levels of customer satisfaction and loyalty. Overall trends are positive when it comes to improving processes throughout the entire company, including processes that cut across business functions and stakeholder groups. Any negative trend is acted upon with a plan for turning the trend around. Supplier data also shows positive trends in making improvements within the supply chain. Support services have shown solid results in making processes very efficient and effective. Franchise Value Franchise Value is a critical element in our analysis. The solidity of GPs market standing in telecom industry indicates its very high franchise value. The solid and defensive franchise of GP underpins the ability of the institute to generate and sustain recurring earnings, to create economic value and, thus, to preserve and improve risk protection in its chosen market. As such, GP with strong franchise value would be in a better position to withstand prolonged difficult market conditions. The Bangladesh telecom industry with its untapped growth potential in the rural segment is currently facing challenges with respect to falling ARPUs and MoUs on account of high competition, uncertainty on regulatory framework and absence of 3G services in private telecom companies (except Teletalk). Regulatory Risk and Uncertainty looms Over Fees and 3G License The telecom industry is likely to remain subject to a high degree of government regulation and oversight because of the essential nature of the product, the demands for high service levels and the high capital costs associated with its
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infrastructure. This regulation in Bangladesh is dictated through guidelines for renewal of 2G licenses with new terms and conditions, revenue sharing and high license fees. Additional licenses for 3G will be floated at high cost as it has been the case with WIMAX operators as well as similar trends seen in neighbor Indias telecom market. Regulation further can take many forms and may include setting or approving the rates charged for service, determining the barriers surrounding the competitive environment, defining service territories, mandating interconnection and unbundling terms, setting net neutrality principles and enforcing various rules. From a credit standpoint, the regulators ability to mold the framework under which a telecommunications issuer operates is a major influence on credit quality, as it ultimately forms the foundation for the operators to generate returns on their investments. The licenses of the four telecom operators, Grameenphone Ltd., Orascom Telecom Bangladesh Ltd., Axiata Bangladesh Ltd. (ROBI), and Citycell are renewed on 7 Aug 2012. However, the licenses were supposed to be renewed in November last year but the process was delayed due to a number of court battles between the telecom regulator, carriers and the tax administrator. The largest carrier, Grameenphone will pay BDT 32,410 million for its 14.6 Megahertz spectrum, Banglalink BDT 19,710 million for 12.4 Mhz, Robi BDT 19,000 million for 12.8 Mhz, and Citycell will have to pay BDT 4,500 million for 10 Mhz excluding VAT. They will pay BDT 100 million each as license renewal fee. The carriers have already paid 49 percent of their license renewal charges to the government, and will pay 29 percent of the amount on August 31, and the rest at the yearend. The carriers now share 5.5 percent revenue with the government and 1 percent more for a social obligation fund (SOF), meant for the development of the information and communication technology sector. The 3G license guideline has not yet been finalized by BTRC, which is also likely to cost a lot as it has been the case of WIMAX operators in Bangladesh and 3G licensees in our neighboring country India. As a result CRAB perceives the regulatory risk of the telecom industry to be high which would affect the creditworthiness of the players through debt led CAPEX. Nevertheless, economic globalization and rapid technological advances are providing regulators with an opportunity to review previous telecommunications mandates. Competition Will Intensify While Internet Protocol transmission standards present incumbent operators with a tremendous opportunity to deploy new products and features, ongoing technological advancements will create new competitors and embolden existing competitors who lack the legacy cost structure (and in many cases, the service obligations) of the incumbents. Currently, 62% of total population is in the subscriber list of the telecoms. So further market creation will increase the competition and voice service is going towards a maturity stage. This competition for customers is expected to limit pricing flexibility, which in combination with the incremental product development costs and higher marketing expenses, can lead to margin pressure. Capital Intensity Will Persist The capital intensive nature of the industry instigates significant investment in network infrastructure for maintenance and the introduction of new services to replace declining legacy products which is likely to be a permanent characteristic of the telecommunications industry. Despite the expanding use of telecommunications networks to deliver a broader array of service offerings the expanding capital spending to elevate the standards of emerging markets like Bangladesh will hinder free cash flow growth. Spectrum license acquisitions tend to be large, infrequent occurrences and are directly linked to the Company's longterm business strategy. Fast moving technological trends resulting to reduced

