03 August 2008

AT CAPITAL RESEARCH
AT Capital Weekly Update

Weekly News Update

Key themes in this issue are:
Bangladesh:
• Tata’s USD 3bn pullout has profound implications for Bangladesh’s economic future in terms of underlining the need for both an effective energy policy as well as a clear strategy for regional economic integration especially with India. A FDI policy based on attracting foreign companies via heavily discounted gas prices, whether it is from India, Korea or Taiwan, is extremely short sighted. The number one economic policy issue facing the country today, namely a solution to the power crisis and the necessary shift away from an addiction to subsidized gas supplies towards the rapid development of our coal reserves, is a critical focus – now. Bangladesh should not pin its energy future on unrealistic expectations about future undiscovered gas reserves With Underground coal mining method we could recover only 441mn MT of from our five coal deposits while with the best combination of Underground and Opencast Mining the amount could be 1,418mn MT. Amid the mutual recriminations between the US, EU, India and China on the breakdown in the Doha round, the reality is that immediate domestic political selfinterest, especially in the case of Indian and Chinese farmers, overwhelmed any perceived long-term benefits from reducing global trade barriers further. The experience of the collapsed Doha trade talks gives little comfort the world can effectively negotiate an effective agreement on a far more complex and intractable problem, namely climate change.

• •

Asian Tiger Capital Partners

EDITORS

Doha talks collapse on agricultural intransigence
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

03 August 2008

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

Overview - Bangladesh
An important week for global trade and Bangladesh FDI prospects with the two major news events, the collapse of the Doha round of trade talks in Geneva and the decision by Tata to finally withdraw its pending USD 3bn+ investment into Bangladesh. It seems likely that the issues raised by the Tata pullout have more profound implications for Bangladesh’s economic future in terms of underlining the need for both an effective energy policy as well as a clear strategy for regional economic integration especially with India. A summary of the Tata “Investment Saga” On Thursday, July 31, Tata and Sons, submitted a statement to the Board of Investment stating that: “It is clear that the government will not be in a position, in the foreseeable future, to grant the projects the natural gas commitment they would require…Consequently, there is no prospect of taking these projects further. “ By way of background, Tata Chairman Ratan Tata’s made the investment offer when he visited Bangladesh in 2004. Tata signed a memorandum of understanding with Bangladesh in 2004 on a USD2 bn investment, which later grew to USD 3bn. Its investment proposals include a 2.4 million-tonne a year steel mill, one million tonne a year fertiliser factory, 1,000 MW gas-fired and 500 MW coal-fired power plants. The government initially rejected Tata’s offer to buy gas at a fixed rate of USD 1.10 per 1,000 cubic feet or one unit over a 20-year period. It also informed Tata that it would not give any guarantee for gas supply for 20 years. Tata came up with a new offer of USD 3.10 per unit of gas price for its fertiliser plant in April 2006. The revised deal also included a proposal to pay USD 2.60 per unit gas price for the steel plant. However, Tata’s requirement for gas was more than 200 million cubic feet per day which Bangladesh’s Energy Secretary Mohammed Mohsin emphasized it was unrealistic for the country to commit to.

At times the ups and downs of Tata’s proposed multi-billion dollar investment in Bangladesh has all the makings of an economic soap opera. The announcement on Friday that they had finally decided to pull out saw multiple recriminations and soul-searching from a wide range of commentators within the country. Does it spell the death of Bangladesh’s prospects of attracting large scale industrial investment from its large neighbour or indeed elsewhere? Was it a welcome escape from economic exploitation by a oligarchic proverbial 800 lb economic gorilla next door that would be to the long-term detriment of Bangladesh’s economic development? Was a necessary sacrifice in terms of gas and coal subsidized commitments to open the flood gates of Indian FDI that could transform our economic fortunes? The reality is complex but among the key themes, it seems evident that 1. Tata, India’s dominant conglomerate and one of the most aggressive and savvy of its outward investment champions (note its purchase of Jaguar cars and Tetley tea among other global brands it has scooped up) saw an opportunity to establish a major industrial presence in a neighbouring country but predicated on it receiving subsidized energy at extremely preferential terms. But Tata is at the end of the day a profit maximizer and even if a new deal that is not predicated on cheap energy but still makes sense for the company on the basis of cheap labour or access to land in economic zones or fiscal breaks will still make sizeable investments here. Bangladesh needs to develop a more coherent and compelling regional economic cooperation and integration policy especially with India. Bangladesh needs to move away from an FDI policy from India, Korea, Taiwan or elsewhere than attracts foreign investors with the carrot of cheap gas. The country needs to finalize its energy policy as soon as possible. But let’s be more specific – Bangladesh’s future energy policy is all about a clear strategy on coal.

2.

3.

4.

5.

Regional Economic Policy should focus on a Free Trade Area with India With SAARC summit taking place last week in Colombo, the focus has naturally shifted back to issues of regional cooperation. The headline article in the August 2 Daily Star Business section suggested a decision on a Free Trade Area (FTA) with India, Pakistan and Sri Lanka was due imminently, even that day. Commerce Secretary Feroz Ahmed stated that “Bangladesh has to consider bilateral free trade agreements with its regional trading partners as regional agreements such as SAFTA have failed to yield expected results. “ Given the collapse in the Doha round of trade talks we discuss in more detail later in this section, the need for a more pro-active bilateral trade strategy has increased. The specific issues involved in terms of the optimal trade policy Bangladesh should follow are complex

An FDI Soap Story but one that raises important policy issues

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03 August 2008
and we will discuss them in the next issue of the AT Capital Weekly. However, in the next section, we focus on probably the number one economic policy issue facing the country today, namely a solution to the power crisis and the necessary shift away from an addiction to subsidized gas supplies towards the rapid development of our coal reserves. Let’ It’ Let’s cut to the chase on Energy Policy – It’s about developing the coal!

AT CAPITAL RESEARCH
economy and population, both categories of resources will be strained, especially as demand to replace traditional fuels with natural gas continues to grow. This has resulted in a spirited debate on the wisdom of export of raw gas proposed by some. The debate is fuelled by a strong disagreement on reserves estimates and inappropriate use of various categories of reserves and resources to bolster arguments by the two contending camps, for and against export of gas.” I agree that Bangladesh should not pin its energy future on unrealistic expectations about future undiscovered reserves. Also the debate on the scope to export gas seems additional wishful thinking. I also agree with the group’s observations that: “Institutions to support energy exploration, development and utilization in Bangladesh often function under difficult circumstances and with very limited resources. The associated legal, regulatory and enforcement frameworks are weak. It is alleged that decision-making is often nontransparent. Bangladesh has a core group of technical experts (geologists, engineers, economists and scientists) in the energy sector, but a much larger group is needed to develop plans to offer independent technical judgment, to monitor the work of foreign companies and ultimately achieve self-reliance. Energy economists are in short supply and until recently, current economists in Bangladesh have not participated in the energy debate in a significant way. This has hampered a meaningful debate based on economic analysis coupled with technological input. In addition, Bangladesh needs legal experts in energy and environmental sectors.” On coal the BEN panel comments that: “A significant reserve of coal has been identified. However, Bangladesh is not prepared to mitigate the adverse effects that arise from both upstream (extraction) and downstream (burning) activities in utilizing coal. The proposed open-pit mining in Phulbari raises serious water and environmental pollution concerns. It will result in loss of rich agricultural land in an extremely densely populated country and will displace a large number of people from their homes.” Nothing wrong with their comment below on gas exploration but it cannot be the mainstay of the solution to Bangladesh’s energy crisis: “Significantly increase exploration activities in the gas sector to locate additional resources and add to proved reserves. Utilize both domestic funds and investment by international oil companies, latter via appropriate partnerships to benefit from the state-of-the-art-technologies and resources these companies would bring.” Where I disagree with their recommendations is the view that we should: “Postpone any decision to exploit the coal reserve by openpit mining until the likely severe environmental, land-use and population displacement impacts and resultant economic issues have been clearly understood and only when realistic, proven mitigation plans have been developed. Perform an in-depth cost/benefit analysis of this option. Adverse impact of open-pit mining can last for decades and often cannot be mitigated. “

