07 December 2008 AT CAPITAL RESEARCH

AT Capital Weekly Update

Key themes in this issue are:
Weekly News Update

Bangladesh:

• On December 6, The Federation of Bangladesh Chambers and Commerce and Industry,

the apex trade body in the country, with inputs from AT Capital, a number of leading CEOs,
senior economists, as well as FBCCI Directors themselves, published a report “ Maximizing
Growth: A Private Sector Vision”. In launching the report, the intention of FBCCI and all the
contributors was to lay out an Economic Roadmap for the next government that offered 37
policy recommendations across a broad range of issues.
• The report addresses the following key challenges: Factors that need to be addressed by
the government in order to achieve an inclusive growth of at least 8% include: Solving the
Power Crisis; Increased private sector investment and focus on greater FDI inflow; An
effective Brand Bangladesh Strategy; Skills development and improving vocational training
institutions; Improving access to finance; An effective Diaspora strategy; Creating a
dynamic SME sector; Increasing exports of high value agricultural products; Improving the
legal system; Focusing on environmentally sustainable growth; and Improving regional
infrastructure.
• The ADB has just published their latest Quarterly Economic Update. While their FY 2009
GDP projection of 5.5-6% suggested they were not as concerned about the downside risks
to growth as the World Bank at 4.8%
• We would be more pessimistic on Bangladesh’s growth prospects in 2009 given the
downwards risks to remittances and the likely pressures on non-RMG sectors such as
frozen food and jute. Even with RMG there is a risk significant margins squeeze from global
clothing retailers as the global economic outlook turns more grim.
• The Bangladesh Bank (BB) Policy Action Unit has just published a Report on improving the
effectiveness of capital markets in providing better access to finance and stimulating
investment (“Financing Long Term Investments in Bangladesh: Capital Market
Development Issues”, December 2008, Policy Paper 905).
• The supply of and demand for credit and liquidity is at the heart of financial intermediation.
In order to develop an alternative to intermediation driven primarily by banks, it is necessary
EDITORS to simultaneously make progress on a number of fronts. We provide an analysis of the key
Asian Tiger Capital Partners

components for the development of the capital markets.

• We also discuss the key ingredients for the development of both a properly functioning
Ifty Islam Government Bond Market and a Corporate Bond Market
Managing Partner
ifty.islam@at-capital.com

Syeed Khan US Non-

Non-Farm Payrolls collapses in November
November - Almost 2 million jobs lost in 2008 YTD
Partner
syeed.khan@at-capital.com

Jisha Sarwar
Senior Research Associate
jisha.sarwar@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
07 December 2008 AT CAPITAL RESEARCH
Contents Page

Bangladesh Overview 3

FBCCI publishes Vision Paper on an Economic Roadmap for the next Government 3
An Economic Roadmap to deliver 8% inclusive growth 3
Asian Development Bank’s Latest Quarterly Economic Update 5
ADB on Export Outlook and Global Financial Crisis 6
ADB on Remittances 6
ADB on Energy FDI 7
ADB on Import risks 7
ADB on Inflation Risks 7
Bangladesh Bank Outlines Action Plan on Capital Markets Development 7

Stock Market Weekly 11

Weekly Stock Market Commentary 12
Stock Market News 13

Economics 15
Economic News 16

Sector News 18
Agriculture/ Banking 18
Infrastructure & Energy 19
Insurance 21
Pharmaceuticals/Telecoms/Textiles 22
Tourism 23

