10 August 2008 AT CAPITAL RESEARCH

AT Capital Weekly Update

Weekly News Update

Key themes in this issue are:

Bangladesh:

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

Global markets:
markets:

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

Special Focus on the Textiles

Textiles sector
Asian Tiger Capital Partners

EDITORS

Ifty Islam
Managing Partner
ifty.islam@at-capital.com

Syeed Khan
Partner
syeed.khan@at-capital.com

Professor Jahangir Sultan

Senior Advisor
jahangir.sultan@at-capital.com

Asian Tiger
Capital Partners

UTC Building, Level 16

8 Panthapath, Dhaka-1215
Bangladesh
Tel: 8155144, 8110345
Fax: 9118582
www.at-capital.com
10 August 2008 AT CAPITAL RESEARCH
Contents Page No.

Overview - Bangladesh 3
REITS, REHAB and Ras-Al-Khaimah – Some perspectives on the prospects for Bangladesh Real Estate
Finance 3
Is the Real Estate Sector Capital constrained? 3
More Bangladesh real estate investment needed? 3
Whither foreign real estate development? 3
Pakistan embraces overseas real estate investment 4
Lessons from India part One – Real Estate FDI regulations 4
Lessons from India Part Two – Private Equity Funds and REITS regulations 5
Perspectives on Real Estate Finance Trends in India 5
Private debt 5
Private equity 6
Public debt 6
Public equity 6
The explosion of satellite cities in India 6
Conclusions 7

Overview - Global Markets 8

US Equities Rally on further collapse in oil prices 8
Oil price declines may be offset by ongoing housing/credit crunch drag on global economy 8
Synergies of the unpleasant kind: recessions, credit crunches and housing busts 9

Special Focus: Textiles 10

Bangladesh’s Textile and Clothing Sector: Emerging from the shadows into the sunlight 10
Basics versus high value added apparel 10
Lead time: Getting the products to the customers as soon as possible 11
Backward Linkage 11

Stock Market Weekly 13

Weekly Stock Market Commentary 14
Stock Market News 14

Economics 16
Economic News 17

Sector News 18

Appendix 23

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10 August 2008 AT CAPITAL RESEARCH
Ifty Islam, Managing Partner
ifty.islam@at-capital.com

More Bangladesh real estate investment needed?

Overview – Bangladesh
REITS, REHAB and Ras- Ras-Al-
Al-Khaimah – Some perspectives
on the prospects for Bangladesh Real Estate Finance

In the midst of the global wreckage from the collapse of one

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

United Nations Forecast for

Bangladesh Population (000s)
Year Population
2005 153,281
2010 166,638
2015 180,114 Whither
Whither foreign real estate development?
2020 193,333 The catalyst for the latest debate on foreign real investment
2025 206,024 in Bangladesh was the news of a large Middle Eastern real
2030 217932 estate proposal that has apparently been sanctioned by the
2035 228,836 authorities. A report in the Aug 10 Daily Star suggested that
2040 238,600 the Ras Al Khaimah-based Rakeen Development Company
has already got approval from the Board of Investment (BoI)
2045 247,073 to establish two proposed townships in Dhaka's suburb
2050 254,084 areas, with up to 6,000 apartments.
Source: UNDP World population prospects the 2006 update

However, there appears to be significant resistance from

Is the Real Estate Sector Capital constrained?
Since the anti-corruption drive got into full swing post 1/11,
the DSE has benefited from capital re-allocation from real
estate to equities on the basis of lesser scrutiny on stock
investments relative to apartments. It seems likely that after
the elections, the property market is likely to recover at least
part of these capital flows at the expense of the DSE.
Nonetheless, the relatively modest scale of even the largest
property developers in Bangladesh relative to those in some
of our regional neighbours suggest that the real estate sector
is somewhat capital constrained. This is in terms of both the
cost of loans as well as the aggregate availability of financing
in the sector.
In the next section we discuss the merits of encouraging
greater overseas investment in real estate. We then discuss
domestic real estate fund development trends in
neighbouring countries in the form of Real Estate Investment
Trusts (REITs) and whether that is a policy the Bangladeshi
regulatory authorities should also be pursuing.
local developers. Real Estate and Housing Association of
Bangladesh (REHAB) President Tanveerul Haque Probal
stated that: “We have a lot of projects in the pipeline. Now we
need low-cost funds both from local and foreign sources to
keep the project cost under limit so that middle income group
of the country can afford the flats and plots offered by us.”
He went on to re-iterate that “The main problem of the sector
is not investment but availability of low-cost funds”.
It is unclear what the distinction between “investment” and
“access to low cost funds…from foreign sources” really means
in the context of the above REHAB statement. It seems
extremely unlikely that Bangladesh Bank will allow local real
estate developers to take foreign currency loans at lower
interest rates. So access to lower cost funds almost certainly
must be in the form of equity financing from real estate funds
and/or joint ventures with foreign real estate developers.
It might be argued that foreign developers like Rakeen, if
they entered the Bangladesh market, would be an additional
source of competition for limited plots of land with local real
estate developers. Perhaps they would also push up the cost