As many Dhaka residents sit through their “umpteenth” power outage in 2008, businesses decry the shortage of gas causing production setbacks and there is much gnashing of teeth about the cancellation of the USD 3bn Tata investment, the confusion, misinformation and lack of clarity on our energy policy continues to amaze both this author and many more learned observers of Bangladesh’s power sector. Taking my cue from Bill Clinton’s memorable slogan in his 1992 Presidential Campaign – “It’s the Economy Stupid!” – I am tempted to start every discussion about the power crisis in Bangladesh with a similar slogan “It’s about hurrying up and developing our coal reserves stupid!” Now, I would be the first to accept that this statement will undoubtedly draw the ire of both environmentalists and those who live in the land of wishful thinking about the undiscovered gas reserves in the country but I think the country is facing a sufficiently severe energy-driven economic crisis that will only get worse to merit some straight talking (and indeed open discussion). Reviewing some of the past detailed discussions on Bangladesh’s energy policy, I was struck by two different research reports, both from 2006. The first was from the Energy Panel of a group called “The Bangladesh Environmental Network” or BEN. The Panel was composed of: Dr. Ahmed Badruzzaman (Chairperson), Dr. Sarwat Chowdhury, Dr. Selim Hannan, Mr. Golam Kabir and Professor Mohamed Khalequzzaman and the paper was entitled: “ Bangladesh Energy Strategy: A brief Survey with Recommendations”. Among notable excerpts from the report were a few observations/strategies I concur with including a comment that: “Natural gas is the major indigenous, modern energy source in Bangladesh. Its resource potential is substantial but proved reserve is still small. With rapid growth in the

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03 August 2008
However we sit here in Dhaka two years after that report was published with no substantive progress on our energy policy and a dysfunctional power generation system. Yes there is environmental costs and dislocations of exploiting coal for 100,000 people. But they can and should be fairly compensated. But we should not overlook the daily dislocations to the other 150mn citizens of Bangladesh.

AT CAPITAL RESEARCH
project. Along with short term compensation, the developer could also ensure long term packages for the dislocated population around the mining area. One suggestion at the BEI seminar was to give some stock of the mining company, preference in working in the mining company, encouraging the setting up of supporting industries etc. In conclusion, the key to Bangladesh’s energy and hence economic future lies in coal. Rather than recriminations over the Tata deal, both this interim government and the next elected one should accelerate the coal development plan as fast as possible. Potential companies that would be interested in the development may be from India or elsewhere but given the level of global coal prices, despite the recent pullback, there is unlikely to be a shortage of interested parties.

Open Pit Mining a necessary solution There has been a lot of discussion about the merits of underground mining versus open pit coal extraction. Perhaps the most lucid explanation of the necessity of open pit mining was given at a talk on July 31 at the Bangladesh Enterprise Institute by Mr Nazrul Islam. CEO of the Infrastructure Investment Facilitation Centre (IIFC). Among the key issues we would note that Bangladesh has five good quality coal reserves in the northern part of the country. Currently, only one mine (Barapukuria) is producing coal using underground mining method with production capacity of 1mn MT per year where the actual production in the previous year was 0.5mn MT. With Underground mining method we could recover only 441mn MT of from our five coal deposits while with the best combination of Underground and Opencast Mining the amount could be 1,418mn MT. For the maximum amount of coal recovery, we should focus on the best mining method based on the mine type. If we go for an underground method for all the mines then 1bn MT of coal will be left underground worth USD 100bn (Considering USD 100/MT). This has been summarized in the table below: Coal reserves in Bangladesh
Coal Deposit Jamalganj Barapukuria Khalshpir Phulbari Dighipara Depth of Deposit (m) 800 – 1,150 119 – 504 257 – 480 140 – 350 328 – 455 Estimated Reserve (mn MT) 1,053 390 685 426 200 Recoverable Recoverable by Underground Mining (mn MT) 168 62 110 68 32 441 Recoverable by Opencast Mining (mn MT) N/A* 270 480 360 140 1,250 Total Recoverable Reserve (mn MT) 168 270 480 360 140 1,418

Total 2,754 These challenges could be overcome if the government or

the mine developer develop the appropriate rehabilitation

Source: Infrastructure Investment Facilitation Centre

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03 August 2008
Doha Collapse a Reflection of First World, “Chindia” political selfself-interest Amid the mutual recriminations between the US, EU, India and China on the breakdown in the Doha round of trade talks that took place in Geneva, the reality is that immediate domestic political self-interest, especially in the case of Indian and Chinese farmers, overwhelmed any perceived long-term benefits from reducing global trade barriers further. Some estimates have suggested that the direct costs of failure – a successful Doha round might have added another $100bn, or one tenth of one per cent, to the world economy – looks small in the scheme of things. Many existing tariffs are already below the maximums in the proposed agreement. However, as Philip Stephens noted in a July 31 column in the Financial Times:

AT CAPITAL RESEARCH
“The past few decades the opening of markets and growing economic interdependence have been a force for geopolitical stability as well as of rising economic welfare for the world’s poorest. We learned at the beginning of the 20th century that globalisation offers no guarantee against war. But mutual economic dependence does provide a powerful incentive to settle political differences. The present strains on the world economy, notably the imbalance between supply and demand of raw materials and a rising protectionist clamour threatens this progress. And it threatens it at a moment of huge geopolitical upheaval as the global order adjusts to the emergence of China and India as great powers.” The experience of the collapsed Doha trade talks gives little comfort the world can effectively negotiate an effective agreement on a far more complex and intractable problem, namely climate change.

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03 August 2008

AT CAPITAL RESEARCH
Market news
• • The market continues its bearish run Direct listing of Titas maintains its disappointing performance • • • • • Banks continue earning bumper profits Grameenphone submits IPO prospectus to SEC Olympic Industries gets SEC nod to issue shares Steel maker BSRM submits IPO prospectus IDLC Securities signs panel broker deal with Trust Bank

Stock Market Weekly
DSE performance: 52 weeks

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 2,878.1 2,761.1 -4.1% -117.0 This Week 5 13.96 232 46 110 22 Issues Advanced Declined Unchanged Not Traded Last Week 5 14.12 242 48 109 22 This Week 63 183 8 33 DSE 20 2,636.1 2,526.2 -4.2% -109.9 % Change -1.2% -4.1% -4.1% 1.0% 1.0% Last Week 94 151 4 37

Valuation snapshot
Sector P/E Feb-08 Mar-08 24.8 21.9 12.8 14.7 28.1 43.2 30.2 33.7 22 24.5 28.1 28.3 22.1 23 22.4 40.5 16.6 18.3 8.8 18.6 20.1 22.3 6.9 11 20.2 25 8.8 10.8 15.3 19.9 11.8 14.6 Apr-08 22.2 14.7 43.7 38.9 28.2 25.8 28.1 64.9 18.4 16.4 23 9.2 26.7 20.5 25.1 14.9 May-08 22.6 17.6 42.7 41.4 28.5 26.2 32.4 65.2 17.6 16 25.9 9.5 29.8 19.5 23.1 14.4

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 21.02 Last Week 22.14 % Change -5.06% *Weighted on Market Cap.