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asset life cycles, especially for technical equipment and software. Similar to their wire line brethren, wireless operators are facing a tremendous bandwidth surge, as data and video applications migrate onto wireless networks. Capital deployments in the wireless sector will generally be directed toward acquiring new licenses and enhancing coverage and maintain Quality of Service. However, current infrastructure sharing between the operators will lessen the CAPEX burden to some extent in the next years. Mergers and Acquisition Activity Expected To Remain High Merger and acquisition activity in the telecommunications sector expected to remain high globally. Based on the present penetration rate and high future potentiality, global large operators will find Bangladesh telecommunication market as an attractive investment place. To enter the market, they will find acquisition of existing license more lucrative than acquiring new licenses. In the long run it can be expected that merger and acquisition activity in the telecommunications sector could trigger due to: The benefits of scale and expansion into new markets (either geographically or product wise) will prompt more companies to supplement internal growth and development with acquisitions. The high fixed-cost nature of the industry offers tremendous synergy opportunities for acquirers, while industry consolidation still has ample capacity following a decade-long investment cycle and emergence of new competitors. While M&A activity can lead to revenue diversity and improved margins, debt-financed acquisition activity is a key credit risk that is likely to put pressure on ratings. Telekom Malaysia International (Bangladesh) which commenced operations in Bangladesh in 1997 with the brand name AKTEL was taken over by joint venture between Axiata Group Berhad, Malaysia and NTT DOCOMO INC, Japan. The service name was rebranded as Robi and the Company came to be known as Robi Axiata Limited on 28th March 2010. In January 2010, Bharti Airtel Limited, Asias leading integrated telecom services provider, acquired 70% stake in Warid Telecom, Bangladesh, a subsidiary of the UAE-based Abu Dhabi Group. While M&A activity can lead to revenue diversity and improved margins, debt-financed acquisition activity is a key credit risk that is likely to put pressure on future ratings. Market Growth The telephone market of Bangladesh is likely to remain highly profitable. Both wire line and wireless market are growing and the growth is likely to continue at a consistent rate for next few years. Industry growth rates, which are increasing, evidence a sector, which is likely overall to qualify as investment grade when considering this characteristic in isolation. Unlike the wireless segment, the growth of wire line segment would not accelerate; however, it is expected that the growth rate of wire line segment would be flat for next few years then it will be declining. The graph below depicts the total subscribers in million along with penetration rate from 2002 to 2012 (up to July) where the Bangladeshi telecom market shows tremendous potential for growth. Year-to-Year growth rate of subscribers from 2007 to 2011 stands at 65%, 54%, 20%, 31% and 24%, a declining growth rate indicates to reach a maturity market in next few years.

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Grameenphone Ltd.

Figure 2 Mobile market growth

In considering market growth CRAB breaks down the telecommunications industry into cellular, fixed line and integrated players. The regulator does not permit the license holders to operate both in wire line and wireless segment except BTCL. Fixed line growth rates are declining worldwide with many operators at best experiencing flat revenue. Generally, a particular industrys own growth correlates closely with economic growth. The telecom industrys growth is driven by continued strong organic expansion in the industry itself. CRAB views that growth rates are sustainable. While assessing sustainability of the growth, assessment includes consideration on market demographics. Lower cellular penetration rate is also a good indicator of likely good medium-term growth prospects. Likewise, this situation represents a sound indicator that fixed line operators are likely to experience significant medium term revenue pressure as product substitution remains at an early stage. Market Share GP has been the market leader at a stretch for more than a decade. The mobile telecommunication industry had 97.48 million subscribers in November 2012 of which GP has 40.24 million (41.3%), Banglalink has 26.21 million subscriber (26.9%) and ROBIs subscriber base stood at 21.12 million (21.7%). Other 10% market share is held three operators Airtel (6.94 million), Citycell (1.60 million) and Teletalk (1.37 million). Total addition from December 2011 to July 2012 is around 9.26 million subscribers which indicate a rising trend in mobile penetration. The relative position of GP among the operators is indicative of the likely sustainability of its operating position and ability to exercise control over the nature and pace of development. The present subscriber base and leading position of GP in the market indicates that the customers perceived GP well and shows its ability to develop/support revenue, and bring innovation in products and services development.