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AT Capital Weekly Update 2
07 December 2008
Bangladesh Overview
FBCCI publishes Vision Paper on an Economic Roadmap for
the next Government
The upcoming National Elections and the return to an
elected democracy will be rightly welcomed both by civil
society within Bangladesh, as well the International
Community. There will be an expectation that we move
towards a more well-functioning political system and away
from the confrontational and frictional politics that has
characterized much of Bangladesh’s history. But there will
also be substantial economic expectations for the next
government to become an agent of economic reform that
can unlock Bangladesh’s economic potential.
On December 6, The Federation of Bangladesh Chambers
and Commerce and Industry, the apex trade body in the
country, with inputs from AT Capital, a number of leading
CEOs, senior economists, as well as FBCCI Directors
themselves, published a report “ Maximizing Growth: A
Private Sector Vision”. In launching the report, the intention
of FBCCI and all the contributors was to lay out an Economic
Roadmap for the next government that offered 37 policy
recommendations across a broad range of issues.
The FBCCI held a seminar on December 6 to launch the
paper that was attended by almost 100 business leaders,
politicians, multilateral agencies and embassies as well as
the press. What was relatively unique about the paper was
that it was a major attempt by the private sector itself to
constructively engage and offer policy recommendations to
the new government. However, the authors of the report at
the seminar were keen to emphasize that this was the
beginning of an interactive process between the political
parties, the civil service, the private sector, think tanks and
the donor agencies to collectively come up with a National
Vision document for Bangladesh that could put it on the path
to 8%+ inclusive growth.
We reproduce the Executive Summary to the Report below:
• A Case for Optimism: While Bangladesh has
grown at around 6% for the past 5 years, despite
all the challenges both from Mother Nature and
political volatility, we at the FBCCI believe that the
best years for the country are ahead of us.
Bangladesh has three key attractions for global
investors and multinationals: a large base of low-
cost labour, a large domestic market of 150mn
people, and nearly 3bn people in the Asian region
that it has market access to.
• Key Challenges: Factors that need to be addressed
by the government in order to achieve an inclusive
growth of at least 8% include: Solving the Power
Crisis; Increased private sector investment and
focus on greater FDI inflow; An effective Brand
Bangladesh Strategy; Skills development and
improving vocational training institutions; Improving
access to finance; An effective Diaspora strategy;
Creating a dynamic SME sector; Increasing exports
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Ifty Islam, Managing Partner
ifty.islam@at-capital.com
of high value agricultural products; Improving the
legal system; Focusing on environmentally
sustainable growth; and Improving regional
infrastructure.
• An Economic Vision: It is critical for Bangladesh to
develop a long term national vision 2020 with
detailed analysis and a practical roadmap for policy
development and implementation. The structural
changes in the economy and the global scenario
need to be anticipated while formulating a realistic
vision. Extensive dialogue should be undertaken
with civil society members, business chambers,
non-government organizations, and other
stakeholders.
An Economic Roadmap to deliver 8% inclusive growth:
• Energy: More Rental Power Plants (RPP) need to
be installed to overcome the short term power
crisis, and the government needs to closely
supervise the implementation of the plants to
ensure timely commencement of power
generation. The Coal Policy needs to be finalized
as early as possible. The government should
implement the merchant power policy immediately
- Merchant power plants can be installed in a
shorter period of time as there is no tendering
process. The government can set up some small
coal fired power plants and can import coal from
India on a temporary basis before developing our
own coal mines. A more efficient and faster
procurement and tendering process should be
adopted for quicker implementation of any project.
Reducing system loss in the power sector should
be a priority as a reduction of 1% system loss can
save around 45 MW of power. Lastly, all the old
and inefficient power plants should be replaced
immediately to ensure better utilization of primary
fuel and smooth operation.
• Transport Infrastructure Priorities: The government
may opt for public-private partnership (PPP) for the
construction of the USD 500mn Dhaka Elevated
Expressway (DEE) to ease Dhaka city’s severr
traffic problem. Construction of the Dhaka-
Chittagong highway should be accelerated. It
should be a priority to upgrade the existing
highways linking Dhaka, Chittagong, Sylhet,
Rajshahi, and other key points of the country into
four lanes. The government should move forward
with the Chittagong Deep Sea Port Project, as
Bangladesh has a better opportunity to set up the
port due to the upside down V shape of the Bay of
Bengal and being positioned at the apex.
• Increasing FDI and an Effective Brand Bangladesh
Strategy: The proposed reform program for the
Board of Investment (BOI) including the setting up
of a new “Investment Bangladesh” wing should be
accelerated. This new organization will be solely
tasked with attracting FDI by developing sector
research and direct marketing to prospective
3
07 December 2008
investors either on a country or company specific
basis. The rebranding of Bangladesh as an
attractive investment destination is critical. The
new Government should set up a Brand
Bangladesh taskforce with a core committee
composed of the heads of the BOI, EPB, the
Foreign Ministry, FBCCI and NRBs professional
groups from the Europe and the US.
• More Effective Export Promotion: A National
Export Development Commission should be
created with an active Secretariat. The proposed
commission will monitor, analyze and direct the
activities of the EPB, ministries related to export
promotion including commercial councils in other
countries and all other relevant departments. A key
goal of the EPB is to support the process of export
diversification. It also needs to work closely with
Ministry of Commerce and Foreign Ministry to
support greater trade within the SAARC region by
securing the effective implementation of SAFTA as
well as stronger bilateral balanced trade with India.
• Expand the NSDC Vocational Training Initiative:
The recently established National Skills
Development Council (NSDC) should be
strengthened with additional resources. The
roadmap developed by the Skills Development
Working Group of the BBBF should be implemented
by the new government. One example is the plan
for a Comprehensive Orientation Training for would-
be Migrant Workers & Special Government
migration support services for safe migration and
livelihood. Over the medium-term, a separate
Manpower and Vocational Training ministry should
be established.
• Reducing
Reducing Costs/Improving Access to Finance: It is
critical to reduce the cost of credit as bank interest
rates in Bangladesh and the loan-deposit rate
spread remains wide relative to some of our
regional competitors. There is also an over-
collateralization of loans due to insufficient
information available to bank credit officers. It is
important to make the central credit information
bureau available online and extended to all loans
above BDT 10,000, in order to help smaller firms
build up reputation-based credit. There should also
be greater pressure to develop longer-term debt
and lending instruments to allow companies to
match longer-term investment requirements. Finally
there should be a greater push to develop risk-
based access to capital through venture or private
equity funds.
• Improving the legal system and dispute resolution:
Although general law and order has improved in
recent years, the new government needs to reduce
spontaneous workers protests and violent
demonstrations. The government needs to develop
a fair, transparent and equitable arbitration court to
resolve disputes quickly and to the satisfaction of all
parties.
• Regional Integration: For South Asia the crucial
transport links to be developed should be along the
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alignment of Asia Highway (AH). The AH network is
a component of the Asian Land Transportation
Infrastructure (ALTID) project developed by ESCAP
(Economic and Social Commission for Asia and the
Pacific). The route criteria for the ALTID project
should include capital to capital links, connection to
the main industrial and agricultural centres as well
as growth zones, connection to major sea and river
ports and connection to major inland container
terminals arid depots. For Bangladesh, it is critical
to integrate with both India and China into the Asia
Highway (AH). In recent years China has upgraded
the old Burma road between Kunming and
Myanmar as part of its association with the AH. The
link between Kunming and the Bay of Bengal is
5,800 kilometers shorter than Yunan's link with the
nearest Chinese port at Shanghai or China's pacific
coast. The Jamuna Bridge in Bangladesh would
make it possible for the AH to provide uninterrupted
travel between Bangladesh and Calais routed
through India, Pakistan and then either into Central
Asia or through West Asia into Europe.
• Expenditure on Agriculture R&D should be
increased: In this regard, public-private partnerships
(PPPs) should be encouraged. The government
should work towards removing barriers to private
investment in R&D. A primary constraint to private
R&D investment is a weak investment climate.
Secondly, there is a lack of demand from
smallholders for improved technologies because of
risks, credit constraints, and poor access to
information. Added to these two are restrictions on
private sector imports of technologies and high
regulatory barriers to the release of new
technologies.
• Encourage de-
de-centralization/Greater regional
autonomy:
autonomy Some estimates suggest that Dhaka will
be a city of over 20mn by 2015. The strains on the
capital are already causing congestion, bottlenecks
and labour shortages. Supporting the growth of
several other regional centres for manufacturing
would yield both economic benefits as well as
supporting the drive for inclusive growth. The
problem of too much central control has led to
Bangladesh’s prosperity being Dhaka-centered.
Decontrol of power and authority from the central
government in Dhaka, and transfer of decision-
making powers to districts and upazillas has
become a national imperative.
• Expand EPS/SEZ Programme: The expansion of
the Export Processing Zones (EPZ) program as well
as the development of industry focused Special
Economic Zones (SEZ) in strategically important
sectors that offer export or trade–diversification
benefits should be actively pursued by the new
government. Economic zones are meant to boost
an investor’s competitiveness and reduce business
entry and operating costs. Export-oriented free
zones (EPZs) are intended to convey “free trade
status” to export manufacturers to enable them to
compete globally, may counterbalance the anti-
export bias of trade policies.
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07 December 2008
• Form a Financial Crisis Taskforce: Although the
global financial crisis has had a smaller impact on
Bangladesh than many other Emerging Markets, the
collapse in commodity prices and the increased risk
aversion of domestic banks has caused severe
liquidity problems among a number of corporate
borrowers. The Government should include private
sector representatives in the recently established
Financial Crisis Taskforce.
• Leveraging
Leveraging Diaspora: The Government needs to
set up a Diaspora taskforce that will incorporate a
Bangladesh-based secretariat and dedicated
secretariat and sub-committees in Europe, the US
and Middle East that will connect the various
Diaspora networks overseas, both professional
organizations in technology, finance, medicine,
pharmaceuticals, as well as broader community
networks to build a more comprehensive NRB
database. Policymakers need to develop a strategy
to attract more Diaspora to return home on either a
temporary or a permanent basis, potentially
through fiscal incentives such as lower import
taxes for personal effects for NRBs who bring
substantial capital as well as industry experience
back to Bangladesh. Additionally by offering
attractive salary packages and career prospects.
• Accelerate Privatization: State owned enterprises
include Bangladesh Chemical Industries
Corporation (BCIC), Bangladesh Sugar and Food
Industries Corporation (BSFIC), Bangladesh Steel
& Engineering Corporation (BSEC), and others.
Bangladesh Biman and Sonargaon Hotel, in
particular, need to be seriously considered for
privatization. For the proper and efficient
functioning of activities of industrial production in
commercial areas, be it jute, or textile, or chemical,
steel or food, this role should be performed by the
private sector. The Bangladesh bureaucracy in its
present state lacks sufficient capacity to run
industries.
• Re-
Re-enforce role of BBBF and RRC: Consider
regional/local level better business forums under
similar public-private partnership principles. Place
greater emphasis on effective implementation of
the 249 BBBF recommendations, of which 39 are
long term in nature. Consider expanding BBBF
with additional professionals and at the local
district/division levels, and forming industry-based
working groups. Assessment of the 202 laws
currently under review by RRC need to be
effectively expedited through the law ministry. The
SRO database and the e-registry work needs to be
completed. RRC proposals on land reform needs
to be effectively implemented. The process of
Regulatory Impact Assessment (RIA) needs to be
institutionalized within the RRC.
• SME: Lack of finance is one of the major
constraints – as commercial banks are inherently
skeptical of lending to SMEs due to the high risks
and monitoring costs associated with lending to
them. The government should compensate by
using grants, perhaps in coordination with donor
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agencies, as a major instrument for providing
financial support for a limited period of time to
selected SMEs which have good potential and
wide linkages. Banking Institutions should
immediately start solving the problem of delayed
payments to SMEs. A Network of Factoring
Services must be set up at home and abroad
operated through banks. To provide greater
support to SMEs in the middle of the global
financial turmoil each of the Commercial banks and
non-banking financial institutions (NBFIs) must
provide a mandated share of their respective
overall disbursed loans to SMEs without asking for
any collateral at a simple single digit rate of
interest.
• Comprehensive public administration reform is
needed: In the current structure, only 6% of almost
200,000 government employees (civil service) are
class I officers. This ratio needs to be rebalanced,
with a reduction in non-class 1 staff. In addition,
higher salaries, training, career development, and
tenured positions need to be ensured.
• Improve ADP implementation rate by capacity
building initiatives: The Ministries should have
professional units to monitor and evaluate the
status of project implementation on a regular basis.
In FY 2007-08, the ADP implementation rate was
82%. Improve the speed and efficiency of the
Economic Relations Division (ERD) under the
Planning Ministry to efficiently manage donor
funding as part of the Annual Development
Programme (ADP). Given the recent
announcement of the Finance Adviser that World
Bank funding for development projects under IDA
credit is uncertain beyond 2008 as a result of a
lack of completed project proposals indicates the
inadequacies of the Planning Ministry and the
urgency with which its capacity needs to be
enhanced.
The full report can be found at:
http://www.at-capital.com/images/at/fbcci_vision.pdf
The summary presentation can be found at
http://www.at-capital.com/images/at/fbcci_presentation.pdf
In the spirit of the collaborative nature of the project, the
authors of the report would welcome feedback.
Asian Development Bank’s Latest Quarterly Economic
Update
The ADB has just published their latest Quarterly Economic
Update. While their FY 2009 GDP projection of 5.5-6%
suggested they were not as concerned about the downside
risks to growth as the World Bank at 4.8%, they still
highlighted the uncertainties in assessing how protracted and
deep the global recession was likely. Below we summarize
some of the highlights from their report and offer comments.
5
07 December 2008
ADB on Growth
Growth Outlook:
“Bangladesh's growth performance has been remarkably
resilient despite multiple natural disasters and some erosion
in business confidence. Real GDP growth in FY2008
remained strong at 6.2%, supported by a strong pickup in
domestic economic activity in the second half of FY2008 and
rapid growth in garment exports and remittance inflows.
Before the onset of the global financial crisis, a 6.5% growth
target for FY2009 appeared reasonable. But as the financial
crisis in the advanced economies unfolds and recession sets
in, the FY2009 growth projections for Bangladesh will likely
need to be adjusted downward to between 5.5% and 6.0% ,
taking into account the likely effects on external and
domestic demand. Although exports and remittances are
unlikely to be hard hit at the beginning of the financial crisis,
they may slow somewhat.
The drop in consumer spending in importing countries,
because of income loss and looming economic uncertainties,
will have moderating effects on demand for textiles (76% of
Bangladesh’s exports), and more pronounced impacts on
high-end products such as frozen foods and leather
products, which together make up the bulk of Bangladesh’s
exports. Possible moderation in remittance flows will also
affect growth by reducing domestic consumption and
investment demand.
Maintaining high growth in the face of the global financial
crisis will be a challenge. To attain sustained higher
economic growth, Bangladesh needs to substantially
increase investment, which has followed a declining trend
(ratio of investment to GDP decreased from 24.5% in
FY2005 to 24.2% in FY2008) in recent years. To enhance
the economy’s productive capacity, public investment needs
to be increased by accelerating implementation of the annual
development program (ADP).
Continued rapid economic growth is also critical for
generating employment to absorb the country’s fast-growing
labor force and reduce poverty. According to a study of the
International Labor Organization, Bangladesh is 12th among
the top 20 countries in the world where unemployment is
rising. The number of unemployed in Bangladesh is
estimated at 30 million and the country needs to create an
estimated 7.3 million additional jobs in just 3 years,
beginning from FY2009, to absorb new entrants to the labor
force. Given the rate at which unemployment is growing, the
number of unemployed could reach 60 million by 2015, if
adequate job opportunities are not created. “
ATC Comment: We would be more pessimistic on
Bangladesh’s growth prospects in 2009 given the downwards
risks to remittances and the likely pressures on non-RMG
sectors such as frozen food and jute. Even with RMG there is
a risk significant margins squeeze from global clothing
retailers as the global economic outlook turns more grim. Our
central expectations are for GDP growth to be weaker than
the 6.2% forecast from BB and at risk of undershooting the
ADB’s estimates as well. The more than half million jobs
shed in the November US Labour data we discuss elsewhere
in this report underline the deepening recessionary forces in
the developed economies.
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ADB on Export Outlook and Global Financial Crisis:
“Exports from Bangladesh are potentially vulnerable to the
unfolding global financial crisis. Export earnings could slow
because of a fall in demand due to recession in advanced
countries or because of lower prices offered by competing
countries. The vulnerability is caused by the lack of
diversification both in terms of products and destinations, as
almost 76% of Bangladesh’s exports are concentrated on
textiles and over 90% of the textiles are destined for the
United States and European markets. However, while
demand for textiles to these destinations may slow, it is
unlikely to fall sharply in the short run.
Bangladesh’s exports mainly belong to the low end of the
market, as the country exports basic readymade garments
products, which could be categorized as necessities.
Demand could rise selectively, as people who customarily
buy higher-value items begin to shift to lower-value items. If
the financial crisis is not deep, readymade garment export
earnings might maintain healthy growth, with a fall in prices
being offset by growth in volume. If however the crisis is
prolonged, with major demand retrenchments because of
widespread job losses, then Bangladesh’s textile exports
would not remain insulated. Exports that are income elastic,
such as, frozen foods and leather products, are likely to be