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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03 August 2008 Weekly Stock Market Commentary
The market continues on a bearish streak The DSE started the week with a modest gain of 0.24% on Sunday, but fell for the next four days. The average daily trading volume was similar to that in the previous week. The benchmark DGEN index fell by 4% to 2761, its lowest level in the last ten months. However, one should note that part of the fall (roughly 0.7%) can be attributed to the incorrect reflection of the Islami Bank 25% stock dividend announcement. While the index reflects the expected fall in share price (20%), the increased number of shares in issue are not reflected until bonus shares are credited to beneficiary owner (BO) accounts in the coming weeks. As such we believe the real fall is 3.3%. Titas direct listing – running out of gas? Titas gas continued its poor run. By close of week, Titas sold only 3% of the total issue where its BDT 302 price stood at its lowest point since it was first offered at BDT 750, on the 2 July. The Titas listing raises a few questions: 1) Why has there been so little interest? 2) It is the largest issue to date is the market too shallow to absorb a USD 30m listing? 3) What impact will this have on the privatization of State Owned Enterprises (SOEs) via a direct listing? Direct listing is the only method available to dispose of SOEs via the public markets. While direct listing may be used to divest non-SOE assets, it has been used infrequently, when Square Pharma divested Square Textiles, and ACI has recently announced it will use this method for one of its subsidiaries. SOE’s Jamuna Oil, Meghna Oil, Desco and Power Grid were all listed successfully via direct listing. In the case of Meghna in 2008, shares changed hands at a 37% premium to the initial offer price within 2 days of the issue. The Titas offering, has not quite been the same. It seems that timing has played a role. Titas has come to market in the month, where market watchers are yet to conclude if we are entering a bear market or simply experiencing a timely correction. It seems reasonable to assume, that earlier in the year an initial issue price of BDT 750 (25x P/E), which nobody took up, may have found buyers given the SOE oil companies listed at between 40-80x PE! Shares are now on offer for BDT 302 (9.8x P/E). From what initially started as investors tightening their purse strings, waiting for the market to find a digestible equilibrium, has turned into a waiting game to see how much lower the stock can fall. Another interesting feature of the Titas listing is its size. All other SOE issues ranged from USD 2m to USD 13m, while Titas aims to dispose of USD 30m shares. Time will tell if the market has the appetite for such a large issue, but clearly market depth is a key determinant of success of any large listings in the pipeline. The Titas listing also raises questions around the government’s favoured direct listing method for SOEs, especially as there are no other methods available to do this via public markets. If one concludes that the issue size was simply too large, this may lead to questions about the ‘10% of share capital rule’ for large SOE’s, given that Titas is at risk of being delisted if it fails to sell 10% its share capital. On the other hand, if we see investors wait till the last moment

AT CAPITAL RESEARCH
and buy at lower prices, it is hard to see that the government will stand by and watch a repeat of this debacle.
SOE Direct Listings
100 90 80 70 60 50 40 30 20 10 0 88.8

56.6 34.5 13.3 5.9
Power Grid (2006)

4.6

2.0
Jamuna Oil (2008)

1.8
Meghna Petrolium (2008)

DESCO (2006)

P/E at Issuance

Issue Size(Million USD)

Banks continue to announce bumper profits Half yearly announcements season continued last week. Islami Bank, the largest private sector bank in the country announced 59% growth in half year net profits (its price rose by 3.1% on announcement). Its equity base increased by 18% year on year and it raised BDT 3bn (USD 43.5mn) tier II capital through a bond issue. Bank Asia announced half year earnings growth of 22.2% while its equity base increased by 32%. Southeast Bank’s half year earnings grew by 8.4% while its equity base increased by 21% last year. Mercantile Bank’s half year earnings and equity base grew by 31% and 30% respectively. However, a note of caution on some banks with seemingly bumper profits - banks had to increase their equity base, last year, with retained earnings to support their asset growth. If earnings growth is lower than the growth of the equity base, one will see decreases in the return on equity. ICB Islamic Bank reported half year earnings of BDT 138mn (USD 2mn). A promising start for the bank’s new owners who inherited significant accumulated losses and a book of poor quality assets from the failed Oriental Bank. Banking system credit grew by 20%, year on year, to USD 28bn as at June 30, 2008. Private commercial banks (PCBs) accounted for 93% of total credit growth, with their credit growing by 35% last year. With credit growth of 93%, BRAC bank was the fasted growing bank. Rupali Bank continues to struggle with no trades in the week. With reported losses of more than BDT 11bn (USD 160mn) in 2007, negative net worth of BDT 10bn (USD 145mn) and no fresh privatization initiatives on the horizon, investors are not showing much interest in its stock. Mutual Funds - ‘What’s NAV got to do with it?’ The shares of the 2 NRB mutual fund, the largest mutual fund in the country to date, had its debut trading on Sunday. It gained 90% on the first day of trading but fell by 10% in the next four days. We will be discussing mutual funds and their propensity to trade at significant premia to their net asset values in an upcoming edition.
nd

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03 August 2008 Stock Market News
DSE indices fall for fourth day
The Daily Star, Friday, August 1, 2008

AT CAPITAL RESEARCH
Grameenphone, the country's leading mobile phone operator, submitted a draft prospectus of the largest-ever initial public offering (IPO) to the stock market regulator for raising USD 150mn (around BDT 10bn) on Tuesday. Grameenphone, which has recently been valued at USD 3.2bn, wants to offer each share at BDT 18 (USD 0.26) including a premium of BDT 17 (USD 0.25). The raised capital will be used for Grameenphone's network development programme. As of 2007, earning per share of Grameenphone was Tk 1.50. When asked, Sighed Yamin Bakht, Director (Public Relation) of Grameenphone, said, “The draft prospectus of Grameenphone IPO was filed with the SEC and it is a confidential document. The version linked with the DSE website will not be the full version. We can only file the full version of the IPO prospectus after receiving approval from the SEC.” Unlike other IPOs, details of the IPO prospectus will not be published on Dhaka Stock Exchange's (DSE). Instead, a brief version of the prospectus will be published on the website where details such as the paid up capital, authorised capital, earning per share, market lot and premium may not be available, according to sources. The sources also said that there are some legal issues and all the information could not be published right now, but will be published shortly. Grameenphone also submitted the pre-IPO plan to the Securities and Exchange Commission (SEC) for approval to raise another $ 150 million through private placements on Tuesday. Arif Al Islam, Chief Financial Officer of Grameenphone, formally submitted both the IPO and pre-IPO prospectuses to SEC Chairman Faruq Ahmad Siddiqi. In a short press briefing, he said that by the end of this year Grameenphone will be the largest listed company in the country's stock market, which will be a milestone for Bangladesh's capital market. Citigroup Global Markets Bangladesh Limited is the issue manager of the Grameenphone IPO. Norway's Telenor owns a 62% stake in Grameenphone, which launched its operations in 1997, with the remaining 38% being held by Grameen Telecom, a concern of Grameen Group. According to Telenor's financial report, the company's revenue, which is around NOK 4.6bn (USD 895.1mn) was 7 % higher in 2007 compared to its revenue in 2006. Its operating profits, however, dropped sharply by about 33 % to NOK 1.3bn (USD 240.3mn) during the year compared to NOK 1.8bn (USD 356.1mn) in 2006.
http://www.thedailystar.net/story.php?nid=48056

The Dhaka Stock Exchange (DSE) price indices fell on Thursday for the fourth consecutive day. The higher fall in DSI index was due mainly to a fall in the share prices of United Commercial Bank shares (UCB), a Z category share that is a part of DSI but not the DGEN. On Thursday, prices of UCB shares came down by 50.7% at BDT 3,242.3 (USD 47.3) by close of trade. The UCB price fell sharply as the previous day was a record date for its stock dividend. A total of 54,275 shares of the bank worth BDT 165.3mn (USD 2.4bn) were traded. The DSE General Index declined by 40.38 points, or 1.44%, to 2,761.04 points, while the DSE All Share Price Index fell by 57.04 points, or 2.35 %, to 2,369.03 points. The market started with a steep fall in the price indices. The market fell for the first one and half hours and then remained unchanged for next half an hour. However, in the last two hours of trading the market fell again at a steady rate. Most of the share prices dropped yesterday. Of the total 227 issues traded on the premier bourse, 52 gained, 165 suffered losses and 10 remained unchanged. The market turnover also came down to BDT 2,696.1mn (USD 39.4mn). A total of 17,817,440 shares were traded on the prime bourse on Thursday. Apart from the UCB share price slide, the insiders said, the investors' shakiness to invest in the stock market is another major reason behind the falling share prices.
http://www.thedailystar.net/story.php?nid=48356 48356

ICB declares dividends on 8 mutual funds, unit fund
The Daily Star, Thursday, July 31, 2008

The Investment Corporation of Bangladesh (ICB) declared dividends on its eight mutual funds and on the unit fund for the year 2007-08. The ICB declared a 265% dividend on the first mutual fund and 75% for the second, 65%, 60%, 45%, 30%, 30% and 25% for the third through eighth mutual funds and BDT 20 (USD 0.3) per unit on each unit fund for the year ended June 30, 2008.
http://www.thedailystar.net/story.php?nid=48243