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AT Capital Weekly Update 3
 10 August 2008 AT CAPITAL RESEARCH
of labour and raw materials. But, presumably, some largest port operator, also owner of P&O, Nakheel,
proportion of materials costs, insofar as it was imported, is Istithmarand JebelAli Free Zone. Dubai World has
set by global and not local supply/demand conditions. announced plans to invest in massive projects worth USD
10bn in Pakistan.”
On the other hand, a sizeable increase in real estate foreign
funding would push up the aggregate value of the So rather than resistance, it is noteworthy that the Pakistani
Bangladesh real estate sector to the benefit of a large authorities are welcoming foreign real estate investors.
number of holders of real estate land banks. This would
include at least some members of REHAB. It is also typically
the case, as we highlight below in the case of India and
Pakistan, that foreign developers will rarely enter a new and
unknown foreign market without a local partner with the
necessary localized knowledge of regulations, market
dynamics and pricing. So many leading REHAB members
can benefit by forming strategic alliances with the larger
foreign real estate developers.

A good example of this was the Joint Venture (JV) between

Emaar, the leading real estate company from Dubai and
MGF, a large Indian real estate firm which was formed in
2005. Emaar-MGF planned to launch a USD 1.8bn IPO on
the Indian stock market in February 2008. Although, in the
event, the IPO was cancelled due to weak market conditions
in both equities and real estate, the fact that they were able
to develop so rapidly in the space of just over two years
underlines the opportunities for JVs.

Pakistan embraces overseas real estate investment

In Pakistan, Emaar has been similarly ambitious. In May

2006 Emaar announced three real estate developments in
the cities of Islamabad and Karachi in Pakistan. The projects,
with a total investment of AED 8.8bn (USD 2.4bn), will
include a series of planned communities that will set new
standards in commercial, residential and retail property
within Pakistan. All three projects are expected to be
completed in the next four to five years.
It is also worth highlighting a segment from a presentation
last year by Mr. Arif Elahi, the Director General of the
Pakistan Board of Investment, entitled “Investing in Real
1
Estate in Pakistan: The Next Big Growth Area” .
Lessons from India part one – Real Estate FDI regulations
One of the potential issues that has been raised is whether
the FDI in real estate should be treated the same as
industrial FDI. From the perspective of the central bank, as
the guardian of the country’s foreign exchange reserves, they
need to be comfortable with repatriation. Can investors
hypothetically invest USD 1bn in 2008 in real estate projects
and repatriate, say USD 1.5bn, in 2011 to reflect capital
gains. Is that not a net loss of FX reserves that the country
can ill afford?

But it was notable that Mr. Elahi actually listed specific pieces
of land available in Pakistan for foreign developers to invest
in. One excerpt worth highlighting states that:
“During the last couple of years various housing as well as
commercial projects were launched that included some
projects in collaboration with foreign technical partners. Al
GhurairGroup launched a residential apartment project in
Islamabad –Al GhurairGIGA. Due to immense public demand
most projects are equity based. Major developers and
contractors including HabibRafiq Group, BahriaTown (JV
with Al-Habtoorin one project) etc are contemplating
launching residential and commercial Projects. Emaar has
already announced USD 45bn real estate projects in
Pakistan for the next ten years; Dubai World & Government
of Pakistan has discussed Real Estate Investment in
Well we would argue that it depends on the impact of the real
estate development on the economic potential of the country.
If the real estate investment adds to the infrastructure and
productive capacity of the economy then the export potential
of Bangladesh might be enhanced. In addition, by allowing
free repatriation, the Bangladesh policy framework is likely to
encourage greater future real estate investment. That is, in
the above example, foreign investors might repatriate the
USD 1.5bn from the original investment but follow that up
with many further billions of dollars in real estate financing re-
inforced by their confidence of free repatriation as well as the
underlying attractiveness of the asset class in Bangladesh.
Nonetheless there are some lessons from India in terms of
their regulations on a more constrained or limited form of real
estate FDI policy on repatriation.