affected even at the early stages of the crisis. Bangladesh
needs to diversify its export base and create new markets for
its products to make the economy more resilient to global
slowdowns.”
ADB on Remittances:
“Remittance inflows continue to exhibit robust growth in the
new fiscal year. Total remittance receipts
during July–October 2008 rose by 36.8% over the same
period of the preceding year. About 63% of the remittances
sent by out-of-country workers were from the Middle East,
and about 32% were from the United States and Europe. The
large majority of these workers are unskilled and involved in
low-end jobs, which are less likely to be seriously affected at
the beginning of an economic slowdown. Although
megaprojects requiring large investments will likely be
deferred even in the Middle East where oil revenues could
sustain spending, these countries are expected to continue
other construction and development activities in which
Bangladeshi workers could remain engaged. Again, if the
crisis is prolonged, sectors such as construction and retail
and services sectors where Bangladeshi unskilled and
semiskilled workers are employed will also become affected,
which would reduce the flow of remittances.”
ATC Comment: It is becoming increasingly evident that
remittance inflow from Middle Eastern countries is as likely to
be adversely affected. Bangladesh sent a record 832,000
people abroad in 2007, most of whom chose to go to oil-rich
Gulf countries after sky-rocketing crude prices led to a
construction boom in the Middle East. Spiraling oil prices -
six years of high oil prices - dramatically increased demand
for cheap labour in the Middle East, as construction and
infrastructural developments increased. However, oil prices,
that reached an all time high of USD 147 in mid July this
year, started declining due to the dwindling global demand
driven by the US recession – prices have fallen by more than
70% since June, to USD 42 a barrel at the beginning of last
week.
6
07 December 2008
Effects of the dramatic fall in oil prices have already seeped
into the Gulf’s booming real estate sector and construction
industry, which is expected to weigh heavily upon demand
for unskilled labour. In fiscal year 2008, 17% of remittances
came in from the US alone, the second highest after Saudi
Arabia. After the UAE in third, the UK is the fourth largest
remittance country for Bangladesh with just over 11%. It is
clear that discretionary spending in both the US and the UK
is collapsing with perhaps the largest vulnerability being in
the restaurant sector, a major source of remittances.
ADB on Energy FDI:
“Bangladesh has not been a major recipient of foreign direct
investment (FDI) or foreign portfolio
investment. Thus, the potential disruption of FDI inflows or
the outflows of portfolio investment is not a major concern.
However, expected FDI flows in the energy sector, which the
country urgently needs, are unlikely to materialize in the near
term as investors will be cautious about any large
investments. Postponement of energy sector FDI will be
seriously detrimental to growth prospects in view of the
prevailing acute power and gas shortages.”
ATC Comment: The government should adopt a more
efficient and faster procurement and tendering process for
quicker implementation of all projects. Though it is believed
that there is a negative correlation between a faster
tendering process and transparency, we think it is possible
to shorten the existing tendering process without hampering
transparency. This will be a key factor in encouraging
greater foreign FDI in the energy sector. Deutsche Bank
published a report in 2006 “450 billion good reasons to
invest in Indian infrastructure” suggesting $450bn needed
over 10 years. Given a GDP ratio between India and
Bangladesh of 12:1 this argues Bangladesh will need $38
bn of investment just in infrastructure or over $3bn per year.
A good amount of this needs to come in the form of FDI.
ADB on Import risks:
“Because of the fall in international oil and commodity prices,
the import bill is expected to be manageable in FY2009.
Import trade finance may however be affected, as liquidity
shortages may create difficulties for international negotiating
banks to support import activities. Declines in import values
(tax-base at the import stage) because of the fall in
commodity prices (if not offset by a rise in import volumes)
would also imply losses of revenue, which could in turn affect
essential public spending.
Bangladesh needs to accelerate trade liberalization and
expedite trade facilitation measures to enhance external
competitiveness. Despite trade liberalization during the past
two decades, the country still maintains a restrictive trade
policy and has one of the highest trade barriers in South
Asia. According to the recently published World Trade
Indicators 2008, a new database and ranking tool that allows
benchmarking and comparisons of 210 countries and
customs territories across multiple trade-related indicators,
Bangladesh ranked 113th and 107th in terms of trade policy
and institutional environment, respectively, out of 125
countries studied. Bangladesh was found to have very high
tariff and nontariff barriers compared with most countries.
Bangladesh's utilization of the Generalized System of
Preferences for exports to Europe and the United States was
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about 69% in 2007, which is indicative of weak institutional
capacity and slow supply response of the home country.”
ADB on Inflation Risks:
“In the coming months, inflation will depend on several
factors. Personal spending may rise during the forthcoming
national and upazila elections, creating upward price
pressures; but the sharp decline in international commodity
and intermediate goods prices should reduce domestic
prices. However, imports may also decline as importers
adopt a cautious approach in opening letters of credit, fearing
that they will sustain losses if domestic prices turn out to be
lower than import prices.
This may lead to supply shortages that could generate price
pressures. Supply shortages of imported raw materials and
intermediate goods in particular may result in chain effects in
terms of lower economic activity and higher prices. In
addition, if the taka comes under pressure leading to its
depreciation because of a strengthening dollar, it may again
generate inflationary pressures. However, international
prices are expected to soon stabilize at lower levels, which
will help reduce inflationary pressures.”
ATC Comment: We believe the current expectations for
inflation are too pessimistic. Deflation is the bigger risk in
developed and developing economies than merely a
moderation in inflation. It is not just energy prices that are
falling rapidly. Scrap steel prices declined 80% in the month
of October alone while all base metals prices, most notably
copper, have declined precipitously. Wholesale global food
prices in wheat and corn are falling rapidly as well. The
impact of sub-USD 50 oil will not translate directly into
substantially lower energy bills given the nature of state-
administered prices for petrol, diesel, CNG and electricity.
We believe the inflation prospects for Bangladesh will give
BB greater flexibility on monetary and exchange rate policy.
Bangladesh Bank Outlines Action Plan on Capital Markets
Development
The Bangladesh Bank (BB) Policy Action Unit has just
published a Report on improving the effectiveness of capital
markets in providing better access to finance and stimulating
investment (“Financing
Financing Long Term Investments in
Bangladesh:Capital Market Development Issues”, December
2008, Policy Paper 905).
BB noted that “In the presence of a bank-dominated financial
system where the dependence on bank loan is substantial,
Bangladesh's capital market is small and has a
heterogeneous composition compared with developed and
well functioning capital markets. As a result, the debt market
has played a minor role in investment financing in
Bangladesh even in recent years. In FY08, the amount of
industrial term loans disbursed by banks and NBFIs stood at
Tk 201.5 billion (of which the amount disbursed by NBFIs
was Tk. 23.9 billion) compared with only Tk. 6.9 billion by
new capital issues through private placements, public
1
offerings, and right offerings in the capital market. This
indicates the overwhelming preference of bank finance in
industrial investment financing.”
1
See, Bangladesh Bank Quarterly, various issues, Bangladesh Bank and
Monthly Review, Dhaka Stock Exchange.
7
07 December 2008
BB outlined the key prerequisites for a well functioning
financial market as follows:
“The development of a well functioning capital market
requires the adoption of a process approach, effective
implementation of which depends on a number of pre-
requisites. The experience of countries having vibrant capital
markets shows that, despite country level differences,
several features are important in creating a capital market
friendly environment:
• A relatively large and expanding private sector with
reliance on market provision of financing through
equity and debt instruments.
• Integrated financial market having deregulated
interest rates.
• Well developed government securities market
providing benchmark yield curve for pricing of
bonds.
• Quality outputs from credit rating agencies that
avoid mispricing of risks along with institutional and
legal frameworks to ensure that outputs do not get
contaminated.
• Efficient clearing and settlement systems and well
functioning depository system.
• Well articulated regulatory framework with laws to
provide regulatory oversight and investor protection
and ensure required disclosure, accounting
standards, and governance.
• Transparent and well conceived government policy
on bond market development.”
BB also outlined a number of structural weaknesses in the
capital markets including:
• “With strong growth in demand for securities, prices
of most securities are also growing making these
riskier than their expected return potentials.
• Physical facilities, infrastructure, and market
monitoring capacity (including supervision of
compliance provisions) are overstretched to support
the fast growth of the sector and new investors,
entering the market without basic knowledge on the
market, run the risk of making wrong investment
decisions. Inadequate supply of professional
analysts to bring out efficient investment insights.
• Slow growth of institutional investment (e.g. mutual
and pension funds, professional portfolio manager
fund) creating disproportionate dominance of retail
investors in the market fueling undue instability.
• Inadequate flow of mutual fund, securities with good
fundamentals, and corporate (and government)
bonds creating constraints in bringing depth,
liquidity, and strength in the market and leading to
overpricing of few securities and higher risks for the
investors.
• Shaky confidence of investors on private sector
debt securities due to weak regulatory regime. In
the past, a number of publicly traded debentures
issued by corporate houses failed to service interest
coupon and principal payment obligations in time.”
Perhaps their most important suggestions was in the area of
developing more contractual savings institutions which is a
key determinant of the evolution of a sizeable domestic
_______________________________________________________________________________________
AT Capital Weekly Update
AT CAPITAL RESEARCH
institutional investor base and the move of the stock market
away from being dominated by retail investors.
BB noted that: “For financing long term investments through
the capital market, it is necessary to initiate major reform in
the area of contractual savings institutions (CSIs), along with
the possibility of allowing the entry of private companies and
institutions. In this context, the development of private
pension funds should be supported through strengthening of
infrastructure and bringing greater transparency in the non-
government debt market. The CSIs can collect household
savings that could potentially be channeled into the long term
debt market. In most countries, CSIs have typically driven the
development of the long term private bond market, since it
has a big demand for long term assets with fixed returns. In
order to stimulate such development in Bangladesh, it would
be necessary to allow the CSIs to invest in a broad range of
private debt securities. For this, an important prerequisite
would be to effectively regulate the private placement
market. A well functioning ‘clearing house’ is another
prerequisite for minimizing risks for which ensuring
innovation and increasing the depth and liquidity in the
secondary market are also necessary. It may be prudent to
permit these institutions to invest in corporate debt based on
prudential criteria such that they are able to invest their
portfolios in securities having specified credit ratings. These
measures would increase the ability of the CSIs to purchase
private debt securities in the primary and secondary
markets.”
ATC Comment on Capital Markets Development:
The supply of and demand for credit and liquidity is at the
heart of financial intermediation. In order to develop an
alternative to intermediation driven primarily by banks, it is
necessary to simultaneously make progress on a number of
fronts:
• Free flow of capital and market-based interest
rates,legal frameworks, bankruptcy reform and
investor protection,corporate governance standards
to mitigate wasteful agency costs, and control
premiums to reduce the cost of corporate borrowing
• Prudent regulatory frameworks that promote self-
regulation, but establish enforcement of disclosure-
based rules
• Provision of stable and reliable government
benchmark yield curves even when governments
are running a surplus (the Australian and the US
experiences are illustrative of the benefits of this
policy).
• Developing transparent and efficient primary and
secondary markets (the recent initiative by the
Securities and Exchange Commission (SEC) in the
United States to create TRACE (Trade Reporting
and Compliance Engine) is worth studying in this
connection.
• Broadening the investor base through the creation
of bond funds
• Open access to currency and credit markets
• Provision of market mechanisms for credit risk
transfer, such as credit default swaps and
collateralised debt obligations.
8
07 December 2008
Too much reliance on bank loans or direct bond finance,
exposes a firm to excessive risk of bankruptcy in the event of
default. Hence, developed economies firms have come to
rely on a portfolio of external finance that usually includes
substantial equity, as well as bond and bank loan finance.
Equity finance gives a firm financial flexibility in the choice of
the payment of dividends - flexibility that a firm can utilise to
avoid default on bank loans or bonds. Outside equity,
however, involves a cost of its own: too much of it blunts the
incentive of managers to run a firm efficiently because
external ownership allows managers to retain only a fraction
of every dollar of value they create for the firm above
revenue needed to pay off fixed obligations, which include
debt and fixed salaries. Therefore, equity, bank loans and
bonds generally coexist in the capital structure of modern
corporate borrowers.
If Bangladesh is to develop an effective capital market,
where valuations are driven by economic and corporate
fundamentals, it is important for the regulators to ensure that
companies report genuine financials and on a timely and
systematic basis. Any lack of transparency or honest
accounts will undermine both investor confidence and the
effective functioning of the market.
As there is greater fundamental research in the marketplace,
Bangladesh also needs to develop a framework to avoid
analyst conflicts of interest. As we have argued a number of
times in previous ATC Weeklies, avoiding fundamental
analysis is a recipe for a speculative capital market that is
news-driven and an inefficient allocator of capital to the
corporate sector. But we recognize the need for effective
regulations to avoid market manipulation and insider trading.
We discussed the key issues in stockmarket regulation in the
August 25th issue of the AT Capital Weekly
ATC Comment on Key Ingredients for Bond Market
Development
Credit Rating Agency: Credit rating agencies reduce
information asymmetry in the financial market. Investor
sometimes cannot tell which bond is good and which bond is
bad. Equally, firms are also unable to let investors know that
their projects, which need funding, are good projects. Credit
rating agencies, like Standard & Poor or Moody in the United
States, can reduce such information asymmetry. Their job is
to stay neutral, examine the borrower’s financial statements,
and determine its creditworthiness. In other words, credit
risk determines a firm’s ability to pay back its debt. Bonds of
the best creditworthy firms get a score of AAA and the worst
ones receive a credit score of D. Typically, if you are
investing in a bond that is rated anything less than BBB, you
would demand a higher yield from investing in the bond.
This would come from two sources, a higher coupon and a
lower price today. A credit rating agency’s stamp is a critical
indicator of the safety of the bond.
Government Bond Market: The corporate bond market
thrives when there is already an established government
bond market. To nurture the government bond market, the
government can issue short and long-term bonds to fund its
economic development. These short and long-term bonds
are typically risk-free because they are issued by the
sovereign government in which we have complete faith in its
ability to repay its debt. To increase broader market
_______________________________________________________________________________________
AT Capital Weekly Update
AT CAPITAL RESEARCH
participation, the monetary authority can require banks to
hold required reserves in the form of short-term government
notes. Trading on these instruments fosters the growth of
the secondary bond market.
Secondary Market: Once bonds are issued and sold initially
through IPOs (the primary market), they are then traded on
the secondary market. A vibrant secondary market is
important for increasing transparency and liquidity of the
bond market.
Benchmark Yield Curve:
Curve: These government securities offer
something critical to the overall bond market – the yield curve
– or the benchmark yield curve. The yield curve is based on
the yield on these short and long-term bonds and is used to
value all other corporate bonds of similar maturities. To price
a corporate bond, you look at its credit score, and then add
an interest rate spread on top of the government bond yield
of similar maturity to arrive at the proper discount rate. Using
that discount rate, you can determine the present value of
the corporate bond. The interest rate spread is contingent
upon the credit rating of the bond. The riskier the bond, the
greater is the spread. This is typically known as the default
risk premium. Low quality firms usually issue high yield
bonds to compensate investors for potential default on the
bond.
Repo Market: A repurchase market is where brokers/dealers
borrow or lend short-term excess funds that are backed by
collaterals such as government securities (bills, notes, and
bonds) and shares. A repo is an agreement to sell a
security, buy it back at a later date, and pay interest on the
use of the funds for the duration. The availability of short-
term government securities is critical for allowing smooth
trading of excess cash, increasing the liquidity and depth of
the financial markets.
Regulatory Aspects: There are four most critical regulatory
aspects of a bond market. First, there should be laws to
detect and penalize illegal insider trading in the bond market.
Illegal insider trading occurs when officers of the issuing firm,
for example, those with fiduciary responsibilities towards
shareholders, conduct insider trading while in possession of
material private information. Sometimes, bond markets are
not closely monitored and as a result insiders conduct illegal
insider trading in the bond market. Second, the government
needs to consider making investor-friendly tax laws to
encourage investor participation in the bond market. In
particular, the government needs to design tax policies to
attract domestic as well as non-resident investors. One way
to achieve this would be eliminate withholding tax on interest
and capital gains. The third regulatory aspect of a bond
market development is to remove exchange controls so that
foreign investors can freely repatriate their income anywhere
in the world. The fourth piece of regulation needed for a
thriving bond market is one that removes restrictions on
foreign ownership of corporate and government bonds.
Information Availability:
Availability: The development of the bond market
relies heavily on how investors are able to collect information
on the bond issues and credit risk of the issuers. In the
United States, all listed firms are required to file online their
financial statements such as 10Q, 10K, etc. An investor can
access these statements free of cost. Similarly, bond
prospectuses should be filed online and book building in
IPOs can allow fairness in pricing and increased participation
9
07 December 2008 AT CAPITAL RESEARCH
by investors. With increased information, the bid-ask spread
also declines, lowering transaction costs.