Steel maker BSRM submits IPO prospectus

The Daily Star, Thursday, July 31, 2008
BSRM Steels Ltd, the country's only manufacturer of 500 grade steel rod, has submitted a draft prospectus for IPO to the Securities and Exchange Commission (SEC). The company is looking to raise BDT 200mn (USD 2.9mn) to fund further expansion of its business. If approved, BSRM will float 2,000,000 ordinary shares of BDT 100 (USD 1.5), which will be added to its existing paid up capital of BDT 1.3mn (18.3mn). The authorized capital of the company is BDT 2bn (USD 29.2mn). Sources said almost all the necessary works have already been done and the proposal may be placed before the upcoming commission meeting of the SEC.
http://www.thedailystar.net/story.php?nid=48246

Olympic

Industries

gets

SEC

nod

to

issue

shares

The Financial Express, Thursday, July 31, 2008
The Olympic Industries Limited has stated that the Securities and Exchange Commission (SEC) has approved its proposed issue of 205,472 ordinary shares of BDT 100 (USD 1.5) each amounting to BDT 205.5mn (USD 3.0mn) thereby increasing the paid-up capital of the company from BDT 17.3mn (USD 0.25mn)to BDT 19.3mn (USD 0.28mn).
http://www.thefinancialexpressbd.info/search_index.php?page=detail_news&news_id=41248 41248

SEC Grameenphone submits IPO prospectus to SEC

The Daily Star, Wednesday, July 30, 2008

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03 August 2008

AT CAPITAL RESEARCH
Best performers* USD 15.6 12.8 11.5 11.1 9.5 8.7 8.2 8.2 8.0 7.8 Grameen Mutual One Wonderland Toys Apex Spinning. Bd.Thai Aluminium Progressive Life Standard Ceramic Orion Infusion Square Textile Sonargaon Textiles 3rd ICB M.F. % Change 33.2 29.0 17.4 17.1 16.9 14.4 12.1 11.9 11.1 11.1 Worst performers* UCBL Fareast Islami Life 7th ICB M.F. Confidence Cement Lexco Bionic Sea Food Islami Bank 5th ICB M.F. Peoples Insurance ICB % Change -48.8 -32.0 -29.5 -18.9 -18.5 -17.1 -17.0 -16.4 -16.3 -16.2
*By closing price

Turnover leaders (All fig. in mn) BDT 1,067 Beximco Pharma 876 UCBL 789 Keya Cosmetics 763 BEXIMCO 653 Square Pharma 593 Grameen Mutual One 562 BATBC 561 ACI Limited. 548 LankaBangla Finance 537 Square Textile

Market cap. by sector* Banks Pharmaceuticals Fuel & Power Insurance Cement Engineering Miscellaneous Foods Textile Tannery Service & Real Estate IT Ceramics Paper & Printing Jute Total 55.1% 10.9% 10.4% 5.9% 5.6% 2.7% 2.7% 1.9% 1.8% 1.5% 0.9% 0.4% 0.1% 0.07% 0.03% 100%
*As of May 31, 2008

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

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

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

KSE 100

DSE

1.00 -0.07 0.07 0.07 -0.12

1.00 0.53 0.24 0.17

1.00 0.29 0.12

1.00 0.16

1.00

* Based on the last 65 monthly returns

Research Team
Professor Jahangir Sultan Senior Advisor jahangir.sultan@at-capital.com 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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03 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
• • • Overall trade deficit rises to USD 6.4bn Investment in saving tools declines in 2007-08 Apparel industry faces new challenge of taka appreciation Govt signs USD 50mn credit deal with IDA Tata walks out on investment plan

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

Jul2007Share of total exports, Jul-Apr 2007-08

export 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

Source: Export Promotion Bureau

JulImport L/Cs opened across different sectors, Jul-Apr 20072007-08

Source: Export Promotion Bureau

Latest treasury yields
Auction date 20-Jul-08 20-Jul-08 20-Jul-08 15-Jul-08 1-Jul-08 8-Jul-08 22-Jul-08 Tenor & security type 91-day T-bill 182-day T-bill 364-day T-bill 5-year T-bond 10-year T-bond 15-year T-bond 20-year T-bond Weighted average yield 7.78% 8.01% 8.51% 10.60% 11.72% 12.14% 13.07%
Source: Export Promotion Bureau

Source: Bangladesh Bank

S Adeeb Shams Research Associate

adeeb.shams@at-capital.com

_______________________________________________________________________________________ AT Capital Weekly Update 10

03 August 2008
Economics News

AT CAPITAL RESEARCH
70+ terms that were contracted at the end of 2006. Furthermore, production costs have escalated by between 10-15%, owing to fuel price rises and increased input costs, with concerns over wage inflation further eroding diminishing margins. All this comes at a time when the price of rice has almost doubled in the last year. The President of the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) Fazlul Hoque has said that it will be extremely difficult to maintain export growth if the dollar slides further. The sector suffered negative growth in the first half of 200708, owing to political unrest and the anti-corruption drive, but recovered during the second half due to improved political stability and the taka weakening against the dollar. From July 07 to May 08, , knitwear exports registered a 21% rise to USD 4.9bn from the same period in the previous fiscal, while the export of woven garments increased by 11% to USD 4.6bn. Overall RMG exports reached USD 9.6bn an increase of 16% year on year.
http://www.thefinancialexpressbd.info/search_index.php?page=detail_news&news_id=41186

Economic News
deficit Overall trade deficit rises to USD 6.4bn
The Financial Express, Tuesday July 29, 2008

Bangladesh's total trade deficit rose to USD 6.4bn in 200607, an increase of 28% from USD 5bn in 2006-07, according to officials in the Commerce Ministry. Provisional estimates reveal imports worth USD 20.4bn, while exports accounted for USD 14bn during the fiscal year. The year 2007 was particularly bad for Bangladesh because of factors: 1) two major floods and a devastating cyclone, and 2) global price rises in major commodities. The trade deficit, the highest ever, is due, in part, to a 385% increase in rice imports to meet production shortfalls largely due to natural calamities in the year. The Finance Ministry and donor agencies have estimated that rice worth in excess of USD 600mn was lost last year. Furthermore, despite a drop in domestic consumption of petroleum last year, imports costs were 12% higher, as a result of a significant increase in global oil prices. Other than rice, higher payments were made for items such as wheat, edible oil, milk powder, fertilizers, iron and chemicals. Central bank statistics reveal that the import of food grains and other consumer goods rose by 143% and 45%, respectively from the previous fiscal.
http://www.thefinancialexpressbd.info/search_index.php?page=detail_news&news_id=41113

Govt signs USD 50mn credit deal with IDA
bdnews24.com, Thursday July 31, 2008

2007Investment in saving tools declines in 2007-08
The Financial Express, Wednesday July 30, 2008

Investment in saving instruments by small savers has declined by 34% in 2007-08, according to the National Savings Directorate (NSD). The NSD reports that it received net investment worth BDT 25.2bn (USD 367.4mn) in 200708, a decline by BDT 16.58bn (USD 242.1mn), a 34% decline. While investment in savings certificates, in the first half of the fiscal year, July to Dec 08, were particularly depressed, at BDT 7.9bn (USD 115mn), certificate sales picked up sharply at BDT 17.3bn (USD 252.3mn) in Jan to June 08. Internal Resources Division (IRD), Secretary Muhammad Abdul Mazid, commented that the decline was caused by diversion of investment into the capital markets, with 2007’s bumper stock market year as well as general increases in living costs which restricted many small savers’ investment capacity. The 2006-07 imposition of a 10% tax on interest income above BDT 150,000 (USD 2,190) also made the capital markets a more attractive investment destination.
http://www.thefinancialexpressbd.info/search_index.php?page=detail_news&news_id=41171