Industrial Infrastructure, Free Zones, Oil & Gas Projects, Specifically, the Indian government issued press note 2
Airports and Sea Ports. Dubai World is the world’s third (2005 series) on March 3, 2005 (Press Note) and permitted
100% foreign direct investment (FDI) under the automatic
1 route to develop townships, housing, built-up infrastructure
The full presentation can be seen at:
http://www.ipeconline.biz/presentations/day1/INVESTING%20IN%20REAL%20ESTATE%20PAKISTAN%20T
and construction-development projects, including, without
HE%20NEXT%20BIG%20GROWTH%20AREA%20By%20Mr%20Arif%20Elahi.pdf restriction, housing, commercial premises, hotels, resorts,
hospitals, educational institutions, recreational facilities, and
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AT Capital Weekly Update 4
 10 August 2008
city and regional level infrastructure. Under the Press Note, a
foreign investor must develop a minimum of 10 hectares for
serviced housing plots and 50,000 sq. meters for
construction-development projects.
Previously, under press note 3 (2002 series), foreign
investors could, after obtaining prior government approval,
develop integrated townships of a minimum 100 acres in size
or containing a minimum of 2000 dwelling units. Press note 3
(2002 series) significantly restricted the inflow of foreign
investment in the sector, and only nine FDI proposals were
approved between 2002 and 2005. This led the government
to open up the sector to 100% FDI and issue the Press Note.
However, there are some bottlenecks in the Press Note,
which may hamper investment in this sector:
1. The Press Note prohibits repatriation of the original
investment for a period of three years after capitalization.
However, the foreign investor may apply to the Foreign
Investment Promotion Board (FIPB) for a waiver of this
condition. Press note 3 (2002 series) also contained a similar
provision. Therefore, the position pertaining to exit remains
unchanged, and as no parameters have been defined, the
FIPB has significant discretion.
2. Real property laws in India vary widely from state to state.
Various proposals have been put forth to convert all the state
laws into a central law, so as to ensure easier
comprehension and uniformity. However, nothing concrete
has been done so far. As a result, foreign investors will have
to comply with different state laws and obtain state- and city-
specific approvals, depending on where the project is
undertaken. In addition, stamp duty levies (which can be very
high) need to be calculated state-wise.
3. The Press Note mandates that 50% of the project must be
developed within five years from the date all statutory
clearances are obtained. Such a requirement seems
unreasonable, especially if the project has a long gestation
period.
4. The Press Note also retains the condition of minimum
capitalization of USD 10mn for wholly owned subsidiaries
and USD 5mn for joint ventures with Indian partners.
However, these funds may be brought in within six months of
commencement of business. The minimum capitalization
requirements seem to be too high and may be an issue if the
cash requirement for a project is less.
Lessons from India Part Two – Private Equity Funds and
REITS regulations
The Securities & Exchange Board of India (SEBI) regulates
private equity investments in India. In 2004, SEBI amended
its regulations and permitted foreign private equity investors
to invest in the real estate sector, subject, however, to press
note 3 (2002 series) and other government regulations
(which now include the Press Note). Therefore, the net effect
is that a foreign private equity investor may register with the
SEBI and may invest in the real estate sector as per the
guidelines prescribed in the Press Note2.
2 3
The latest version of the rules from Indian SEBI
http://www.sebi.gov.in/commreport/RealEstateReg.pdf
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AT Capital Weekly Update
AT CAPITAL RESEARCH
Real Estate Investment Trusts (REITs) invest in real estate
much in the same way as mutual funds invest in securities.
To date, foreign REITs are not allowed to operate in India.
(We explain how REITs operate more fully in appendix 1),
this has significantly affected the inflow of foreign capital into
the Indian real estate market. Further, although, domestic
real estate funds are allowed to operate through the SEBI
(Venture Capital Investor) Regulations, 2000), most of them
(like the HDFC Property Fund set up by HDFC in association
with SBI) remain beyond the reach of the retail and small
investors, as the minimum investment limit is too high. For
example, the minimum investment requirement for the HDFC
Property Fund is INR 50mn.
One of the major impediments to organized growth in the real
estate sector is the absence of investors with deep pockets.
Save for exceptions such as DLF in the Delhi-Gurgaon belt
and Hiranandani in Mumbai, the sector is largely made up of
small-to-medium sized players who have neither the
resources nor the capacity, to assume the risks that come
with large projects. It is important, therefore, that easy
funding is made available to the sector and not too many
restrictions be placed on the inflow and outflow of foreign
capital. Thus, although 100% FDI is a step in the right
direction, a lot more needs to be done for the real estate
sector in India to attain maturity.
Perspectives on Real Estate Finance Trends in India
3
A 2006 Report from Deutsche Bank on the prospects for
Indian Real Estate Markets provides a useful summary on
the challenges for developing real estate finance in India.
Although the report is two years old, it provides valuable
lessons for the prospective development of Bangladesh’s
real estate market. The authors state that:
Private debt
Private debt is the most important source of financing real
estate in India. It accounts for more than 60% of all
institutional real estate investments. Strong demand for
commercial real estate lending in the last years was boosted
by falling interest rates, a vibrant real estate investment
market, and a rise in corporate outsourcing activity. In the
past four years, bank loans for commercial real estate have
increased by more than 500% to USD 2.4bn. This number is
poised to grow further in the next years, despite the RBI’s
desire to slow credit growth. Also because real estate loans
still play only a minor role on the banks’ balance sheets,