Infrastructure: The bond market infrastructure includes

trading platforms, real-time data distribution, market makers,
financial analysts for valuing bond, determining the riskiness
of the bonds, timely clearing and settlements systems, and
government supervision of trading activities.

Having a bond market is the next logical step towards

developing a well functioning capital market. A local bond
market reduces foreign exchange risk, interest rates, and
refunding risk. It reduces the over reliance on bank loans,
increases the size of the financial sector, and improves
efficiency by promoting competition among issuers. From an
investor point of view, bonds and stocks are an integral part
of asset allocation to diversify portfolio risk. Pension funds
and life insurance firms, for example, can match their long-
term liabilities with long-term assets such as bonds.
Regarding supply of capital, institutional and retail investors
can inject much needed capital into the economy by
investing in bonds. The development of the government
bond sector allows the government to supply liquidity and
transparency in the economy. At the same time, these
government securities can become vital instruments for the
central bank to conduct prudent monetary policy, in much the
same way the Federal Reserve conducts open market
operations (OMO) in the United States. And finally, on a
macroeconomic setting, the existence of a bond market
allows a country to lessen the impact of external shocks like
1997 Asian currency crisis.

The government of Bangladesh can quickly promote a

vibrant bond market. First priority should be to establish a
government bond market by issuing short and long-term
government securities for funding development projects, like
the $5.4 billion strategic transportation program. Next, to
develop the corporate bond market, several important
building blocks are needed. The government needs to
develop the benchmark yield curve, streamline the issuance
process for corporate bonds, increase the pool of issuers and
investors, establish the secondary market to improve
liquidity, and finally introduce risk management instruments
such as derivatives instruments.

All these may sound like a tall order but it is doable.

Bangladesh does not need to reinvent the wheel. All it has to
do is to examine what our Asian neighbors have achieved in
a relatively short span of time. To put it bluntly, when it
comes to having a bond market, our Asian neighbors have
left us in the dust.

We discussed the development of the bond market in more

detail in the August 30 issue of the AT Capital Weekly

_______________________________________________________________________________________
AT Capital Weekly Update 10
07 December 2008 AT CAPITAL RESEARCH

Stock Market Weekly

DSE performance: 52 weeks
weeks Market news

• GP allocates private placement shares

• New IPO rule from January

• SEC chief sees bright time for stocks

• Merchant banks move to prop up market

• Central bank likely to rein in lending by private banks

DSE performance: 30 days Regional stock market performance (last week)

Market summary Valuation snapshot

DSE General Sector P/E

Index performance DSE 20
Index Jul-08 Aug-08 Sep-08 Oct-08
Banks 19.2 19.08 18.24 15.62
Opening of this week 2,459.5 2,100.9
Cement 11.2 10.96 10.34 10.32
Closing of this week 2,544.7 2,131.7
Ceramic 50.3 49.92 43.93 41.76
Change within a week (%) 3.5% 1.5%
Engineering 38.4 39.11 41.36 40.8
Change within a week (Point) 85.2 30.8
Food & Allied 19.3 17.85 19.44 17.09
Fuel & Power 16.1 17.81 20.2 19.14
This Last % 22.8
Capitalization and turnover Insurance 23.17 24.77 23.12
Week Week Change
Investment 33.5 45.08 55.48 28.93
Number of Trading Days 5 5
IT 20.3 41.44 45.64 47.89
Market Capitalization (USD bn) 14.11 13.79 2.30%
Jute 16.3 16.16 16.16 14.18
Total Turnover (USD mn) 134 164 -18.5%
Miscellaneous 25.2 25.46 33.95 32.2
Daily Avg. Turnover (USD mn) 27 33 -18.5%
Paper & Printing 7.9 8.36 8.08 9.97
Total Volume (mn) 68 74 -7.6%
Pharmaceuticals 25.6 23.97 28.45 30.25
Daily Avg. Volume (mn) 14 15 -7.6%
Service & Real Estate 20.5 20.57 22.87 23.55
Tannery 21.3 19.05 19.89 18.44
This Last Textiles 16.3 15.74 15.45 14.55
Weighted avg. P/E Ratio* Issues
Week Week
Source: Dhaka Stock Exchange
This Week 16.84 Advanced 188 18
Last Week 17.08 Declined 55 237
% Change -1.4% Unchanged 8 2
*Weighted on Market Cap. Not Traded 42 36

_______________________________________________________________________________________
AT Capital Weekly Update 11
07 December 2008
Weekly Stock Market Commentary
The market rose by 3.4% this week, following the sharp
declines of previous weeks. We wrote last week about the
key macro drivers that were likely to be causing a fall in the
market:
1. The World Bank sub 5% GDP downside growth
forecasts for fiscal 2008/09 effected investor
sentiment
2. Seasonal Fluctuations: The run up to Eid has
historically seen a sell off as investors raise cash for
festive spending
3. As the elections approach the market is braced for a
flight of capital out of the market
AT CAPITAL RESEARCH
current fundamentals in the market – over the last six months,
the telecoms industry has been seeing falling subscriber
growth and with pressure on ARPUs for the last 18 months.
Valuation is broadly comparable to the Indian mobile Telco
sector, with Bangladesh having similar penetration rates. The
articulation of a strategy for growth in both revenues and the
bottom line, through increasing value added service (‘VAS’)
revenues, further reduction in costs, switching to a dual
vendor model and the commencement of 3G services in
Q3/4 2009, are all encouraging strategies for investors to
expect value uplift in the future. The challenge will remain of
how GP executes this, in an aggressive and saturated sector
with competitors like Banglalink and Aktel also fighting, and
arguably more successfully in some areas, for market share.
The GP IPO is likely to take place by March 2009 – USD
65mn to be issued to the public via the book building method.

The SEC is expected to issue draft guidelines before year

end. This market value method has been expected to be
introduced all year. We believe that a market driven pricing
mechanism is essential if the Bangladesh market is ever to
achieve a healthy equilibrium between demand and supply,
and for more good quality companies to come to market.
Following the moves by the merchant banks this week, most
sectors were up by the end of the week.

On Monday the SEC met with the local merchant banks and
the Investment Corporation of Bangladesh (‘ICB’), to discuss
possible interventions to curtail the market decline. The SEC
urged the central bank to ease the strict margin lending
capacity of merchant banks that currently stands at five times
of paid up capital to increase liquidity in the markets. In an
attempt to prop up the market in the short term, the merchant
banks agreed to do the following after meeting with the
regulators:

1. To not sell any of their holdings before the Eid break

2. To avoid making margin calls with their clients,
hence reducing the likelihood of sell offs
3. To extend margin loans to their clients at maximum
approved ratios, to encourage buying

The trio of interventions has provided a temporary stimulus to The 3.4% increase in the DGEN this week has been driven in
the market prior to the Eid break, although one would expect large part by rises in large cap stocks in the key sectors
all them to be temporary in nature. One would not expect which collectively comprise 75% of total market cap:
such moves to be sustainable in the long run and provide
extended protection in the long run. As we discussed last
week one would expect the market to recover from the pre-
Eid downturn after the market opens after the festive break,
but any gains may be offset by the potential flight of capital
around the upcoming elections.