The government has signed a USD 50mn credit agreement with the International Development Association, the low-cost lending arm of The World Bank, as a means to rehabilitate families affected by last year's Cyclone Sidr in coastal areas in the south west. The funds will be disbursed under the Social Investment Program Project (SIPP) to support rural infrastructure development and income generating activities for the poorest. The project is expected to cover fourteen of the worst affected upazilas and will assist almost one million people, by helping restore assets and livelihoods.
http://www.bdnews24.com/details.php?id=58579&cid=4

Tata walks out on investment plan
bdnews24.com, Thursday July 31, 2008

Tata Group has been forced to abandon a USD 3bn investment plan in Bangladesh after it failed to win commitments from the government for the supply of natural gas to the projects. A spokesperson for the Indian conglomerate said that the Bangladesh government will not be in a position in the foreseeable future to grant the projects the natural gas commitment they would require. Tata had planned to set up a steel plant with an annual capacity of 2.4mn tonnes. It also had plans of running two power plants – a fertiliser plant with the capacity of producing 1 mn tonnes of urea annually, as well as an opencast coal mine.
http://www.bdnews24.com/details.php?cid=4&id=58604

Apparel industry faces new challenge of taka appreciation

The Financial Express, Wednesday July 30, 2008
The UNB reported that if the Bangladeshi taka continues to strengthen against the US dollar, it poses a significant threat to the recent rebound in RMG exports. The dollar has already fallen by over 4% to BDT 67, compared to the BDT

_______________________________________________________________________________________ AT Capital Weekly Update 11

03 August 2008

AT CAPITAL RESEARCH
Fund (SDF) and SAARC Regional Standardization Organization (SARSO) will be signed at the summit on August 2-3. The headquarters of SARSO will be set up in Dhaka.
http://www.thedailystar.net/story.php?nid=48113

Sector News
Agriculture
Milk Vita posts record profit
Bdnews24.com, Saturday July 26, 2008

Milk Vita, branded dairy products, manufactured, by the Bangladesh Milk Producers Co-operative Union, announced record profits, at its AGM, of BDT 114.5mn (USD 1.7mn) in fiscal 2007-08, a BDT110.9mn (USD 1.6mn) increase from BDT 3.5mn (USD 0.1mn) in fiscal 2006-07. Increased profits were driven by sales growth, with the company paying on average, BDT 7 (USD 0.1) higher per litre of milk than in the previous period with average expenditure increasing by BDT 12mn (USD 0.17mn) a month. Milk Vita is Bangladesh's largest dairy cooperative and the leading supplier of fresh milk and dairy products such as butter and yogurt. Milk Vita sells milk and milk products by collecting milk from remote places through networks established by its primary co-operative societies. The government has also announced it will set up a "National Dairy Development Board or Council" to control the quality of milk and milk products.
http://www.bdnews24.com/details.php?cid=4&id=58226

Fish hatchery law on cards
The Daily Star, Monday July 28, 2008

It has been announced the ‘Hatchery Ordinance 2008’, will be introduced in an attempt to improve standards in the fish hatchery industry which has grown sporadically in the last two decades, out with any regulatory framework, aside from general trade licenses. The draft legislation makes it mandatory for hatcheries to comply with plant standards regulating the use of appropriate pumps, aeration, waste disposal and storage facilities. There are 58 shrimp hatcheries supplying about 8000mn to 1,0000mn shrimp spawn to meet the demand in shrimp farming, largely in the country's south-western coastal belt. In addition, about 30 fresh water shrimp and some carp hatcheries are also meeting demand for cultured fish.
http://www.thedailystar.net/story.php?nid=47757

Aviation
Biman expecting a decline in losses
The Daily Star, Wednesday July 30, 2008

hatcheries 100 000mn Shrimp hatcheries suffer BDT 1000mn (USD 1.5mn) loss
The Daily Star, Thursday July 31, 2008

Shrimp hatcheries have incurred about BDT 1000mn (USD 1.5mn) losses this year because of a sharp decline in the price of fry amid poor demands from farmers. Almost all the hatcheries have suffered losses due to falls in Bangladesh shrimp prices in global markets, as they face stiff competition from a species of shrimp called Vannamei cultivated in countries such as Vietnam, Thailand and China. Farmers have also been moving production to rice cultivation with global rice prices increases. Fear over the US recession has pushed shrimp prices down in global markets with price of each pound of shrimp (16-20 grade) declining to USD 4.50-4.30 until April this year from USD 5.80-5.30 a year ago. A fear of cancellation of consignments by the EU also affected the price of shrimp.
http://www.thedailystar.net/story.php?nid=48219

The loss incurred by Biman Bangladesh Airlines in 2007-08 is likely to be significantly lower than provisional estimates of around BDT 5.5bn (USD 80.2mn). The airliner is anticipating its loss will stand at BDT 800mn (USD 11.7mn), compared to loss of BDT 2.7bn (USD 4mn) in 2006-07. Officials have quoted an improvement in efficiency, coupled with reduced pilferage, as key contributors towards this reduction in losses. The government converted Biman into a public limited company in July 2007 and freed liabilities in excess of BDT 17bn (USD 24.8mn) from Bangladesh Petroleum Corporation and Civil Aviation Authority. The government also cut back on the total number of employees by 1,800, to cut costs. The company has reduced the number of international routes by as many as eight, amidst an acute shortage of aircraft. The company successfully sealed a ground-breaking deal with Boeing earlier last month, through which it will be procuring brand new aircraft.
http://www.thedailystar.net/story.php?nid=48055

SAARC Food Bank starts functioning soon
The Daily Star, Wednesday July 30, 2008

Following the first day of the 35 SAARC Standing Committee, members announced they will make the SAARC Food Bank operational immediately to member states following concerns over food security. Foreign secretaries of South Asian countries also agreed on the transfer of technology and extending institutional support for increasing production in agriculture sector. The SAARC Council of Ministers comprising foreign ministers, will finalize the Standing Committee's recommendations on these matters. At least two agreements concerning SAARC Development

th

GMG may resume flights on suspended routes from next month
The Financial Express, Sunday July 27, 2008

GMG Airlines, the country's largest private airliner, plans to resume flights on certain international routes from next month. The company was earlier forced to suspend flights to

_______________________________________________________________________________________ AT Capital Weekly Update 12

03 August 2008
Bangkok, Dubai, Kathmandu and New Delhi after a 30% increase in the price of jet fuel.
http://www.thefinancialexpressbd.info/search_index.php?page=detail_news&news_id=40907

AT CAPITAL RESEARCH
and they will benefit from an extended period of two months. The central bank will select the top three PDs giving due consideration to their performance on participations in primary auction and secondary transactions of governmentapproved securities on a quarterly basis. Under the guidelines, each of the bank and non-bank PD will underwrite a minimum of 12% and 4% of the auction amount respectively. Earlier, the central bank selected nine PDs eight banks and a non-banking financial institution (NBFIs) to handle government-approved securities in the secondary bond market. Under the guidelines, the PDs will subscribe and underwrite primary issues and make secondary trading deals with two-way price quotations. A PD will not short-sell any particular issue and will not hold a short position in secondary dealings. The PDs will not act as inter-bank or inter-dealer brokers as specified in the guideline.
http://www.thefinancialexpressbd.info/search_index.php?page=detail_news&news_id=41282

Banking
banks' 35% Private banks' credit grows 35% in one year
The Daily Star, Tuesday July 29, 2008

Private commercial banks (PCBs) witnessed 35% credit growth between June 2007 and June 2008. However, the 23% growth in their deposit base shows a clear disparity between credit and deposits. According to a Central Bank report this was driven by increased credit provided to retail consumers. The sector’s credit reached BDT 1,908.40bn (USD 27.87bn) up to 26 June 2008, a 20% increase from BDT 1,596.80bn (USD 23.32bn) on 28 June 2007.
Top 5 PCBs in terms of credit growth in % Figures in June 26, June 28, Growth USD mn 2008 2007 in % BRAC Bank Standard Bank Shahjalal Bank Trust Bank UCBL 657.9 319.7 376.5 329.9 598.0 341.0 194.8 238.0 212.2 406.5 92.9% 64.1% 58.2% 55.5% 47.1%