commercial real estate financing via bank loans is very likely
to continue its growth trend.
“Building up India” by Deutsche Bank Research
http://www.dbresearch.com/PROD/DBR_INTERNET_EN-PROD/PROD0000000000198335.pdf
5
10 August 2008
Private equity
Private investors play an important role in the Indian
investment market. At the end of 2005 the total Indian private
equity volume was roughly USD 1.6bn, accounting for 40%
of the Indian real estate capital market. This market is rapidly
growing. In 2005, private property companies and
individuals’ holdings of real estate grew by 40% year on year.
The Indian pension fund system is still poorly developed. Its
investment strategy can be characterised by a high degree of
risk aversion. Regulation mandates that at least 60% of asset
allocation is in government securities or other approved
securities. In the private equity category, it still counts as the
second largest investor group, but its exposure to the real
estate sector is still very small. Changes in the pension
funds’ asset allocation strategy will largely be driven by
congruent changes in regulation. In its absence, pension
funds are likely to keep their large positions in government
bonds and other approved securities. This holds for
insurance companies as well, given that Indian insurance
authorities still regard real estate investment as risky.
Regulation for insurance companies’ investment strategies
remains restrictive, explaining their small exposure to real
estate (USD 10 min 2005). This will hardly change in the
near future unless the regulatory bodies ease the rules. The
Security Exchange Board of India (SEBI) approved the Real
Estate Fund (REF) in 2005. However, it will be sometime
before retail investors actually begin investing in real estate
funds. At present, REF is only open to high net-worth
individuals, institutional investors and global investors, such
as HDFC Property Fund and ICICI Venture. The demand for
REF is strong, and this could be the catalyst for the future
development of Real Estate Investment Trusts (REITs).
REITs might be introduced in 2007.
Public debt
The public debt market, which here only comprises
outstanding corporate bonds and Commercial Mortgage-
Backed Securities (CMBS), is in the very early stages of its
development in India. In 2005, the total value of public debt
stood at no more than USD 6mn, and this is solely accounted
for by the listed corporate bonds. In the last years there have
been no CMBS issuances in the Indian market, implying that
the entire Mortgage-Backed Securities (MBS) market is
dominated by Residential Mortgage-Backed Securities
(RMBS). These have indeed played an important role in
Indian securitisation in the past 5 years because of the fast
growing residential sector and low cost of financing. The
inexistence of a functioning CMBS market can be explained
by investors’ uncertainty over foreclosures under the Indian
legal system and by tax implications associated with
securitisation. In addition, restrictions on profit-taking as well
as on capital relief may act as a hurdle for the growth of the
CMBS market. However, the rapid growth for other Indian
structured finance products such as asset-back securities
(ABS) and RMBS shows that there might be growth potential
also in the CMBS market in the future. In the last three years
the growth rate for ABS and RMBS averaged 150% and
250% year on year respectively – although admittedly from
low levels.
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AT Capital Weekly Update
AT CAPITAL RESEARCH
Public equity
Neither Real Estate Investment Trusts (REITs) nor Real
Estate Mutual Funds (REMFs) exist in India, implying that the
real estate public markets are still limited. The only way to
invest in real estate in the public market is through listed
property companies, but there are only a handful of these
currently. Public equity holdings on a pure equity basis
reached USD 7mn in 2005, unchanged from 2004. DLF
Universal, India's largest property developer, is set to rise
about USD 2bn in June 2006, representing the largest initial
public offering (IPO) in India so far. RREEF/DB Real Estate
Research believes that this IPO might boost the limited
current listed property sector. Generally speaking, the
creation of REITs will improve transparency and liquidity on
the real estate capital market. In India, recent news indicates
that the potential introduction of Indian REITs and/or REMFs
in 2007 might provide investors with a comfort zone to
reduce the transparency and liquidity risks. This will also
provide a wider range of choices for investors to engage in
real estate investment, considering the current limitation of
the public property.
The explosion of satellite cities in India
The Indian experience also underlines the potential for rapid
growth in satellite towns, especially when focused around
economic zones or parks. The classic example is dramatic
development of Gurgaon as a satellite of Delhi. The
Deutsche Report notes that Gurgaon was the first non-
metropolitan location in which an international IT company
(IBM) opened an office. Its far bigger supply of space and low
office rents make it extremely attractive, a fact increasingly
recognised by copy cat companies (Microsoft, Nortel,
Samsung etc).
Offices were followed by housing for the staff, giving rise to a
satellite town with high-grade infrastructure that is also
conveniently located for the international airport. The only
hurdle is that the motorway to Delhi is not yet open.
Meanwhile, though, construction work can no longer keep up
with demand growth and as reserves of space shrink, so
office rents are beginning to climb in Gurgaon, too.
6
10 August 2008 AT CAPITAL RESEARCH
The shortage of space in Gurgaon makes other out-of-town
locations of interest as well. Noida and Greater Noida are to
the east of Delhi; Noida is about 10 km from the city, and
greater Noida is being built another 20 km east of Noida.
Both towns, like Gurgaon, are based on a master plan
assigning individual districts specific purposes. Whereas a
large number of buildings are already complete in Noida,
Greater Noida is still in the making. The infrastructure is
already in place (expressway to Delhi), but work on offices
and apartments is still in an early phase. As in Gurgaon, a
new satellite town is being fashioned with office blocks,
shopping malls and housing estates.