The Grameenphone (‘GP’) listing has finally got off the

ground with a successful Private Placing Offering (‘PPO’) of
USD60mn with local institutional investors - it was reported to
be oversubscribed by 3 times. This was after, the issue price
was reduced from BDT 17 per share previously in the year to • Banks were up 0.7% on the week – hardly regaining
BDT 7.4 (on average) – effectively a reduction from a from the 21.5% sector decline in the last 3 months.
proposed market cap of USD3.2bn to USD 1.4bn. The Dutch Bangla was up 6% Uttara Bank was up 6%,
private placing was priced at a 5% discount. We believe the while Islami Bank was down 12%.
pricing of the issue is a more appropriate pricing given the

_______________________________________________________________________________________
AT Capital Weekly Update 12
07 December 2008
• Pharmaceuticals gained 6.8% with the main risers
being ACI (up 26% representing 9% of sector
market cap), Beximco up 17% and Square up 1%
• Fuel and Power was up 5% - driven mostly by Titas
which was up 12% and Summit up 9%
AT CAPITAL RESEARCH
The SEC chairman said amendments and corrections in the
rules will be made to make the merchant banks function
more effectively. Initiatives are underway to improve
professionalism and efficiency in merchant banks as well as
awareness programmes for investors. He said most
investors are not aware of the fundamentals of companies.

• Cement up 4.6% - Lafarge up 3% http://www.thedailystar.net/story.php?nid=65773

The Bangladesh Stock Markets are closed for a week for the
Eid festive period. We will resume our coverage the week
after next.
Stock Market News
GP allocates private placement shares
The Financial Express, Thursday, December 4, 2008
The country's largest mobile phone operator Grameenphone
(GP) has allocated its shares at a price of BDT 7.40 each, in
its private placement offering (PPO) . GP plans to raise a
total of USD 125mn, of which USD 65mn will be raised
through an initial public offering (IPO) and the remaining
USD 60mn through a PPO. The shares were oversubscribed
three times under its private placement offering (PPO).
The shares have been allocated to Bangladesh-based
institutional investors with a proportion to Grameen Bank
borrowers and GP employees.
Merchant banks move to prop up market
The Daily Star, Monday, December 1, 2008
In a move to halt the stock market, merchant bankers
yesterday decided not to sell any shares from their own
portfolios ahead of Eid holidays. The bankers also decided
not to force any client or investor into "trigger sales" to adjust
margin loans and will provide margin loans up to the
maximum ratio.
The merchant banks will also discourage the investors from
taking the "netting facility" prior to the Eid holidays. Under the
financial adjustment or money netting facility, investors are
allowed to purchase shares of any category after completing
a sale of any share. Iftikhar-Uz-Zaman, CEO of ICB Capital
Management Limited, announced the decisions in a news
briefing after a meeting between the SEC and the merchant
banking wings of banks and non-banking financial
institutions.
http://www.thedailystar.net/story.php?nid=65655

The IPO is expected to be issued under a book-building

method, a modern price fixing mechanism for IPOs, next
year.

http://www.thefinancialexpress-
bd.info/search_index.php?page=detail_news&news_id=52541

New IPO rule from January

The Daily Star, Wednesday, December 3, 2008

In order to promote transparency in the initial public offering

process, the SEC has asked IPO applicants to provide their
national ID card information in their application forms from
January 2009. The new law is aimed to limit the number of
IPO applications per person, after it was found that
individuals were submitting multiple applications for IPOs.
Legally, an individual is allowed to submit two IPO
applications -- one with a single BO (beneficiary owner's) and
the other with a joint BO account.

http://www.thedailystar.net/story.php?nid=65893

SEC chief sees bright time for stocks

The Daily Star, Tuesday, December 2, 2008

The Chairman of the SEC, said he expected the country's

capital market will witness significant growth over the next
two years irrespective of the nature of the next elected
government. Faruq Ahmed Siddiqi, an SEC executive
director commented, that with future IPO’s and off-loading of
shares by the companies from the telecom and other sectors
on expectations that the next government will be market-
friendly, and the introduction of book-building, will definitely
contribute to expected growth and depth of the market.

_______________________________________________________________________________________
AT Capital Weekly Update 13
07 December 2008 AT CAPITAL RESEARCH
DGEN Performance YTD DGEN Performance LTM

Turnover leaders Best performers* Worst performers*

(All figures in mn) BDT USD % Change % Change
ACI Formulations Ltd 1064 15.5 BEXIMCO 32.5 Islami Bank -91.2
Beximco Pharma 770 11.2 ACI Formulations 28.9 Arbee Textiles -90.3
Titas Gas 624 9.1 ACI Ltd 25.7 Metro Spinning -23.3
Beximco Pharma 612 8.9 Renewick Jajneswar 20.5 Aftab Automobiles -20.1
Uttara Bank 587 8.5 Shinepukur Ceramics 19.7 Quashem Textiles -14.3
ACI Ltd 426 6.2 Bangladesh Online 17.7 Al_Amin Chemicals -11.1
Shinepukur Ceramics Ltd. 426 6.2 Beximco Pharma 16.9 DESCO -9.9
NBL 211 3.1 BEXTEX Ltd 16.9 Bengal Fine Ceramics -9.8
Grameen One: Scheme 2 196 2.8 Summit Alliance 15.0 National Polymar -9.5
Islami Bank 182 2.6 Dhaka Fisheries 14.4 BD Dyeing -9.1
Source: Dhaka Stock Exchange
*By closing price
Source: Dhaka Stock Exchange
Market cap. by sector*
Banks 49.8%
Fuel & Power 14.5%
Correlation with other indices*
Pharmaceuticals 10.4%
S&P NIKKEI KSE FTSE
Insurance 6.3% 500 Sensex 225 100 SSECI 100 HangSeng DSE
Cement 5.4% S&P500 1
Miscellaneous 3.4% Sensex 0.49 1
Engineering 2.6% NIKKEI225 0.40 0.50 1
Foods 2.3% KSE100 0.13 0.31 0.10 1
Textile 1.9% SSECI 0.28 0.41 0.22 0.04 1
Tannery 1.3% FTSE100 0.81 0.48 0.41 0.21 0.38 1
Service & Real Estate 1.3% Hangseng 0.65 0.58 0.46 0.09 0.50 0.73 1
IT 0.5% DSE 0.10 0.14 0.09 0.06 0.03 0.13 0.11 1
Ceramics 0.1% * Based on the last 80 months’ USD returns
Paper & Printing 0.1% Source: AT Capital Research

Jute 0.03%
Total 100%
*As of September 30, 2008

Research Team

Ifty Islam Syeed Khan

Managing Partner Partner
ifty.islam@at-capital.com syeed.khan@at-capital.com

Zia Shams Rashed Hasan

Senior Research Associate Research Associate
zia.shams@at-capital.com rashed.hasan@at-capital.com
_______________________________________________________________________________________
AT Capital Weekly Update 14
07 December 2008 AT CAPITAL RESEARCH
Economics

Selected macroeconomic indicators Market news

2-Dec-
Dec-07 30-
30-Nov-
Nov-08 2-Dec-
Dec-08
Forex reserves (USD mn) 5,128.61 5,245.40 5,384.31
• Uptick in remittance inflow
USD-BDT average rate 68.6100 68.8000 68.8556
Call money rate 6.83 8.00 8.85

• Inflation may rise on polls: ADB

P
Nov-
Nov-07 Nov-
Nov-08 2007
2007-08
Remittances (USD mn) 617.39 767.35 7,914.78
Annual percentage change 3.12 24.29 32.39 • Local investment plans up

P
Sep-
Sep-07 Sep-
Sep-08 2007-
2007-08
Imports (USD mn) 1,651.60 2,168.70 21,629.00 • Higher interest payment throwing economy into
Annual percentage change 29.54 31.31 26.07 'long-
'long-term loan-
loan-trap'

P
Sep-
Sep-07 Sep-
Sep-08 2007-
2007-08
Exports (USD mn) 1,044.29 1,477.60 14,110.80 • Commodity prices still high
Annual percentage change 9.92 41.49 15.87

P
Sep-
Sep-07 Sep-
Sep-08 2007-
2007-08
Current A/C Balance (USD mn) 20.00 46.00 672.00 Remittances
emittances in the last five months (USD mn)

R R
Oct-
Oct-07 Oct-
Oct-08 2007-
2007-08
Tax revenue (USD mn) 472.17 504.76 6,868.43
Annual percentage change 29.88 6.90 27.06

Source: Selected indicators by Bangladesh Bank, 03 December 2008

Bangladesh annual remittance figures

figures (USD bn)

Fiscal year
year Remittances
Remittances Growth

2000-2001 1.88 -
2001-2002 2.50 32.89%
2002-2003 3.06 22.42%
2003-2004 3.37 10.12%
2004-2005 3.85 14.13%
2005-2006 4.80 24.79%
S Adeeb Shams
2006-2007 6.00 24.91% Research Associate
2007-2008 7.91 31.95% adeeb.shams@at-capital.com
Source: Bangladesh Bank

_______________________________________________________________________________________
AT Capital Weekly Update 15
07 December 2008
Economic News
Uptick in remittance inflow
The Daily Star, Friday December 5, 2008
Remittance inflows recorded a 34% rise in the first five
months of the current fiscal year, which runs counter to the
World Bank's gloomy forecast about the money to be
remitted by Bangladeshi workers abroad. From July to
November, Bangladesh recorded USD 3.8bn in remittances,
up from USD 2.8bn in the corresponding period last year.
Remittance inflows increased to USD 767mn in November, a
rise from USD 648mn a month ago. The remittances in
November followed a usual upward curve, driven by the
rising inflow of money ahead of Eid-ul-Azha in December. In
October-November of the last fiscal year, the country
recorded USD 559mn and USD 617mn respectively,
according to Bangladesh Bank data.
Last year, official remittances stood at USD 7.9bn, a 32.4%
rise from the previous year.
http://www.thedailystar.net/story.php?nid=66165
Inflation may rise on polls: ADB
The Daily Star, Friday December 5, 2008
In its Quarterly Update to September 2008, The Asian
Development Bank (‘ADB’) has said inflationary pressures
may rise with personal spending rising during the
forthcoming national and upazila elections, driving upward
price pressures. The report however said inflation is likely to
remain within the previous projection of about 9% for the
2008-09 fiscal year, with an earlier surge in commodity prices
offset by a recent pullback.
The inflation rate grew 10.2% year-on-year in September
2008 from 10% in June, before easing back to 7.3% in
October because of a fall in food and other commodity
prices. The ADB also echoed The World Bank (‘WB’)
reduced GDP growth forecasts due to possible impacts from
the global financial crisis.
The ADB projected Bangladesh's GDP between 5.5% and
6% for this fiscal year. The WB said the GDP growth might
go as low as 4.8% -- a forecast that prompted criticism from
the Finance Advisor and the Bangladesh Bank Governor.
According to the quarterly report, the global financial crisis
may slow Bangladesh's economic growth rate for fiscal 2009,
although continued strength in its agriculture and industries
sectors will limit the downturn. According to the ADB
estimate, industry has performed relatively well so far this
fiscal year, supported by further growth in readymade
garment output, along with continued recovery in housing
and construction and improved business confidence. The
ADB has forecast the unfolding financial crisis will create a
modest slowdown in demand, slumping industrial growth in
the year to 6.7% against the projected 7.9%. In FY2008,
industrial output expanded by 6.9%.
http://www.thedailystar.net/story.php?nid=66442
_______________________________________________________________________________________
AT Capital Weekly Update
AT CAPITAL RESEARCH
Local investment plans up
The Daily Star, Tuesday December 2, 2008
Local entrepreneurs proposed over BDT 170bn (USD 2.5bn)
investment plans, largely in the RMG and textile related
sectors, to the government in the first ten months of the
current calendar year. The Board of Investment (BOI)
received 286 investment proposals worth BDT 19.7bn (USD
285.5mn) in 2007, 519 project proposals worth BDT 45.7bn
(USD 663mn) in 2006 and 1,277 projects worth BDT 109.6bn
(USD 1.6bn) in 2005.
BOI officials said they received 1,217 project proposals in the
first ten months of 2008, of which around 953 projects for
textiles and apparel based industries - 643 for textiles and
apparels, totaling BDT 29.9bn (USD 434.7mn), 177 for
chemicals, totaling BDT 15.9bn (USD 230.2mn) and 133
related service sectors totaling BDT 29.9bn (USD 434.7mn).
Most of the industrial units in the chemical and services
category relate to backward and forward linkages industries.
The remaining proposed 264 industrial units related to
largely to engineering, agro, packaging, food and glass
investments.
http://www.thedailystar.net/story.php?nid=65770
Higher interest payment throwing economy into 'long-
'long-term
loan--trap'
loan
The Financial Express, Thursday December 4, 2008
Interest payments are growing larger in the national budget
placing the economy in a long term loan trap and creating an
imbalance in overall fiscal management, said a government
study “Financing growth and Poverty Reduction Policy
Options and Challenges in Bangladesh" prepared by the
General Economics Division (GED) of the Ministry of
Planning . It said dependence on external sources has
gradually declined in the wake of falling foreign assistance,
which leads to higher domestic borrowing. Increased reliance
on domestic borrowing has the risk of increasing the rate of
inflation or crowding out the private sector from the credit
market. The study said the borrowing may create pressure
on liquidity and ultimately on interest rates on loans, which
would have a negative impact on investment, employment
and poverty reduction. The government borrows large
amounts of money, from both internal and external sources,
every year to finance its budget. It spends large amounts of
interest from its revenue earnings.
The GED study said that over the last two decades, the
revenue-GDP ratio has increased, but it is still very low even
by the standards of other developing countries. The share of
the revenue expenditure as a percentage of GDP increased
compared to the increase development expenditure. Recent
budgetary policies reflect government's attention to achieve
short term objectives rather than medium and long term gain.
By lowering the size of the ADP, there has been less focus
on infrastructure development which may negatively impact
investment curtailing growth and poverty reduction
objectives.
http://www.thefinancialexpress-
bd.info/search_index.php?page=detail_news&news_id=52533
16
07 December 2008 AT CAPITAL RESEARCH
Commodity prices still high
The Daily Star, Sunday December 7, 2008