BB permits 14 banks to open 100 SME centres
The Financial Express, Monday July 28, 2008

terms Top 5 PCBs in terms of absolute credit figure June 26, June 28, Growth 2008 2007 in % Islami Bank 2719.9 1995.3 36.3% Prime Bank 993.4 700.6 41.8% Pubali Bank 771.3 697.0 10.7% Southeast Bank 720.9 596.7 20.8% AB Bank 713.5 501.0 42.4%

The central bank has given permission to 14 commercial banks for opening around 100 SME service centres across the country by December 31, 2008 to improve financing for the country's small and medium enterprises (SMEs). The banks - 13 private commercial banks (PCBs) and a foreign commercial bank (FCB) will have to collect their licenses by November 30, 2008 to open such centres. The service centres will also facilitate disbursement of inward remittances to the recipients in the country's remote areas. Bangladesh Bank will cancel permission, if any bank fails to open the centres within the stipulated timeframe. Notabley, on 5 May 2008, the Bangladesh Bank (BB) had asked the banks to submit applications by June 15, 2008, seeking permission to set up SME service centres. The central bank also instructed the scheduled banks to follow the guidelines for establishing such centers, under which the banks will provide services only to SME clients through the centres.
http://www.thefinancialexpressbd.info/search_index.php?page=detail_news&news_id=40978

Figures in USD mn

Of the total credit, PCBs accounted for BDT 1,141.8bn (USD 16.7bn), state-owned banks accounted for BDT 481.36bn (USD 7.03bn), foreign commercial banks accounted for BDT 148.3bn (USD 2.17bn) and specialised banks accounted for BDT 137.0bn (USD 2bn). During the period, the overall growth of the banking sector was 20%. Some commentators believe such credit growth will exacorabate inflationary pressures, with the IMF suggesting tighter monetary policy. However earlier this month the Bangladesh Bank opted for an expansionary policy promoting private sector led growth.
http://www.thedailystar.net/story.php?nid=47923

Infrastructure & Energy
Two small rental power plants go into operation

The Financial Express, Sunday August 3, 2008
Two small rental power plants (RPP) have commenced commercial operation supplying about 90MW of electricity to the national grid. These are among six private sector plants approved by the government in early 2008 with a total generation capacity of 220 MW. Another RPP Shahajibazar 50 MW power unit is expected to go into commercial production by the third week of August 2008. Two other rental power projects, the Fenchuganj 50 MW unit and Bogra 20 MW unit is expected to launch operations in a month. http://www.thefinancialexpressbd.info/search_index.php?page=detail_news&news_id=4158 4

Primary dealer banks, NBFI facing liquidity shortfall
The Financial Express, Thursday July 31, 2008

Primary dealer (PD) banks and a non-banking financial institution (NBFI) are facing liquidity problems as amended guidelines have squeezed support from the central bank. Under the amended guidelines, the PDs will be given liquidity support facilities against devolved treasury bills and bonds for a maximum period of one month from the date of issue of such securities. Additionally, three top performing PDs will be selected on the basis of their success ratios and turnover,

_______________________________________________________________________________________ AT Capital Weekly Update 13

03 August 2008
Petrobangla to contest Chevron's case with WB's arbitration

AT CAPITAL RESEARCH
http://www.thefinancialexpressbd.info/search_index.php?page=detail_news&news_id=4132 1 Petrol use fall by 50% following rise in prices

The Independent, Friday August 1, 2008
Petrobangla has decided to contest the case filed by Chevron with the International Centre for Settlement of Investment Dispute (ICSID), an autonomous arbitration institute of the World Bank, to settle a dispute over payment of a gas-business charge. The issue of a 4% payback on account of a wheeling charge is a long standing issue . Chevron claimed that the 4% wheeling charge is applicable only if it uses Petrobangla's pipeline to supply gas to other parties, but the company has been supplying gas from three gas fields only to Petrobangla. Chevron said the company sought ICSID arbitration in March 2006 only after the parties (Petrobangla and Chevron) were unable to amicably settle this longstanding dispute. If Petrobangla is defeated, it will have to repay about USD 40mn, the amount it has deducted as wheeling charge since 1999.
http://www.theindependent-bd.com/archive.details.php?nd=2008-0801&nid=92073

The independent, Thursday July 31, 2008
Following the recent 35% increase in petrol prices in July, sales in octane and petrol have fallen sharply to 4,000 MT and 7,000 MT respectively (from 8,000 MT and 15,000 MT in June). Recent price increases have accelerated consumers converting their vehicles to compressed natural gas (CNG). According to the Bangladesh Economic Review 2008, about 113,995 motor vehicles were converted to CNG, while 165 CNG re-fuelling stations and 108 CNG conversion plants were set up in 2007. Following the substantial fall in consumption, the BPC have estimated that demand for petroleum will fall by 200,000MT in 2008. In 2007, the BPC imported about 3.7mn MT of petroleum oil at a cost of nearly BDT 160bn (USD 2.3bn).
http://www.theindependent-bd.com/details.php?nid=91915

Country needs USD 8bn investment in energy sector: ICC-B ICC-

The Daily Star, Thursday July 31, 2008
According to the International Chamber of CommerceBangladesh (ICC-B), the country needs investment of USD 8bn in the energy sector by 2025, if it is to become a Middle Income Country (MIC). The chamber said the energy crisis is the most critical issue facing the country to achieve its goal by 2015. Quoting energy experts, the chamber said Bangladesh is facing three roadblocks for development: lack of a proper strategy to cope with the increasing demand for power, depleting natural gas reserves, and significant price rises in petrol and food.
http://www.thedailystar.net/story.php?nid=48238

136.07m USD 136.07mn plan to streamline rural power lines

The New Nation, Wednesday, July 30, 2008
Two projects to reduce system loss (from 15% to 2%) and improvement of existing distribution lines in Rajshahi and Khulna-Barisal, have been announced as a joint initiative by the Rural Electrification Board (REB) and the Japan International Bank for International Cooperation (JBIC). The REB is hoping to start implementation of the USD 136mn projects by December 2008.
http://nation.ittefaq.com/issues/2008/07/30/news0075.htm

68 industries in Chittagong to get gas

The independent, Tuesday, July 29, 2008
A 15-member high level gas and power committee decided to supply gas to the 68 industrial units in Chittagong at a total cost of BDT 35bn (USD 511.1mn) in phases during the next 6 to 9 months. According to Chittagong Chamber of Commerce and Industry (CCCI) more than 200 industrial units now await going into production. Of them 68 industrial units are fully ready to start production. But due to shortages of gas they are yet to commence operations. The total demand for gas in Chittagong is 330 mmcft while Bakhrabad Gas Systems Limited is only supplying 250 mmcft of gas daily met by the production at Sangu, Bakhrabad, Feni, Salda, and Meghna gas fields.
http://www.theindependent-bd.com/archive.details.php?nd=2008-0729&nid=91717

Draft renewable energy policy reviewed

The Financial Express, Friday August 1, 2008.
The power ministry, headed by power secretary Dr M Fouzul Kabir Khan, reviewed the draft Renewable Energy Policy and expedited its adoption to explore ways in which renewable energy sources may be developed. Infrastructure Development Company Ltd (IDCOL), the Local Government Engineering Department (LGED), Grameen Shakti, the Bangladesh Power Development Board (BPDB) and the Rural Electrification Board (REB) provided their comments on the draft policy during the meeting. An inter-ministerial meeting is expected to be held soon, before placing it to the council of advisers for final approval. The proposed renewable energy policy is likely to help the growth and expansion of renewable energy projects and explore opportunities for community based renewable energy options for different applications in off-grid areas of Bangladesh. Renewable energy contributes around 15 MW, less than 1% of total electricity generation. Chief Adviser Dr Fakhruddin Ahmed this month launched a national campaign to promote the use of renewable energy and urged all concerned for the efficient use of energy.

power Three small power plants to get funds under IPFF soon

The Financial Express, Tuesday July 29, 2008
Under the Investment Promotion and Financing Facility (IPFF) Project, the central bank is working to disburse funds to three power projects with capacity of 44MW through two private commercial banks and a financial institution. The World Bank has approved the USD 50mn IPFF Project for long-term financing of infrastructure projects under a PublicPrivate Partnership (PPP) framework.