This rapid development of satellites around Delhi clearly

provides a roadmap for development opportunities around
Dhaka over the next five to ten years.

Conclusions

Bangladesh has one of the most densely populated

populations in the world, a median age of less than 25, and
the prospects for rapid urbanization. This underlines the
need for a more far-sighted perspective on facilitating greater
access to lower cost real estate financing from both
international funds and domestic sources.

Clearly the country needs to form a set of regulations that

attracts high quality real estate investment that will
development infrastructure and steer away from “hot money”
that is speculative in nature and risks exaggerating property
cycles. The Indian SEBI approach to real estate FDI
regulations might provide a valuable template. But the
authorities should also begin the process of establishing a
framework so that domestic real estate funds and eventually
REITs can also be established.

The Pakistan authorities have just published their REIT

regulations in August 2008. They have emphasized that with
only 3mn of 160mn population owning real estate directly
that they see REITs as a means of spreading property
ownership.

Bangladesh needs to develop greater systematic research

on both real estate prices and the drivers of the property
values. But there is every reason to remain optimistic that the
country can attract both overseas financing and redirect local
savings towards a sector that will remain strategically
important for economic development for the foreseeable
future.

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AT Capital Weekly Update 7
10 August 2008 AT CAPITAL RESEARCH
Ifty Islam, Managing Partner
ifty.islam@at-capital.com

Overview – Global Markets

US Equities Rally on further collapse in oil prices
A strong week for US stocks with the Dow posting a 3.6%
gain. The move was the Dow's second 300-point move this
week and the sixth move of at least 200 points in the last ten
trading days. The primary driver was the collapse in oil prices
in particular, and the broader commodity complex in general,
offsetting further signs of bad news on the credit crunch with
UBS, Citi and Merrill agreeing to buy back tens of billions of
dollars of Auction Rate Securities (ARS) along with poor
earnings releases from AIG, Fannie Mae and Freddie Mac.
Crude oil dipped to USD 114.62 a barrel as prices for
commodities including metals and crops fell amid the dollar's
gain. Crude has declined more than USD 32 from its July
record on speculation that slower global economic growth
will cut demand.
thousands of Russian troop. The fact that oil prices gained
little benefit from the escalation of hostilities in Georgia
suggests that bear sentiment is firmly entrenched.
Oil price declines may be offset by ongoing housing/credit
crunch drag on global economy
As we have highlighted in previous issues of the AT Capital
Weekly, the surge in energy prices and the negative
correlation between oil and the US dollar has made the Fed’s
and indeed other Asian central banks, work that much
harder. A rise in oil depresses growth and also boosts
inflation with a weaker US dollar adding to price pressures.
So the decline in oil prices seen in the past few weeks will be
welcomed by central banks around the world.

It has been argued by some analysts that the resilience of

the US Dollar was also a driver of the drop in commodities.
The dollar posted its biggest weekly gain against the euro
since January 2005 after European Central Bank President
Jean- Claude Trichet said risks to economic growth are
``materializing,'' reducing expectations of higher interest
rates. The euro fell to USD 1.4998, the lowest since February
27.
Gold for immediate delivery touched a three-month low of
USD 851.37 an ounce, an eight week low, on speculation
dollar gains will spur sales by investors who bought the metal
as an alternative to earlier declines in the U.S. currency.
Silver dropped to its lowest level in six months.