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Grameenphone Ltd.

Shareholding position and Management Table-1 Shareholding Position of GP as of 31 December 2011 Name of Shareholders Telenor Mobile Communications AS, Norway Nye Telenor Mobile Communications II AS, Norway Nye Telenor Mobile Communications III AS, Norway Telenor Asia Pte Ltd., Singapore Grameen Telecom, Bangladesh Grameen Kalyan, Bangladesh Grameen Shakti General Public, GP employees & institutions Total Board and Committees The Directors of the Board are appointed by the Shareholders in the Annual General Meeting (AGM) who are accountable to the Shareholders. The Board is responsible for guiding the Company towards the goal set by the Shareholders. The Board also ensures that Grameenphone Policies and Procedures and Codes of Conduct are implemented and maintained; and the Company adheres to generally accepted principles for the governance and effective control of Company activities. In addition to the other legal guidelines, the Grameenphone Board has also adopted Governance Guidelines for the Board for ensuring better governance in the work and the administration of the Board. The Board of Directors in Grameenphone is comprised of nine members including the Chairman who is elected from amongst the members. In compliance with the Corporate Governance Guidelines issued by the Securities and Exchange Commission (SEC) and as per the provision of the Articles of Association (AoA) of the Company. The AoA requires the Board to meet at least four times a year and otherwise when duly called for in writing by a Board member or Shareholder. Dates for Board Meetings in the ensuing year are decided in advance and the notice of each Board Meeting is served in writing. Audit Committee The Grameenphone Audit Committee was established in late 2008 as a subcommittee of the Board and has jurisdiction over Grameenphone and its subsidiaries. The audit committee is comprised of three members of the Board including an independent Director. The Chief Executive Officer, the Chief Financial Officer, the Company Secretary and the Head of Internal Audit are permanent invitees to the Audit Committee meetings. The Audit Committee assists the Board in fulfilling its oversight responsibilities with respect to internal control, financial reporting, risk management, auditing matters and GPs processes of monitoring compliance with applicable legal and regulatory requirements and the Code of Conduct. The Audit Committee Charter as approved by the Board defines the purpose, authority, composition, meetings, duties and responsibilities of the Audit Committee. Treasury Committee This committee consists of two representatives from shareholders and the CFO of GP. All significant financial matters which concern the Board are discussed in this
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Number of Shares held 753,407,724 215 215 215 461,766,409 22 22 135,125,200 1,350,300,022

% of total shareholding 55.80 0.000016 0.000016 0.000016 34.20 0.000002 0.000002 10.00 100.00