_______________________________________________________________________________________ AT Capital Weekly Update 14

03 August 2008
http://www.thefinancialexpressbd.info/search_index.php?page=detail_news&news_id=41118

AT CAPITAL RESEARCH
Ministry selects lead donor agency for Padma Bridge today
The Financial Express, Thursday July 31, 2008

96bn Summit Power inks deal for BDT 3.96bn (USD 57.8mn) consortium loans

New Age, Monday July 28, 2008
Summit Power has signed an agreement with the Industrial and Infrastructure Development Finance Company (IIDFC) for BDT 3.96bn (USD 57.8mn) consortium loans to set up four power plants, with total investment cost of BDT 5bn (73mn) to generate 110MW electricity. Summit will provide BDT 1bn (USD 14.6mn) as equity. This is the largest consortium debt package ever. Three plants will produce 33MW each with the other producing 11MW. A power purchase agreement was signed whereby the Rural Electrification Board and the Bangladesh Power Development Board will buy the electricity produced at the four plants – this is the first time power will be purchased in Taka, rather than US dollars. It is anticipated that they will start supplying the national grid by June 2009.
http://www.newagebd.com/2008/jul/28/busi.html#5

The Communications Ministry is expected to award the debt mandate to interested financiers when it convenes on 31 July, for the construction of the Padma Multipurpose Bridge. The ADB is offering a USD 350mn package while the WB and Japan Bank of International Cooperation (JBIC) have each offered USD 300mn. The Islamic Development Bank has also tendered to finance the project. The government will bear one third of the project cost. The WB is offering cheaper financing costs, than the ADB and it had previously financed the Jamuna Bridge. However the ADB may have an edge, as it was involved in the preparation of the detailed design of the 6km Padma Bridge and will provide the largest package. The bridge to be built at the Mawa-Jinjira point of the river Padma is expected to cost USD 1.8bn. Construction is expected to commence in 2010. The 25-metre wide, fourlane Padma Bridge with provision of railway tracks is expected to take six years and forecast to boost GDP by 1.2 per cent. The bridge division will acquire around 918 hectares of land in Munshiganj, Madaripur and Shariatpur this year for around USD 50mn. According to a survey by the Japan International Cooperation Agency (JICA), nearly 30,000 people will lose their lands due to such land acquisitions.
http://www.thefinancialexpressbd.info/search_index.php?page=detail_news&news_id=41297

napthaGovt mulls setting up naptha-based power plants

The Independent, Sunday July 27, 2008
The government is planning to install some naphtha/furnace oil based rental power plants in the Chittagong region with public funding. Such methods have been used in the Khulna 110 and 90MW plants, and the Eastern Refinery produces 100,000 tonnes of Naptha per year.
http://www.theindependent-bd.com/archive.details.php?nd=2008-0727&nid=91432

Licenses of two private ICDs cancelled
The Daily Star, Tuesday July 29, 2008

TechnoTechno-feasibility study on deep seaport resumes
The Financial Express, Monday July 28, 2008

The techno-feasibility study on the proposed deep seaport in the Bay of Bengal resumed last month after a gap of nearly one year. "The country's potentials for becoming a booming business hub will remain elusive without the establishment of a giant seaport," commented a senior ministry official. A report published in an Indian financial daily said Bangladesh, which is located almost at the centre of South-East Asia, could act as a regional business hub for transporting goods to the north-eastern states of India and other neighboring countries, Myanmar, southern China, and landlocked countries like Nepal and Bhutan. Pacific Consultant International (PCI) have recommended suitable sites for the proposed giant port in its initial study and will submit reports, within the next year, on the design of the port, a project appraisal and an appropriate business model. The provisional estimate, suggests the project should be constructed in three phases, which will cost around BDT 420bn (USD 6bn).
http://www.thefinancialexpressbd.info/search_index.php?page=detail_news&news_id=41043

Chittagong Customs Authority has temporally cancelled the licenses of two private ICDs (inland container depots, Chittagong Container Transportation Company Limited and Iqbal Enterprise) for non compliance of licensing conditions. This follows a similar action against Messer’s Seafarers Limited. There are 13 private ICDs in the country.
http://thedailystar.net/story.php?nid=47930

CPA handles a record 1m containers last fiscal
The Financial Express, Wednesday July 30, 2008

Chittagong port set a record by handling a million containers in 2007-08 fiscal year following a substantial rise in international trade through containers. It handled a total of 1.027 million twenty-foot equivalent unit (TEUs) containers in 2007-08 fiscal against 913,704 TEUs in 2006-07 registering a growth of 12.48%. Of the total quantity handled during 2007-08, 517,510 TEUs were import containers and 510,235 export containers. In the previous year, it handled 458,542 TEUs and 455,162 export containers. The port handled a total of 32.023 million cargo including bulk items. Of them, import cargo was 25.34 million and export was approximately 6.7 million. The growth of the cargo handling was 5.71 per cent over the same period in 2006-07. The port handled a total of 30.2 million cargoes including bulk cargoes in 2006-07. There are currently 11 dedicated berths for container carrying feeder vessels, three at the Chittagong Container

_______________________________________________________________________________________ AT Capital Weekly Update 15

03 August 2008
Terminal, and six at the GCBs (general cargo berths) and two at the NCT.
http://www.thefinancialexpressbd.info/search_index.php?page=detail_news&news_id=41157

AT CAPITAL RESEARCH
Insurance Ordinance (IO) 2008, but expressed concerns regarding foreign investment in the sector and the increase in paid-up capital as per the new ordinances. Local insurance companies fear that the entry of foreign investment may force weak local firms out of business. Officials commented that local insurance companies should be protected for a certain period of time and consolidation may be appropriate for smaller firms. They added, foreign investment should be permitted in a controlled manner. India could be emulated in this regard where foreign participation was initially limited to 24% and eventually raised to 49%. Industry people believe that such arrangements could create an environment for healthy competition.
http://www.thedailystar.net/story.php?nid=48670

Insurance
Insurance industry hails new law
The Daily Star, Sunday July 27, 2008

In a move to modernize the insurance industry, the cabinet has approved two ordinances, the Insurance Regulatory Authority (IRA) Ordinance 2008 and the Insurance Ordinance (IO) 2008, both of which now await the President's approval. With the introduction of the IRA Ordinance 2008, the 70-year old, Department of Insurance and the Insurance Act 1938 will cease to exist. The new ordinances have been drafted in line with the international best practices, particularly with reference to the model of India's Insurance Regulatory and Development Authority, officials said. The insurance sector hopes that the new Insurance Ordinance provides a much needed regulatory framework, appropriate for the fast growing industry. A newly-formed Insurance Regulatory Authority will consist of a five-member team consisting of a chairman and four members for a three-year term. It is expected that the body will be headed by an official with at least the rank of Government Secretary. The main features of the ordinances include an increase in paid-up capital for both general and life insurance companies. The amount of paid-up capital for a general insurance company has been raised to BDT 400mn (USD 5.8mn) from BDT 150mn (USD 2.2mn), and to BDT 300mn (USD 4.4mn) from BDT 75mn (USD 1.1mn) for life insurance companies. A mandatory solvency margin for the companies will also be introduced. The insurance companies, particularly the general insurers, will be encouraged to operate brokerage houses. Besides, the insurers, both life and general, are required to follow international accounting practices, have separate products for Islamic insurance and conventional insurance, put a limit on commission expenses and reduce the number of directors in their respective boards. The new law will allow foreign investment in general insurance companies. With the promulgation of the ordinances, the industry will be under the jurisdiction of the Ministry of Finance, instead of the Ministry of Commerce, as it exists in other countries. There are 60 insurance companies in the private sector in Bangladesh, with 17 operating as life insurance companies and 43 as general insurance companies. According to industry sources, premium of both general and life insurance companies total BDT 3,2570mn (USD 475mn) annually. The industry has seen significant growth with about 10mn policyholders in life insurance and at least 5mn in general insurance. http://www.thedailystar.net/story.php?nid=48030 Foreign investments may drive small firms out
The Daily Star, Sunday August 3, 2008