The metal traded below its 40-, 100- and 200-day moving-
averages for the first time in a year, a sign it may fall further,
according to traders who follow technical charts.

Silver fell 40 cents, or 2.5%, to USD 15.80 an ounce after

earlier dropping to USD 15.77 an ounce, the lowest since
January 23. Prices are down 9.4% this week, the biggest
drop since March 21. Platinum fell USD 7.50 to USD 1,568
an ounce and palladium declined USD 3.25 to USD 345.25
an ounce.
Corn and soybean futures also fell. Commodities, as
measured by the Reuters/Jefferies CRB Index of 19 raw
materials, dropped to their lowest level in four months. The
CRB fell 12.12, or 3%, to 387.42, down 18% from a record
473.97 on July 3.
Heightened geopolitical tensions, the traditional catalyst for a
rebound in commodity prices, have offered little relief this
time around despite the fact it is occurring in a region of
significant oil vulnerability. Russian Prime Minister Vladimir
Putin said ``war has started'' over the breakaway region of
South Ossetia as Georgian President Mikheil Saakashvili
accused its neighbor of a ``well-planned invasion.'' Georgian
President Saakashvili said in a television interview on Friday
that his nation of 4.6mn people is ``fighting to secure its
borders'' amid ``full-blown military aggression'' involving
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AT Capital Weekly Update
But in our view, it is premature to chase the global equity
market rally until there is greater clarification that we are
seeing some stabilization in US house prices. The balance
sheets of many banks globally remain vulnerable to the
potential need for capital injections/further rights issues. US
Household spending is also likely to flag as the temporary
stimulus effects of the tax rebate wear off. Collapsing house
prices is also adding to both nervousness and the perceived
need to rebuild savings with the US personal savings rate at
0.6% remaining one of the lowest in the world.
Recession has already hit the UK, Ireland and Spain and is
almost certainly likely to spread through the rest of Europe.
This was the clear catalyst for the fall in the Euro.
In the next section, we highlight some interesting new
research that explains how asset price deflation can extend
the severity of recessions in the US.
8
 10 August 2008 AT CAPITAL RESEARCH
Synergies of the
the unpleasant kind: recessions, credit
crunches and housing busts

Some new research from a group of IMF economists

discusses the linkages between recessions and financial
variables. The paper4 by Stijn Claessens, M. Ayhan Kose
and Marco E. Terrones, entitled "What Happens During
Recessions, Crunches and Busts?" provides a
comprehensive empirical characterization of the linkages
between key macroeconomic and financial variables around
business and financial cycles for 21 OECD countries over the
1960-2007 period.

In particular, they analyze the implications of 122 recessions,

112 (28) credit contraction (crunch) episodes, 114 (28)
episodes of house price declines (busts), 234 (58) episodes
of equity price declines (busts) and their various overlaps in
these countries over the sample period. They document a
rich set of stylized facts about the behavior of key
macroeconomic and financial variables during these various
events.
(except the United States) while the dotted lines correspond
Their results indicate that interactions between to upper and lower quartiles of these recessions. The dashed
macroeconomic and financial variables can play major roles line is the median of all US recessions. Zero is the quarter
in determining the severity and duration of a recession. In after which a recession begins (peak in the level of output).
particular, they show that recessions associated with credit Short term interest rate is the change in the level.
crunches and house price busts are deeper and last longer
than other recessions are. In light of their findings, they
examine the implications of recent macroeconomic and
financial developments in the United States for the future
path of its economy.

With respect to ongoing events in the United States, they

write:

“These comparisons suggest that, while the current

slowdown may share some features with the onsets of typical
US and OECD recession, it is worse in some dimensions,
particularly in terms of speed of credit contraction, drop in
residential investment and decline in house prices. We
therefore also compare the developments in credit and
housing markets in the United States to date to those in the
past episodes of credit contractions and house price
declines. Tables 2B and 3B showed that such credit
contraction (crunch) and house price decline (bust) episodes
on average lasted 6 (10) and 8 (18) quarters, respectively. If
these statistics, based on a large number of episodes,
provide any guidance, they suggest that the adjustments of
credit and housing markets in the United States are only in
the early stages relative to historical norms and might still The analysis does at least suggest that relative to past
take a long time. The earlier episodes suggest that the recessions, the housing downturn is well extended. But it
process of adjustment in the United States might persist in might be argued that the housing bubble that preceded the
the coming months with further difficulties in credit markets current bust was far larger than most if not all other previous
and drops in house prices. This could bode consequently bubbles so the collapse in house prices will be more severe.
poor for the path of overall output, which, as we showed, falls
more in recessions associated with credit crunches and The bottom line is that the US economy is likely to remain in
house price busts than in recessions without such events.” a recessionary phase for some time and one should not read
too much into last week’s rally in equities as a signal that an
Excerpt from Figure 9 from Claessens, Stijn and Terrones. economic turnaround is imminent.
The solid line denotes the current US slowdown. The light
solid line is the median of all recessions in OECD countries