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committee in detail. The issues are ultimately forwarded to the Board for their final review and approval. Human Resources Committee This Committee consists of three members who are appointed by the GP Board . The Committee supports the Board in fulfilling its oversight responsibilities with respect to Human Resources policy, including employee performance, motivation, retention, succession matters and Codes of Conduct. Health, Safety, Security and Environment Committee This Committee consists of three members who are appointed by the GP Board. The Committee supports the Board in fulfilling its legal and other obligations with respect to Health, Safety, Security and Environment (HSSE) issues. The Committee also assists the Board in obtaining assurance that appropriate systems are in place to mitigate HSSE risks in relation to the company, employees, vendors etc. Management Team (MT) The management team is the executive committee of Grameenphone managing the affairs of the company. The Management team consists of the CEO and other key leaders across the company. The CEO is the leader of the team. Management team endeavors to achieve the strategic goals and mission of the company set by the board of directors. The Management team meets on a weekly basis to monitor the business performance of the company. Global telecommunication industry has evolved significantly over the last decade; spur on by regulatory liberalization, technological advancements and the availability of capital. We expect that rapid technological changes will continue to pressure the capital budgets of GP, which means increased risk of asset impairment or obsolescence. The cost of adopting new technology is significant, both in terms of capital required and the risk of failures, which constitutes a key ratings consideration. Alternatively, the analyst observed that there might be a business cost for failing to quickly adopt new technology before competition erodes the incumbents position. So the important features are the duration of development and introduction cycles for major technologies, which is assessed for its likely impact on product competitiveness. GP improved its asset utilization in 2011 as Asset turnover ratio increased from 68.25% to 81.96% and such growth indicated efficient use of assets compared to its peers. CRAB assesses the Companys technological risk starts with an evaluation of the lifetime service capabilities and scalability of the Companys existing network architecture. Because the telecom industry is very capital intensive and faces rapid technological innovation, the investment strategy is critical to its future prospects, which is found commensurate in line with present market dynamics. Capital expenditure as percentages of its revenue indicated that GP had spent more for on its capital expenditure in 2011 as compared to its previous year. Capital expenditure was BDT 63,080.93 million in 2011 which was BDT 17,909.32 million in 2010. Last year in 2011, capital expenditure was spent mainly in base station, transmission equipment and network modernization. However, GP being ahead of network coverage as market leader has almost reached optimum level of CAPEX involvement for last few years. Several factors impacted GPs liquidity position mainly for paying of final dividend for the year 2010, interim dividend for 2011 and the first instalment of renewal fees for 2G license and spectrum. Moreover, as on 30 Sep 2012, GP paid BDT
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8,058.54 million as payment for renewal of 2G licence and other intangible assets. Since the inception of GP, increasing revenue growth is observed till 2011 (revenue amount BDT 89,006.70 million) which is supported by its planned and comprehensive CAPEX. The revenue was also supported by the changed package structure, which led to higher subscriber acquisition although the ARPU has come down to BDT 214 in 2011 from BDT 231 in 2010. After that, stable revenue is observed in 2012 (up to 30 Sep 2012, revenue was recorded BDT 69,272.90 million). Mainly, Traffic revenue from Subscription growth ~21.63% in 2011 (36.49 million at the end of 2011) resulted 19.1% revenue growth in 2011 from 2010. Revenue growth in prepaid, post paid and Internet and data were 18.61% , 2.69% and 30.04% respectively in 2011 compared to the previous year. Net profit after tax margin increased to 19.1% in 2011 from 14.4% in 2010 due to increase in revenue and lower depreciation expenses compared to the previous year. However, higher income taxes and losses on foreign exchange (BDT 651.42 million) during 2011 partially offset that net profit but GP could manage efficiently its operating expenses which was remain same in 2011. Depreciation expenses will be higher in next year/s because of Capex in 2011 which will put effect to profit margin to some extent. As perceived by CRAB from the financial indicators of GP, historically the Company had a steady and sustaining business growth compared to other players in the industry. Although GPs market share has been taken up by other operators due to tariff sensitive customer base, still GP dominates the market share with premium price packages. Borrowed fund decreased by BDT 885.89 million in 2011 and decreased in equity by BDT 8,987.34 million for paying final dividend of 2010 and interim dividend of 2011. For this, increased in borrowed fund to equity observed 0.41x in 2011 which was 0.35x in 2010. GP has maintained positive cash flow for FFO and CFO, but due to higher capital expenditure, its FCF was observed negative in 2011. Net Financial expenses increased as borrowed fund utilization increased in the period of Jan 2012 to Sep 2012, value BDT 2,375.16 million due to interest charged in relation to the periodic unwinding of liability to acquire 2G telecom license 2011. This lead to higher leverage position to some extent as Borrowed fund to EBITDA increased to 0.88x on 30 Sep 2012 from 0.33x in 2011.