The prices of essential commodities, fast moving consumer

goods and industrial products have not come down in local
markets although prices have plunged in global market in the
last four months. According to the latest price lists from the
National Board of Revenue crude edible oil, milk powder,
PVC resin, stearic acid amongst several other products'
prices dropped by over 50% in global markets in the last four
months. Data provided by Goldman Sachs shows that prices
of both palm and soybean oils reached USD 1,236 and USD
1,422 a tonne respectively in March in the US but slipped to
USD 405 and USD 620 in November.

However, local markets have not reflected the price declines.

Prices of milk powder remain high on the local market while
prices at bulk levels saw a steep fall on the world market.
Prices of all petrochemical byproducts dropped sharply on
global markets but the fall in prices have not been reflected
in the local market.

Prices of palm fatty acid, propylene copolymer and stearic

acid - all used in producing soap, shampoo and other
toiletries - fell by 60% in global markets in the last four
months, but both local and multinational companies are yet
to take any steps to lower prices.
Similarly, prices of PVC resin, used in making plastic and
packaging items, fell by 65% in the same period, while the
cost of packaging has yet to fall.

http://www.thedailystar.net/story.php?nid=66441

_______________________________________________________________________________________
AT Capital Weekly Update 17
 07 December 2008
Sector News
Agriculture
2
ernment moves to maintain buffer stock of urea for Boro
Governmen
Government
season
The Financial Express, Saturday, December 6, 2008
The government has taken steps to maintain a buffer stock of
urea fertilizer to ensure its uninterrupted supply to farmers
during the current Boro cultivation in an attempt to reach the
target of producing 1.8mn tonnes of rice this season.
Following previous shortfalls in supply, the government has
prepared a work plan to prevent a crisis in urea supply,
making more than 1.59mn tonnes of urea available during
the December-March period - the peak Boro crop season -
against the projected demand for nearly 1.50mn tonnes of
urea. The Ministry of Agriculture (MOA) reported that the
country's total demand for urea was estimated at 2.85mn
tonnes for the current fiscal year 2008-09. Of the total, about
1.69 mn tonnes of urea are expected to be produced locally
while the balance will be met through import.
According to MOA, some 0.475mn tonnes of urea will be
imported from the Karnaphuli Fertilizer Company Limited
(KAFCO) and another 0.5mn tonnes of urea will be procured
from external sources through tenders. The government has
also taken steps to procure 0.32mn tonnes of urea from
Qatar, the UAE and Saudi Arabia. Apart from the supply
arrangement, the authorities have taken necessary
measures to streamline the distribution of urea through
authorized dealers across the country to ensure the farmers'
easy access to the main agro-input and steps have been
taken to ensure the use of at least 10 tonnes of composite
fertilizers in every block during the current Boro cropping
season to help reduce the country's growing dependence on
imported fertilizers. The government will strictly monitor and
supervise the overall fertilizer distribution system through
both central and regional-level monitoring committees to
prevent a supply crisis.
http://www.thefinancialexpress-
bd.info/search_index.php?page=detail_news&news_id=52646
rhat3 potato growers face fertilizer crisis
Joypurhat
Joypu
The Financial Express, Thursday, December 4, 2008
As a major potato growing district, Joypurhat farmers are
facing issues with fertilizer scarcity and low prices. This year
potatoes will be cultivated in 37,000 hectares of land in the
district with a production target of 647,500 tonnes. Last
season, 646,400 tones potatoes were produced in 38,870
hectares of land. Some fertilizer types are not available at
market with complaints that the government is supplying
insufficient fertilizer. 50kg of SSP (Single super phosphate)
fertilizer ranges between BDT 4,000 (USD 58.3) to BDT
4,500 (USD 65.6) whereas last year it was BDT 1,800 (USD
26.2) to BDT 2,000 (USD 29.2). 50kg of MOP (muriate of
potash) sells for between BDT 3,000 (USD 43.7) to BDT
3,500 (USD 51.0), which was previously selling for between
BDT 1,000 (USD 14.6) and BDT 1,200 (USD 17.5), a year
ago.
2
A popular type of rice variety in Bangladesh
3
It is a district in Northern Bangladesh. It is a part of the Rajshahi Division.
_______________________________________________________________________________________
AT Capital Weekly Update
AT CAPITAL RESEARCH
http://www.thefinancialexpress-
bd.info/search_index.php?page=detail_news&news_id=52476
Proper biotech use can help overcome low crop yield
The Daily Star, Wednesday, December 3, 2008
According to agro-experts, the appropriate use of
biotechnology can help overcome low crop yields, land
shortages, insect infestation and climate change challenges
faced by the country’s agriculture sector. Experts urged fr the
immediate implementation of the National Biotechnology
Policy and the advancement of the National Institute of
Biotechnology as a centre for excellence in biotechnology
research and training. They have identified bureaucratic red-
tape as the major obstacle to the development in
biotechnological research in Bangladesh. While global
genetically modified (GM) crop areas across the world
reached 282.4mn acres in 2007, Bangladesh is yet to start
any commercial farming of GM crop. The number of
countries planting biotech crops increased to 23 in
developing zones and 11 in developed zones over the period
2007-12.
http://www.thedailystar.net/story.php?nid=65905
Banking
Central bank likely to rein in lending by pri
priv
rivate banks
The Financial Express, Sunday, December 7, 2008
The central bank has prioritized the need for quality loans as
credit flows to the private sector went up by 26.55 per cent in
September compared to the same period in the previous
year.
"We want to ensure the quality as well as the quantity of
credit to the private sector," said the Chief Economist of
Bangladesh Bank (BB) Mustafa K Mujeri .
The statement came after, serious concerns were raised by
the International Monetary Fund (IMF) about the quality of
credit particularly those issued by private commercial banks.
"....there are serious concerns about credit quality, especially
among private banks, some of whom have been expanding
their loan portfolios at annual rates in excess of 50 per cent,"
the Washington-based multilateral funding agency said in its
a aide memoire that has been submitted to government.
Credit to the private sector rose by 26.55 per cent to BDT
418.66 billion in September last from 15.79 per cent to BDT
215.07 billion in the corresponding period in the previous
year, according to the central bank statistics.
Private credit growth in September continued to be high at 27
per cent with credit issued by the private commercial banks
increasing by 38 per cent, according to the IMF document.
"Greater flexibility in the interest rates on government
securities, in line with market conditions, will likely be needed
to support the BB's objective to reduce private sector growth
to 18 per cent by June 2009," the IMF recommended.
18
07 December 2008
The central bank officials, however, said the BB has already
targeted the credit flow to the private sector at 18-20 per cent
for fiscal 2008-09.
"We'll try to achieve the credit target by the end of June
next," said a BB official.
On the 19 October, the BB governor instructed bankers to
exercise caution in lending to non-productive sectors that
may create inflationary pressures.
The growth in credit for buying goods through credit cards
rose significantly by 121 per cent in June from the
corresponding period in the previous year while credit for
purchasing consumer goods increased by 93.30 per cent.
During the period, marriage loans went up by 60.73 per cent
compared with that in the same period in the previous year
while flat purchase loans increased by 44.12 per cent, the BB
data showed.
http://www.thefinancialexpress-
bd.info/search_index.php?page=detail_news&news_id=52827
Govt, WB differ over Rupali corporatisation process
The Financial Express, Saturday, December 6, 2008
The government and the World Bank are locked in a
disagreement over the appointment of the prospective CEO
of Rupali Bank as the global lender pushes for the
corporatization of the ailing commercial bank, said finance
officials.
The Washington-based lender this month asked the
country's interim administration to pursue the corporatization
of Rupali, majority controlled by the government, after a
major privatization debacle in the country's history.
"We don't agree with the World Bank's views. As the largest
shareholder, the government must have authority of the
appointment of the top executive at Rupali," an official said.
"The bank (Rupali) did not communicate with such a decision
with us (finance ministry). And it can't take this major
decision without consultation with the ministry. There are
many technical issues to be dealt with before we agree on
the World Bank's fresh suggestion," the official said.
Rupali's financial condition and operational efficiency have
deteriorated since 2005 when the bank was put up for sale.
The bank has significant non-performing loans and
unsecured assets.
The official noted that Rupali Bank, in its joint annual general
meeting and extra-ordinary general meeting held in late
October, decided to adopt the same memorandum as those
adopted by the other three state-owned banking corporations
-Sonali, Janata and Agrani.
A source at the World Bank said his agency was opposed to
the idea of unilateral recruitment of the CEO by the
government, given the fact it would undermine the basic
objective of corporatization and allow the Finance Ministry to
interfere in the bank's day-to-day affairs.
"In case of corporatization, the bank's board should enjoy
greater freedom and operational autonomy.
_______________________________________________________________________________________
AT Capital Weekly Update
AT CAPITAL RESEARCH
Otherwise, the main objective of turning the bank into a
corporation will be derailed," the source added.
After concluding a week-long mission, the WB team led by
Kiatchai Sophastienphong appeared satisfied with the post-
corporatization condition of state-owned Sonali and Janata.
However a source from the WB team said they were
dissatisfied with performance at Agrani Bank.
The "bitter relations" between Chairman and the CEO of
Agrani have stood in the way of turning round the bank, the
source said, keeping the third largest state-owned lender
from harnessing the full benefits of corporatization.
The largely state-owned Rupali was put on sale under the
WB funded enterprise Growth and Bank Modernisation
(EGBM) project almost four years ago.
The government, had to suspend the bank divestment
process early this year as the Saudi Prince, the potential
buyer, backed out of the deal.
The finance ministry officials said they have to scrutinise the
technical aspects of the latest WB suggestion before taking
the next course of action.
The $250 million worth EGBM project came into effect in July
2004. About 58 per cent of the funds of the four-year project
were unutilised until 2007-08, forcing an extension for a
further two years.
In July 2007, the caretaker government turned three once-
nationalised banks into public companies as part of the
broader reform in the public sector. Under the agreement
with the World Bank, Sonali Bank, Janata Bank and Agrani
Bank have set a target to reduce their bad debts by
December 2009. The WB also asked the banks' boards to
accelerate the process of voluntary retirement scheme in an
attempt to reduced 15,000 or one-third of their total
workforce.
http://www.thefinancialexpress-
bd.info/search_index.php?page=detail_news&news_id=52647
Infrastructure & Energy
Petrobangla's fresh move to raise gas price
The Financial Express, December 07, 2008
Petrobangla will seek to raise the gas price again, in a fresh
bid to the Bangladesh Energy Regulatory Commission
(BERC).
The country's energy sector watchdog last week turned down
the request of raising the gas price by 65% saying it was
already making a profit of BDT 2 per unit of gas. It, however,
said a 10-15% rise might be considered to create a special
fund for enhancement of gas exploration and production.
Petrobangla Chairman Jalal Ahmed said they had started
working on justifying the gas price rise complying with BERC
conditions.
http://www.thefinancialexpress-
bd.info/search_index.php?page=detail_news&news_id=52835
19
07 December 2008
Govt approves renewable energy policy
The Financial Express, December 04, 2008
The government has approved the Renewable Energy Policy
to attract private sector investment. The Council of Advisers
approved the policy that targets exploring renewable energy
resources to meet 5 per cent of the total national electricity
demand by 2015 and ten per cent by 2020.
As per the new policy, renewable energy projects have been
exempted from corporate income tax for a period of 15 years
and will be eligible for fiscal incentives. The policy proposes,
that electricity to be generated from renewable energy
sources such as solar, wind, bio-gas and hydro, will be
purchased by public power entities through mutual
agreement.
The renewable energy producers may use existing electricity
transmission and distribution systems, if there is adequate
capacity, to supply electricity to customers through mutual
agreements between the project sponsors and the owners of
transmission or distribution facilities. The sponsors will be
required to pay a wheeling charge to the owners of
transmission or distribution facilities, with the wheeling
charges to be determined by the Bangladesh Energy
Regulatory Commission (BERC) in consultation with the
government.
The BERC will approve the energy tariff as per the provision
of the BERC Act 2003 if the capacity of renewable energy
project is 1.0 megawatt (MW) or more. Electricity distributors
may offer "green energy" tariffs, which will provide
consumers an opportunity to co-finance through their
electricity bills for the development of new renewable energy
sources.
An independent institution – the Sustainable Energy
Development Agency (SEDA) - will be established under the,
as a focal point for sustainable energy development and
promotion. The SEDA Board will comprise representatives of
stakeholders, including the business community, academics,
NGOs, financial institutions and implementing agencies. The
government and SEDA, in consultation with the BERC will
create a regulatory framework to encourage generation of
electricity from renewable energy sources.
Renewable energy projects will be required to obtain power
generation licenses from the BERC if the capacity of the
projects are 5MW or more. A network of micro-credit support
systems will be established, especially in rural and remote
areas, to provide financial support for the purchase of
renewable energy equipment.
http://www.thefinancialexpress-
bd.info/search_index.php?page=detail_news&news_id=52552
Hearing on Petrobangla-
Petrobangla-Chevron dispute deferred
deferred by 5
months
The Financial Express, December 04, 2008