4
The full paper can be found at the website of American Enterprise Institute
www.aei.org.

_______________________________________________________________________________________
AT Capital Weekly Update 9
10 August 2008
Special Focus: Textiles
Bangladesh’s Textile and Clothing Sector: Emerging from the
shadows into the sunlight
The post-MFA era has witnessed Bangladesh emerge as one
of the most competitive destinations for clothing
manufacturing in the world. From a modest base of USD
3.5mn exports in 1981, Bangladesh’s textile and clothing
exports were worth USD 9.98bn in the year to May 2008, a
15.8% increase from the prior year, accounting for 80% of
exports and 10.5% of GDP.
Knit and Woven exports
Source: BGMEA and BKMEA
Bangladesh has one of the most liberal investment regimes in
South Asia with few limitations on foreign equity participation,
supportive fiscal incentives, and a relatively cheap and
abundant trainable labour force. The sector has grown
significantly over the last two decades, placing itself at the top
of the list for many companies wishing to fill their shelves at
the lower end of the value chain. We see this trend with wage
inflation continuing to exert pressure on neighbouring
manufacturing giants India and China, while Bangladesh
continues to extend its competitive edge.
Challenges remain with poor infrastructure, both transport and
power, a lack of significant investment in backward linkage,
lengthy lead times and it has yet to make significant inroads
up the value chain into higher end items and further
diversification into niche areas. Compliance uptake needs to
improve, limiting buyers ability to source products, and
unionisation and labour unrest persists as a worry for factory
owners. Global food prices increases have forced
manufacturers to increase wages, but still remain at relative
discounts to competitors, as they face similar pressures.
The world textile and clothing trade was worth USD 530bn in
2006. While Bangladesh has made significant inroads into the
global market, there remain significant opportunities for
further growth in Bangladeshi textile and apparel exports
provided Bangladesh can maintain its competitive advantage
with the lowest labour costs in the world.
_______________________________________________________________________________________
AT Capital Weekly Update
AT CAPITAL RESEARCH
Junaid Khan, Investment Advisor
junaid.khan@at-capital.com
We believe there are significant investment opportunities in:
• Backward linkages into spinning, dyeing and finishing
mills
• Diversification into high-end apparel manufacture
• Diversification into niche clothing items
• Textile and fashion design training institutes
Basics versus high value added apparel
In Bangladesh, there has been a natural progression in the
production of clothing from low to high value items and from
less sophistication to more sophistication. Some successful
entrepreneurs have established direct contacts with their
ultimate buyers (retailers) and have developed sophisticated
marketing strategies. Some of them have already made a
successful transition to high value apparel product such as
dresses and suits.
However, low value items constitute by far the largest section
of the market, and abandoning this market is neither possible,
nor desirable, in the near future. Bangladesh’s clothing
manufacturers have successfully contested the market for
standard items and its share of global exports has increased
year on year – a clear signal of where its comparative
advantage lies - cost.
Countries concentrating on the market for high value clothing
are generally more technologically advanced, skilled and
efficient producers of apparel items. For example, Turkey and
Italy produce high value clothing. To secure a niche in this
market, Bangladeshi clothing producers will have to compete
against the highly sophisticated clothing manufacturers of the
developed countries and such developing countries as China,
Sri Lanka and Turkey. To be successful in the high value end
of the market the domestic RMG producers will need to
develop and harness skills, technology and capacity. As it has
in China, Sri Lanka and Cambodia, FDI may facilitate the
process.
Policies and practice suggests that Bangladesh has been a
reluctant receiver of FDI at least in the RMG sector as, until
recently, FDI in RMG firms was limited to Export Processing
Zones (EPZ) only, while the domestic sector was kept off
limits for foreign equity or partnerships. Unlike many
developing countries such as Cambodia, Mauritius and
Mongolia, where many of the garment firms are part of larger
multinational corporations in the form of foreign direct
investment, less than 15% of Bangladesh garment firms have
foreign equity. This is partly due to the restrictive policy
condition which required that any FDI in RMG be associated
with simultaneous investment in a backward linkage facility
(spinning, weaving, and/or dyeing and finishing). The
ostensible reason for this restriction was to safeguard rents
from quota allocations to Bangladeshi entrepreneurs. This
policy could have been responsible for insufficient productivity
improvements in the RMG sector - something that would have