Grameenphone Ltd. has banking relationship with Standard Chartered Bank, HSBC, Commercial Bank of Ceylon, Citibank NA, Eastern Bank Limited, Pubali Bank Ltd., Woori Bank, Southeast Bank Ltd., The City Bank Ltd., Trust Bank Ltd., Mutual Trust Bank Ltd., UCBL, Premier Bank Ltd., BRAC Bank Ltd., IFIC Bank, Bank Alfalah, Dhaka Bank, Mercantile Bank. Besides, The Company has non funded credit facilities with CBCL, Prime Bank, Jamuna Bank, One Bank, DBBL, Shahjalal Islami Bank Ltd. The details of credit facilities are provided in the Appendix-1.

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Grameenphone Ltd.

APPENDIX 1: Details of Bank Loan Liability Status (Mil. BDT)

TOTAL FACILITY NAME OF THE BANK TOTAL FACILITY Standard Chartered Bank Citibank N.A. HSBC Eastern Bank Ltd Commercial Bank of Ceylon Pubali Bank Ltd. Woori Bank Southeast Bank Ltd. The City Bank Ltd. Trust Bank Ltd. MTBL UCBL Premier BRAC Bank Ltd. IFIC Bank Ltd. IDLC Bank Alfalah Dhaka Bank Ltd. Mercantile Bank Ltd. 3000 3280 1900 3100 400 2500 1145 3400 3500 1900 1500 3000 2000 1300 1000 500 525 1500 2000 NONFUNDED FACILITY 1200 3280 1500 3000 0 1000 857 1400 1500 1200 1000 3000 2000 1300 500 0 525 500 1000 24,762 Others* Total 37,450 191 24,953 20,570 FUNDED FACILITY 1800 1312 1900 1500 400 1500 288 2000 2000 700 500 2500 420 900 500 50 300 1000 1000

ACTUAL UTILIZATION NONFUNDED FACILITY 683 500 343 628 0 0 174 441 468 17 363 4 471 22 0 0 458 0 0 FUNDED FACILITY 1000 1295 1000 1500 400 0 0 2000 0 0 0 0 404 0 0 0 239 1000 0 Jun-13 Jun-13 Jan-13 Jun-13 Nov-13 Jul-13 Mar-13 Dec-12 Dec-13 May-13 Nov-12 Aug-13 Apr-13 Aug-13 Apr-13 Jul-13 Jul-13 Feb-13 Aug-13 Expiry

4,572

8,838

Liability Position 31 December 2012 (Fig in Million BDT) *Besides the above GP has Non Funded Business with the following Banks: 1.BDT 13 Mn with CBCL, 2.BDT 36 Mn with Prime Bank Ltd.,3.BDT 5 Mn with Jamuna Bank Ltd.,4. BDT 96 Mn with One Bank Ltd., 5. BDT 37 Mn with DBBL, 6. BDT 4 Mn with Shahjalal Islami Bank Ltd.

Note: Outstanding as on 31 December 2012 and these information are provided by the management of Grameenphone Ltd.

CRAB I CRAB Ratings on Corporate Credit Digest I 30 January 2013

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Grameenphone Ltd.

APPENDIX 2: Previous Ratings of Grameenphone Ltd.

Particulars Grameenphone Limited BDT 13,905.00 million aggregate Fund based limit BDT 22,668.00 million aggregate non-fund based limit ST-Short Term Date of Rating: 05 January 2012

Ratings AAA ST-1 ST-1

Remarks Entity -

CRAB I CRAB Ratings on Corporate Credit Digest I 30 January 2013

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Grameenphone Ltd.