The hearing on the dispute between the state-owned
Petrobangla and the US-based oil company Chevron over
the four per cent wheeling charge has been deferred for five
months. The hearing was deferred on Chevron's request to
the arbitration court – the International Centre for Settlement
of Investment Dispute (ICSID) in the Hague.
_______________________________________________________________________________________
AT Capital Weekly Update
AT CAPITAL RESEARCH
After an initial hearing in August, (ICSID) had set December
1-5 for the hearing Bangladesh's statement on Chevron's
claim for a four per cent tariff payback on its hydrocarbon
business. Chevron has been claiming the payback by
Petrobangla.
The US company argued that the wheeling charge is
applicable only if it uses Petrobangla's pipeline to supply gas
to other parties. But it does not do so. Rather, Chevron has
been supplying gas from three gas fields only to Petrobangla
- Jalalabad, Moulvibazar and Bibiyana.
Refuting Chevron's claim Petrobangla contested that the
deduction is justified per the production sharing contract
(PSC). Initially, both the parties tried to resolve the issue
through negotiation, but finally they agreed to go for
international arbitration. Petrobangla officials, expect that
should they lose the case they will have to pay back c. USD
40mn, the amount it deducted as a wheeling charge.
http://www.thefinancialexpress-
bd.info/search_index.php?page=detail_news&news_id=52509
Govt to consider its last power bid
The Daily Star, December 03, 2008
The Cabinet Purchase Committee of the Caretaker
Government will consider approval of its last power scheme -
- the 50 megawatt Sikalbaha rental power project.
In its recommendation to the Cabinet Committee, the Power
Ministry has suggested awarding contracts for the three-year
rental scheme to a joint venture led by Royce Power
Engineering of Hong Kong with local companies Asian
Entech Power Corporation and Shasha Denims who have
proposed to set up the plant using cheap but environmentally
unfriendly Heavy Fuel Oil (HFO).
In October, Power Cell sought proposals for the 50 MW
Sikalbaha plant which is to be expanded to 100 MW in the
future. While rental power is costlier than conventionally
produced power, this project - to be implemented in six
months after signing of the contract - was deemed necessary
due to the severe power crisis in Chittagong.
The cell floated the tender seeking offers for both diesel and
HFO-based power plants although the price of diesel is much
higher than that of HFO. Three bidders chose HFO and three
chose diesel. Royce won the bid based on its pricing of
power.
http://thedailystar.net/story.php?nid=65936
Karnaphuli gas co to start operation
operation by month-
month-end
The Daily Star, December 03, 2008
The framing of an appropriate legal structure is at its final
stage to set up a separate gas distribution entity, the
'Karnaphuli Gas Distribution Company' to facilitate the
smooth distribution of gas in greater Chittagong and CHT
areas by the end of this month.
The government had published a gazette notification on 17
November for the restructuring of Bakharabad Gas Systems
Ltd (BGSL) with an aim to help the gas industry improve
service standards of different companies through
coordination under Petrobangla. The newly formed company
20
07 December 2008
would start providing gas connections for the gas-based
industrial units on a priority basis by the end of the month
and complete the connections by June next year.
http://thedailystar.net/story.php?nid=65943
Bakhrabad Gas posts BDT 5.9bn (USD 85.7mn) net profit
The Daily Star, December 02, 2008
Bakhrabad Gas Systems (BGSL) earned a net profit of BDT
5.9bn (USD 85.7mn) during the financial year 2007-08. The
company earned BDT 14.60bn (USD 21.21mn) from sales of
2,826.75 million cubic meter of gas and paid BDT 6.49bn
(USD 9.43mn) to the government exchequer.
The company has surpassed its target set for pipeline
construction and gas connections in FY 2007-08. BGSL
constructed a total of 227.38 km of network pipeline during
the year, which is 29.9 percent higher than targeted,
providing 38,514 gas connections against a target of 28,385.
The company has set a future target for constructing 150 km
of network pipeline and providing 25,000 new gas
connections in the next financial year. Keeping pace with the
present development trend, necessary actions have been
taken to facilitate gas supply to Karnaphuli, the Korean EPZ
at Chittagong and four small private sector power stations in
the BGSL franchise area.
Furthermore, necessary steps have been taken to supply gas
to the 150MW Shikalbaha Power Station and the 150 MW
Chandpur Power Plant of Bangladesh Power Development
Board. With the completion of these projects, the gas supply
in BGSL franchise area will be increased, and revenues are
also expected to simultaneously increase.
http://thedailystar.net/story.php?nid=65790
No gas price hike for now
The Daily Star, December 01, 2008
Bangladesh Energy Regulatory Commission (BERC) has
announced that gas price will not be increased for the time
being.
According to the BERC Chairman Mr. Golam Rahman, they
may consider increasing the price by 10 to 15 per cent if
Petrobangla met two conditions - firstly, a Gas Development
Fund should be formed by the state-run corporation, and
secondly, the fund should be used for future gas exploration
by Petrobangla or other local companies.
Petrobangla said it raised the gas price latest on July 1, 2005
and they need to increase the price for investment in the gas
sector. It said Petrobangla now gets 52 per cent of the price
of gas produced by the local companies and 48 per cent in
the case of international oil companies (IOCs).
They buy 1,000 cubic feet gas from the IOCs for about BDT
230 (USD 3.34) compared to the government-fixed selling
rate is BDT 92.84 (USD 1.35). Due to the difference, the
accumulated fund deficit stands at BDT 19.05bn (USD
27.67mn).
However, following the hearing with various stakeholders,
the BERC decided to increase the gas price by 10 to 15 per
_______________________________________________________________________________________
AT Capital Weekly Update
AT CAPITAL RESEARCH
cent conditionally. Also in an attempt to bring transparency in
the activities of Petrobangla, a number of orders were also
issued. Petrobangla will prepare a work plan to realise its
overdue bills. A target will be set to bring down the arrear
bills equivalent to two months' bills by fiscal year 2011.
Before making any appeal for increasing gas price
Petrobangla cannot have any overdue bill more than three
months old. The commission ordered that Petrobangla
prepare a report on the basis of an average gas price and it
would come into effect from July 1, 2009. The procedure of
preparing the report has to be informed to the commission by
May 1, 2009. Petrobangla has also been asked to prepare a
service quality programme for its subsidiary companies. This
programme includes discipline in providing connections,
necessary monitoring, addressing subscribers' complaints
and steps for maintaining proper gas pressure.
http://thedailystar.net/story.php?nid=65656
Insurance
Separate company
company for launching crop insurance suggested
The Financial Express, Sunday 30 November, 2008
The commerce ministry has suggested forming a separate
company under the public sector to introduce crop insurance.
Stating the introduction of crop insurance policy as highly
challenging, the ministry said in a 'position paper' that only a
dedicated and separate insurance company could
successfully introduce such policies by offering a portion of
the premium as subsidy. The paper was prepared following
an instruction from the Bangladesh Better Business Forum
(BBFF). BBFF, a public-private body formed to make
recommendations to the interim government, said millions of
the country's farmers remain vulnerable to frequent natural
calamities in the absence of crop insurance policy.
In 2007 alone, local farmers lost rice worth USD 600mn in
consecutive floods in July-September period and a cyclone
Sidr in November. The BBFF said crop insurance is essential
as the country's 48.1% workforce is still dependent on
agriculture sector that accounted for more than 20% of the
gross domestic product (GDP) in 2007-08. Referring to the
Indian state-owned Agricultural Insurance Company and its
role in running insurance policies among the farmers, the
paper said the Indian experience can be replicated in
Bangladesh. Last year the World Bank suggested that the
government explore the feasibility of introducing a
commercial index based on weather insurance. The
Washington-based multilateral agency said rural small
businesses and farmers are unable to play their due role in
growth and employment generation due to limited access to
rural finance.
Insurance sector experts said Bangladesh is among the few
countries in this region, which has tried to introduce crop
insurance in the past without any major breakthrough.
Sadharan Bima Corporation (SBC), the state-owned
insurance agency, was entrusted with the implementation of
a pilot project on crop insurance since 1979. The
implementation of a research-oriented government
supported project involving the private insurance sector was
abandoned in 1995.
http://www.thefinancialexpress-
bd.info/search_index.php?page=detail_news&news_id=52191
21
07 December 2008
Pharmaceuticals
Popular Pharmaceuticals
Pharmaceuticals signs deal with Panacea
Popular Pharmaceuticals has signed an agreement for
technology transfer, marketing and distribution of vaccines
with Panacea Biotec, a WHO accredited vaccine
manufacturing company. Panacea Biotec exports its vaccine
for EPI coverage in Bangladesh. Popular has already
invested to build a world-class vaccine manufacturing plant
in Tongi. Every year approximately 4mn children receive
vaccines through EPI for six common diseases with most of
the vaccines being imported. Local manufacturing of
vaccines can make the country self reliant in vaccine
production and ensure low cost EPI coverage.
http://www.thefinancialexpress-
bd.info/search_index.php?page=detail_news&news_id=52395
Telecoms
Telecoms
BTRC rolls out telecom network guidelines
The Daily Star, Monday December 1, 2008
NTTN Fees & Charges
Application Fee BDT 50,000(USD 729)
Licence Acquisition Fee BDT 30mn(USD 0.44mn)
Annual Licance Fee BDT 0.25mn(USD 3,645)
0% For First Year
1% for second & Third Year
Gross Revenue Sharing
2% For Fourth & Fifth Year
3% from sixth Year
Performance Bank Guarantee BDT 100mn(USD 1.45mn)
The Bangladesh Telecommunications Regulatory
Commission (‘BTRC’) has announced a set of guidelines for
a telecom network in an effort to minimise the waste of
national resources from developing individual networks.
According to the guidelines, private entrepreneurs -- both
local and local-foreign joint ventures -- can develop, build,
operate and maintain a National Telecommunications
Transitions Network (NTTN) to provide services for licensed
operators.
NTTN licensees will not be allowed to provide
telecommunication services directly to users. ANS (Access
Network Service) operators and licensed telecom operators
can use the NTTN resources to provide telecommunication
services for users. ANS operators include PSTN, cellular,
cable service providers and broadband service providers,
ISPs and others who provide telecom services directly to
users. According to the guidelines, NTTN licensees will have
to follow a rollout obligation to take the network up to sub-
district headquarters.
In line with the guidelines, foreign shareholding is limited to a
maximum of 60 percent. The foreign partner will have to
invest in foreign currency directly, equal to his percentage of
ownership. No loan from any Bangladeshi financial
institutions such as bank and leasing company can be raised
for the foreign part of the investment. For NRBs (non-
resident Bangladeshis), BTRC has approved a maximum of
70 percent of investment. The NRB investment must be
made directly in foreign currency and no bank loan can be
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AT Capital Weekly Update
AT CAPITAL RESEARCH
raised from any Bangladeshi scheduled bank or financial
institution for the investment. The licensed mobile phone
operators, broadband operators, shareholders of the mobile
phone companies, BWA Operators in Bangladesh will not be
eligible to apply for this licence.
http://www.thedailystar.net/story.php?nid=65657
Textiles
Demand for BD’s RMG up in Sweden
The Financial Express, Saturday, December 6, 2008
Demand for Bangladeshi garments in Sweden is growing
gradually as consumers in Europe now prefer cheaper
apparels with Bangladeshi products being cheaper than that
of other countries like China, according to officials of H&M.
The Swedish H&M (Hennes & Mauritz AB), Europe's second
largest buyer of Bangladeshi garments, imports apparel from
different countries including China, Mauritius and Turkey for
selling through more than 1,000 H&M retail shops in 34
countries across the globe. About 32% of Bangladeshi
exportable knit products are imported by company H&M.
Bangladesh has so far this year supplied some 120mn
pieces of knit products worth about USD 300mn and 50mn
pieces of woven worth about USD 250mn to the H&M. Due to
the financial meltdown, H&M looking to lower prices from
suppliers. The volume of orders to Bangladesh will not fall,
according to H&M officials. H&M pays USD 2.5 per unit to
the Bangladeshi knitwear products and USD 4.5 per unit for
the woven goods on average.
http://www.thefinancialexpress-
bd.info/search_index.php?page=detail_news&news_id=52662
Knit village seen essential for standing sector in good stead
The Financial Express, Thursday, December 4, 2008
Experts have urged that knit villages comprising knitwear
industries have to ensure environmental benefits through the
setting up of effluent treatment plants (ETPs). Manufacturers
should focus on high value-added products as the prices of
products abroad are declining fast, they added. Lauding the
Knit Village move by local entrepreneurs, the experts said
that such clusters of villages will allow the inclusion of ETP
facilities on the factory premises and also help address
compliance issues. The setting up of cluster villages of
knitwear products will help the local products graduate from
the existing low-end to high-end products, they added. This
type of zone might also address the income disparity
between the eastern and western regions of the country.
http://www.thefinancialexpress-
bd.info/search_index.php?page=detail_news&news_id=52482
Knitwear machinery trade feels pinch of global financial
meltdown
The Financial Express, Wednesday, December 3, 2008
The global financial meltdown along with the shortage of
energy supply is taking its toll on the sale and import of
knitwear machinery as the knitwear manufacturers are
holding off on larger investments due to higher interest costs.
The leading machinery suppliers have reported a significant
downtrend in sales over the past six months. The
manufacturers are now less confident in making large
investments like buying new industrial machinery due to the
22
07 December 2008 AT CAPITAL RESEARCH
reduced bank support they are receiving. With the recent
energy price hike and the prevailing energy shortage, the
proper operation and maintenance of the machinery and
equipment has become a tougher.