IT
internet WiMAX could raise number of internet users in Bangladesh to 5m by 2012
The Financial Express, Tuesday July 29, 2008

Technology experts on Monday expressed their optimism that the number of internet subscribers in Bangladesh will reach up to five million by the year 2012 through the penetration of mobile WiMAX broadband. Talking to reporters at the first WiMAX Roadshow at a city hotel, experts said WiMAX would minimise the digital divide between rural and urban Bangladesh. Chinese telecom giant Huawei Technologies organised the roadshow as the Bangladesh Telecommunication Regulatory & Commission (BTRC) recently introduced licensing guidelines for Broadband Wireless Access in Bangladesh. Representatives of the BTRC and other government organisations, mobile companies, internet service providers, and vendor companies were present at the roadshow. There are currently an estimated 0.6mn fixed and over 5mn mobile internet subscribers.
http://www.thefinancialexpressbd.info/search_index.php?page=detail_news&news_id=41123

Real Estate
Existing laws can protect customers' interests: REHAB
The Daily Star, Sunday August 3, 2008 The Financial Express, Sunday August 3, 2008

Realtors urged the government to reappraise the new ordinance for the housing sector. “We feel that we do not need any kind of ordinance as the existing laws of the land are enough to regulate the real estate business”, said Tanveerul Haque Probal, president of the Real Estate and Housing Association of Bangladesh (REHAB). On Tuesday, the government approved in principle the ordinance titled "The Real Estate Management Ordinance 2008" which carries a provision for jail sentences or fines for developers violating agreements with buyers. Highlighting different loopholes of the new ordinance, Mr. Probal mentioned that the promulgation of such ordinances will destroy the sector which in turn will affect the national

Insurance industry officials welcomed the government’s initiative to modernize the sector through the approval of the Insurance Regulatory Authority (IRA) Ordinance 2008 and

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03 August 2008
economy. The real estate sector is a major employer and a major consumer of different raw materials like MS rod, steel, electricity and gas, he pointed out. He made an assurance that any dispute with regard to agreements with buyers of plots and flats might be resolved through negotiations. Realtors also warned they would stop construction work if the government promulgated the ordinance. "We will stop construction works of all underconstruction and new projects once the government approves the ordinance," said Ahmed Riad Momen, managing director of Momen Real Estate Limited who is also a senior leader of REHAB. Mr. Probal also mentioned that the major problem lies in the fact that some non-member companies of REHAB do not follow the rules of apartment sales, but ultimately REHAB has to bear the responsibility. He added that the government should identify such companies to take punitive measures against them. He suggested that the government can confer the certification power on REHAB like BGMEA, BKMEA and BTMA to make all deals flawless for protecting customers' rights.
http://thedailystar.net/story.php?nid=48671 http://www.thefinancialexpressbd.info/search_index.php?page=detail_news&news_id=41567

AT CAPITAL RESEARCH
http://www.thedailystar.net/story.php?nid=48383

Telecoms
Grameenphone submits IPO prospectus to SEC
The Daily Star, Wednesday July 30, 2008

Grameenphone, the country's largest mobile phone operator, submitted a draft prospectus of the largest-ever initial public offering (IPO) to the stock market regulator, the SEC, for raising USD 150mn from the public and another USD 150mn through private placements, mostly to international investors. GP has recently been valued at USD 3.2bn and the company wants to offer each share at BDT 18 (USD 0.26) including a premium of BDT 17 (USD 0.25). As of 2007, earning per share of GP was BDT 1.50 (USD 0.02). The money raised from the IPO will be used for GP's network development programme. Citigroup Global Markets Bangladesh Limited is the issue manager of the GP IPO. Norway's Telenor owns a 62 % stake in GP, with the remaining 38 % being held by Grameen Telecom, a concern of Grameen Group.
http://www.thedailystar.net/story.php?nid=48056

Developers review previous deals
The Daily Star, Friday August 1, 2008

Telephone Shilpa Sangstha revival plan in trouble
The Daily Star, Sunday July 27, 2008

Customers have alleged that developers are raising the prices of apartments altering previous agreements with their clients, despite the government's new law having provision to bring the violators of such deals to book. Developers claimed that an approximate 46% rise in the prices of construction materials in the last two years have forced them to increase flat prices to a level beyond the amount agreed. But customers have claimed that real estate companies are increasing the rate as high as BDT 1,500 (USD 22) per square feet. According to sources, during the last two years, the prices of MS rod increased by 90% and that of brick by 70%. Usually, MS rod accounts for 30% of the total cost of an apartment. Developers said that they are likely to rise further between BDT 300 (USD 4.40) - BDT 500 (USD 7.30) per square feet. SR Chowdhury, senior manager (Administration and Recovery) of Multiplan Limited, a real estate company claims that at the time of agreement, the rate was in the region of BDT 1,300 (USD 19) to BDT 2,000 (USD 29.20) per square feet, which is now in the region of BDT 3,000 (USD 43.80) – BDT 3,500 (USD 51.10). The customers are also disgruntled as the developers are not only increasing the prices of apartments which are under construction, but also of those which were constructed in 2006. M Mohsin Mia, who oversees customer services at REHAB, admitted that some developers are taking advantage of the situation and increasing selling prices of the apartments that were constructed before the prices of construction materials soared. However, he also added that during the last two years expenditure on per square feet of any apartment increased by BDT 600 (USD 8.75), while the market price of per square feet of apartment has increased by BDT 1,000 (USD 14.60).

The government's plan to breathe new life into the Telephone Shilpa Sangstha Limited (TSS) has suffered a setback as not a single company has so far showed interest in becoming a strategic partner of the lone state-run telephone equipment manufacturer. The company management said they are a bit surprised over the poor response, both from local and foreign buyers, as many companies initially expressed their interest after the publication of an advertisement 'Expression of Interest' in early May. The company is a supplier of land phone sets and analog system equipment to the government run land phone operator Bangladesh Telecommunications Company Limited (BTCL). According to TSS sources, UK based Orange Telecom, a Russian based company and some local conglomerates showed their interest and verbally made commitment to submit their bids. The company is believed to have assets worth over BDT 200mn (USD 2.92mn). The TSS Board is looking for a partner, which, it thinks, might revive the fortunes of the obsolete technology-based company that has incurred an accumulated loss of BDT 350mn (USD 5.11mn) since 1998. At present, the government holds 92 % shares in the company, while Nokia Siemens Network owns the rest. Before a strategic partner is found the Nokia Siemens will handover its stake to the government.
http://www.thedailystar.net/story.php?nid=47627

Guideline for sharing telecom infrastructure prepared
The Financial Express, Sunday August 3, 2008

The Bangladesh Telecommunication Regulatory Commission (BTRC) is preparing a guideline for the sharing of infrastructure among private stakeholders. The BTRC has

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03 August 2008
come up with the guideline to encourage the mobile service providers, internet service providers and other companies operating in the communications sector to share infrastructure in order to minimise cost and protect the environment. This new guideline may prove especially beneficial to mobile service providers in Bangladesh as all six companies are facing downward trends in their operating revenues due to intense competition. The only profitable company operating in the market now is Grameephone, itself under pressure due to a 33% reduction in net profits in 2007.
http://www.thefinancialexpressbd.info/search_index.php?page=detail_news&news_id=41581

AT CAPITAL RESEARCH

Tourism
firstParjatan Corporation to develop country’s first-ever cable car
The Daily Star, Sunday August 3, 2008

Bangladesh Parjatan Corporation (BPC) is to develop the country's first-ever cable car by the end of the year. The cable car will cover a distance of over a kilometer, over two hills slopes at Mirinza in Bandarban. According to Shafique Alam Mehdi, Chairman of BPC, the cable car will attract both domestic as well as foreign tourists. He also said that the cost of the project will be approximately BDT 50mn (USD 730,000). Kazi Wahidul Alam, Tourism analyst and Editor of travel magazine Bangladesh Monitor, is optimistic that the new concept will enable the number of tourists in the region to double.
http://www.thedailystar.net/story.php?nid=48668

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03 August 2008

AT CAPITAL RESEARCH
AT Capital Team – Dhaka

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

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

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

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