APPENDIX 2: Key Financial Indicators of Grameenphone Ltd.

Key Financial Indicators Year Ended December 31 Months Revenue Revenue Growth (%) Earning, Growth & Stability Borrowed Fund Outstanding Growth rate of Borrowed Fund (%) Cost of Network Operation as % of Revenue EBITDA EBITDA Margin (%) Financial Expenses Net Profit After Tax Net Profit Margin (%) Return on Avg. Assets (%) Return of Avg. Equity (%) Current ratio (x) Liquidity & Asset Utilization Quick Ratio (x) Liquidity Index (days) NWC/OI (x) Avg. Collection Period (days) Avg. Payment Period (days) Avg. Inventory Processing Period (days) Cash Conversion Cycle (days) Avg. FA turnover (x) Avg. TA turnover (x) Coverage Times Interest Earned (EBITDA-CAPEX)/Interest Expense Asset Coverage Ratio Cash Flow Coverage Total Shareholder Equity Total Asset Capital Structure, Leverage & Cash Flow Total Liabilities Cash & Equivalents as % of Current Liabilities Capital Expenditure CapEx/Revenue (%) Fund Flow from Operation Cash Flow from Operation Free Cash Flow Total Debt/Total Assets (x) Borrowed Fund/Shareholders' equity (x) Borrowed Fund/Total Assets (x) Borrowed Fund/EBITDA (x) FFO/Debt (x) CFO/Debt (x)
Figure in BDT Million other than percentage (%) and times (x)
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~Year Ended 31 Dec~ (09) 2012 69,272.90 -22.2% 29,829.10 86.7% 42.5% 33,740.39 48.7% 2,375.16 12,881.71 18.6% 11.3% 36.9% 0.19 0.18 33 (2.38) 35 263 6 (222) 0.99 0.61 10.52 0.29 4.34 9.11 30,834.95 119,534.8 5 88,699.90 5.0% 23,441.64 33.8% 21,629.74 42,523.73 19,082.09 0.74 0.97 0.25 0.88 0.73 1.43 (12) 2011 89,006.70 19.1% 15,973.60 -5.3% 42.8% 47,888.22 53.8% 968.62 19,052.70 21.4% 17.5% 43.9% 0.60 0.60 25 (0.65) 27 174 6 (142) 1.27 0.82 35.24 0.69 (15.68) 33.87 38,918.31 108,598.71 69,680.40 14.2% 63,080.93 70.9% 32,807.36 18,279.67 (44,801.26) 0.64 0.41 0.15 0.33 2.05 1.14 (12) 2010 74,724.50 14.4% 16,859.49 -20.6% 48.6% 37,214.63 49.8% 855.36 10,579.18 14.2% 9.7% 21.6% 0.69 0.67 24 (0.69) 26 171 6 (139) 0.99 0.68 25.30 0.94 22.57 30.58 47,905.65 109,429.7 9 61,524.14 41.8% 17,909.32 24.0% 26,152.60 25,802.96 7,893.64 0.56 0.35 0.15 0.45 1.55 1.53 5 (154) 0.79 0.60 10.68 1.06 6.85 15.91 50,154.3 3 109,162. 49 59,008.1 7 37.5% 22,948.3 9 35.1% 30,549.2 8 29,711.8 5 6,763.46 0.54 0.42 0.19 0.59 1.44 1.40 25 183 (12) 2009 65,299.5 7 6.4% 21,236.4 4 -49.7% 50.7% 6,097.51 55.3% 1,920.44 4,968.17 22.9% 13.8% 38.5% 0.57 0.56 23 (0.82) (12) 2008 61,358.98 42,203.14 0.0% 53.3% 27,751.54 45.2% 1,805.25 2,983.87 4.9% 2.8% 10.8% 0.29 0.28 23 (2.34) 25 190 5 (161) 0.72 0.57 7.41 0.68 (5.80) 9.61 27,588.16 108,194.4 5 80,606.30 14.0% 38,216.19 62.3% 17,351.31 0.75 1.53 0.39 1.52 -

CRAB I CRAB Ratings on Corporate Credit Digest I 30 January 2013

Grameenphone Ltd.