http://www.thefinancialexpress-
bd.info/search_index.php?page=detail_news&news_id=52386

RMG industry to grow despite

despite recession, says French
diplomat
The New Age, Wednesday, December 3, 2008

A senior French trade diplomat joined the optimists who

predict that due to its reliability and concentration on low-end
supplies, Bangladesh’s readymade garment industry will
grow during the economic recession in developed countries.
France, the fourth largest market of “made-in-Bangladesh”
garments, will also be importing more and more from
Bangladesh, he added. He also said that global importers
now consider Bangladeshi suppliers as very reliable,
especially for delivering large volumes of orders in time. He
however cautioned that if the global economic recession
prolongs and deepens, Bangladeshi exporters might be
affected in the long run. The diplomat also said that besides
readymade garment, Bangladesh has enormous global
market opportunities with some of its emerging industries,
like pharmaceuticals, shipbuilding, information technology-
enabled services and agro-processing industries. Many
French companies, including “Lafarge Cement” and “Total
Gas”, were operating their business satisfactorily in
Bangladesh, but new entrants has faced some difficulties. He
referred to a recent suspension of license of a French-owned
shipping line operator in Bangladesh.

http://www.newagebd.com/2008/dec/03/busi.html

Tourism

Chief Advisor brands Bangladesh

The Daily Star, Sunday December 7, 2008

Chief Advisor Dr. Fakhruddin Ahmed launched the first

country branding logo for Bangladesh. The logo includes a
rising sun above waves of seawater with the slogan
"Beautiful Bangladesh" beneath. Dr. Fakhruddin Ahmed
stated that country branding is important to attract more
tourists and foreign investments to the county.

Emphasising the need for country branding, the Chief

Advisor said the thousand-year heritage of the country, its
people, quality of its goods and services could be taken
under a single brand. The country branding represents not
one segment but all the sectors and the population as a
whole, said Fakhruddin.

The image of the country considerably lies on tourism

branding, and tourism itself could be developed by branding
and promotion, said Mahbub Jamil, the Chief Advisor's
special assistant for civil aviation and tourism.

http://www.thedailystar.net/story.php?nid=66444

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AT Capital Weekly Update 23
07 December 2008 AT CAPITAL RESEARCH

AT Capital Team – Dhaka

Ifty Islam Managing Partner (880-2)-8155144, ext. 132 ifty.islam@at-capital.com
Syeed Khan Partner (880-2)-8155144, ext. 109 syeed.khan@at-capital.com
Akther Ahmed Senior Advisor (880-2)-8155144, ext. 108 akther.ahmed@at-capital.com
Masud Khan Senior Advisor (880-2)-8155144, ext. 113 masud.khan@at-capital.com

Shahed Farhan Investment Manager (880-2)-8155144, ext. 121 shahed.farhan@at-capital.com

Ziaush Shams Senior Research Associate (880-2)-8155144, ext. 120 zia.shams@at-capital.com
Jisha Sarwar Senior Research Associate (880-2)-8155144, ext. 119 jisha.sarwar@at-capital.com
Syeda Tasnuva Akhter Research Associate (880-2)-8155144, ext. 127 syeda.tasnuva@at-capital.com
S Adeeb Shams Research Associate (880-2)-8155144, ext. 128 adeeb.shams@at-capital.com
A. M. A. Bari Nahid Research Associate (880-2)-8155144, ext. 130 nahid.bari@at-capital.com
Mohammad Emran Hasan Research Associate (880-2)-8155144, ext. 131 emran.hasan@at-capital.com
Ahmad Sajid Research Associate (880-2)-8155144, ext. 135 ahmad.sajid@at-capital.com
S.M. Rashedul Hasan Research Associate (880-2)-8155144, ext. 137 rashed.hasan@at-capital.com
Tami Zakaria Research Analyst (880-2)-8155144, ext. 125 tami.zakaria@at-capital.com
Abdullah-Al-Farooq Research Analyst (880-2)-8155144, ext. 133 abdullah.farooq@at-capital.com
M. Emrul Hasan Research Analyst (880-2)-8155144, ext. 138 emrul.hasan@at-capital.com
Md. Zahidur Rahman IT Analyst (880-2)-8155144, ext. 140 zahidur.rahman@at-capital.com
Sohana Alam Seraj Office Manager (880-2)-8155144, ext. 132 sohana.alamseraj@at-capital.com

AT Capital Team – North America/Asia

Zarif Munir Senior Advisor zarif.munir@at-capital.com
Professor Jahangir Sultan, Ph.D. Senior Advisor jahangir.sultan@at-capital.com
M. Nasim Ali Senior Advisor nasim.ali@at-capital.com
Iqbal Hussain Senior Advisor iqbal.hussain@doctors.org.uk
Robert Kraybill Senior Advisor robert.kraybill@at-capital.com

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

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AT Capital Weekly Update 24