CRAB RATING SCALES AND DEFINITIONS Long Term (Corporate)

Long Term Rating AAA Triple A AA1, AA2, AA3* Double A A1 , A2 , A3 Single A BBB1, BBB2, BBB3 Triple B BB1, BB2, BB3 Double B B1, B2, B3 Single B CCC1, CCC2, CCC3 Triple C CC Double C C Single C D (Default) quality, with minimal credit risk. Companies rated in this category have very strong capacity to meet financial commitments. These companies are judged to be of very high quality, subject to very low credit risk. Companies rated in this category have strong capacity to meet financial commitments, but are susceptible to the adverse effects of changes in circumstances and economic conditions. These companies are judged to be of high quality, subject to low credit risk. Companies rated in this category have adequate capacity to meet financial commitments but more susceptible to adverse economic conditions or changing circumstances. These companies are subject to moderate credit risk. Such companies possess certain speculative characteristics. Companies rated in this category have inadequate capacity to meet financial commitments. Have major ongoing uncertainties and exposure to adverse business, financial, or economic conditions. These companies have speculative elements, subject to substantial credit risk. Companies rated in this category have weak capacity to meet financial commitments. These companies have speculative elements, subject to high credit risk. Companies rated in this category have very weak capacity to meet financial obligations. These companies have very weak standing and are subject to very high credit risk. Companies rated in this category have extremely weak capacity to meet financial obligations. These companies are highly speculative and are likely in, or very near, default, with some prospect of recovery of principal and interest. Companies rated in this category are highly vulnerable to non-payment, have payment arrearages allowed by the terms of the documents, or subject of bankruptcy petition, but have not experienced a payment default. Payments may have been suspended in accordance with the instrument's terms. These companies are typically in default, with little prospect for recovery of principal or interest. D rating will also be used upon the filing of a bankruptcy petition or similar action if payments on an obligation are jeopardized. Definition Companies rated in this category have extremely strong capacity to meet financial commitments. These companies are judged to be of the highest

*Note: CRAB appends numerical modifiers 1, 2, and 3 to each generic rating classification from AA through CCC. The modifier 1 indicates that the obligation ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the lower end of that generic rating category.

LONG-TERM RATING: LOANS/FACILITIES FROM BANKS/FIS

(All loans/facilities with original maturity exceeding one year)
RATINGS AAA (Lr) (Triple A) Highest Safety AA (Lr)* (Double A) High Safety A (Lr) Adequate Safety BBB (Lr) (Triple B) Moderate Safety BB (Lr) (Double B) Inadequate Safety B (Lr) High Risk CCC (Lr) Very High Risk CC (Lr) Extremely High Risk C (Lr) Near to Default D (Lr) Default DEFINITION Loans/facilities rated AAA (Lr) are judged to offer the highest degree of safety, with regard to timely payment of financial obligations. Any adverse changes in circumstances are unlikely to affect the payments on the loan facility. Loans/facilities rated AA (Lr) are judged to offer a high degree of safety, with regard to timely payment of financial obligations. They differ only marginally in safety from AAA (Lr) rated facilities. Loan/facilities rated A (Lr) are judged to offer an adequate degree of safety, with regard to timely payment of financial obligations. However, changes in circumstances can adversely affect such issues more than those in the higher rating categories. Loans/facilities rated BBB (Lr) are judged to offer moderate safety, with regard to timely payment of financial obligations for the present; however, changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal than for issues in higher rating categories. Loans/facilities rated BB (Lr) are judged to carry inadequate safety, with regard to timely payment of financial obligations; they are less likely to default in the immediate future than instruments in lower rating categories, but an adverse change in circumstances could lead to inadequate capacity to make payment on financial obligations. Loans/facilities rated B (Lr) are judged to have high risk of default; while currently financial obligations are met, adverse business or economic conditions would lead to lack of ability or willingness to pay interest or principal. Loans/facilities rated CCC (Lr) are judged to have factors present that make them very highly vulnerable to default; timely payment of financial obligations is possible only if favorable circumstances continue. Loans/facilities rated CC (Lr) are judged to be extremely vulnerable to default; timely payment of financial obligations is possible only through external support. Loans/facilities rated C (Lr) are currently highly vulnerable to non-payment, having obligations with payment arrearages allowed by the terms of the documents, or obligations that are subject of a bankruptcy petition or similar action but have not experienced a payment default. C is typically in default, with little prospect for recovery of principal or interest. C (Lr) are typically in default, with little prospect for recovery of principal or interest. Loans/facilities rated D (Lr) are in default or are expected to default on scheduled payment dates.

*Note: CRAB appends numerical modifiers 1, 2, and 3 to each generic rating classification from AA through CCC. The modifier 1 indicates that the obligation ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the lower end of that generic rating category.

SHORT-TERM CREDIT RATING: LOANS/FACILITIES OF BANKS/FIS

(All loans/facilities with original maturity within one year)
DEFINITION ST-1 Highest Grade ST-2 High Grade ST-3 Adequate Grade ST-4 Marginal ST-5 Inadequate Grade ST-6 Lowest Grade This rating indicates that the degree of safety regarding timely payment on the loans/facilities is very strong. This rating indicates that the degree of safety regarding timely payment on the loans/facilities is strong; however, the relative degree of safety is lower than that for issues rated higher. This rating indicates that the degree of safety regarding timely payment on the loans/facilities is adequate; however, the issues are more vulnerable to the adverse effects of changing circumstances than issues rated in the two higher categories. This rating indicates that the degree of safety regarding timely payment on the loans/facilities is marginal; and the issues are quite vulnerable to the adverse effects of changing circumstances. This rating indicates that the degree of safety regarding timely payment on the loans/facilities is minimal, and it is likely to be adversely affected by short-term adversity or less favorable conditions. This rating indicates that the loans/facilities are expected to be in default on maturity or is in default.

Copyright 2012, CREDIT RATING AGENCY OF BANGLADESH LIMITED ("CRAB"). All rights reserved. ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY COPYRIGHT LAW AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT CRABS PRIOR WRITTEN CONSENT. All information contained herein is obtained by CRAB from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, such information is provided as is without warranty of any kin d and CRAB, in particular, makes no representation or warranty, express or implied, as to the accuracy, timeliness, completeness, merchantability or fitness for any particular purpose of any such information. Under no circumstances shall CRAB have any liability to any person or entity for (a) any loss or damage in whole or in part caused by, resulting from, or relating to, any error (negligent or otherwise) or other circumstance or contingency within or outside the control of CRAB or any of its directors, officers, employees or agents in connection with the procurement, collection, compilation, analysis, interpretation, communication, publication or delivery of any such information, or (b) any direct, indirect, special, consequential, compensatory or incidental damages whatsoever (including without limitation, lost profits), even if CRAB is advised in advance of the possibility of such damages, resulting from the use of or inability to use, any such information. The credit ratings and financial reporting analysis observations, if any, constituting part of the information contained herein are, and must be construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any securities. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY CRAB IN ANY FORM OR MANNER WHATSOEVER. Each rating or other opinion must be weighed solely as one factor in any investment decision made by or on behalf of any user of the information contained herein, and each such user must accordingly make its own study and evaluation of each security and of each issuer and guarantor of, and each provider of credit support for, each security that it may consider purchasing, holding or selling.

CRAB I CRAB Ratings on Corporate Credit Digest I 30 January 2013

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