stood Bangladesh in good stead in the post-MFA competitive
environment.
10
10 August 2008
The restriction on FDI was finally removed in the Industrial
Policy 2005; but perhaps the Bangladesh RMG sector
missed out on certain benefits that came from the presence
of FDI in a sector. Conventional wisdom has it that firms with
foreign equity tend to be more productive. This could be due
to the firm specific tangible assets such as exclusive
technology and product designs, or the intangible know-how
embodied in foreign equity such as superior management,
marketing, networking and sourcing.
Lead time: Getting the products to the customers as soon as
possible
Lead times are a critical competitive factor in the industry and
an area where Bangladesh needs to improve. They vary
between 90-120 days (for woven garments) while they are
considerably shorter for knitwear items (45-60 days) since
most raw materials (yam and knitted fabric) are procured
domestically.
Typical lead time components for Bangladesh (days)
Days taken after
ceding step
Optimal Non-
Non-optimal
Exporter receives confirmed LC 0 0
Raw material supplier receives LC 4 6
Raw material supplier produces and
ships goods
7 15
Ship berths at port of import 26 30
Raw material is unloaded and taken
4 7
delivery from port
Consignment reaches factory 1 2
Garment packed and shipped 20 30
Consignment reaches buyer's port 28 30
Source: The World Bank
On average, it takes a clothing manufacturer 42-60 days to
receive the raw materials (essentially fabric) at its premises
from the time it receives a confirmed Letter of Credit (LC).
Several factors contribute to this length of time required to
receive the raw materials. First, most of the fabric
requirements of woven RMG (80% or more) are imported
from countries as China, India, Korea and Taiwan. Given the
geographic position of Bangladesh and the prevailing
shipping routes, it takes considerable time for shipments
from these countries to reach ports in Bangladesh. The time
requirement is further lengthened by the fact that goods have
to be brought from China and elsewhere through
transshipment at Singapore or Malaysia as goods cannot be
shipped directly to Bangladesh from these countries.
Consequently, it takes 25-30 days for the consignment to
reach local ports. Poor port facilities and bureaucratic
process can add to the time it takes to take delivery of the
consignments. Due to Chittagong and Mongla ports being off
the main shipping lanes of mother vessels, the export
consignments have to be sent by feeder vessels to
Singapore or Malaysia to be loaded into mother vessels to
carry them to their final destinations in USA and Europe. As
such it takes about 28-30 days for export shipment. The time
is reduced by about a week or so if more expensive, faster
vessels are used for shipment.
_______________________________________________________________________________________
AT Capital Weekly Update
AT CAPITAL RESEARCH
Lead time for servicing an order for RMG
Country Lead time (days)
(days)
Cambodia 90-120
China 45-60
Indonesia 60-90
Malaysia 60-90
Thailand 60-90
Vietnam 60-90
Bangladesh 90-120
Source: The World Bank
If the raw materials could be sourced locally the time required
to receive them at the factory gate could be reduced from 42-
60 days to just one or two weeks. Hence, local sourcing could
reduce the total lead time to 55-75 days. This would make the
lead time of Bangladeshi garment exporters comparable to
that of its major competitors.
The discussion above clearly suggests that the best option for
reducing lead time is to have the raw materials of RMG
industry produced domestically. During the last decade and
half Bangladesh has become almost self-sufficient in the
production of many accessories items. It now produces,
according to BKMEA leadership, 90% of the knit fabric
requirements of the export-oriented knit garment
manufacturers. This enabled the sector to reduce the average
lead time to only 50-60 days. However, despite all the
incentives and large protective barriers, the woven fabric
section of the textile sector has not been able to reduce the
demand-supply gap. It can meet only about 35%-45% of the
total requirement of the woven RMG sector, and this situation
has not changed much for the last five years. The excess
demand for woven fabric (over and above domestic supply)
has increased over the years. The unavailability of domestic
woven fabric not only increases lead time, but also causes
GSP related disadvantages. It poses a serious constraint to
export competitiveness.
Although it may not be possible to increase domestic supply
of fabric at par or in excess of the increase in demand within a
short period, it might be possible to meet part of the demand
by increasing the capacity of dyeing and finishing industries. If
these industries are allowed to stock up grey fabric in
advance of orders, they could supply finished fabric to the
woven garment manufacturers at fairly short notice. The lead
time would not be greater than when domestic fabric is used.
This option should receive serious consideration.
Backward Linkage
The ready-made garments industry grew up in Bangladesh
without the benefit of either backward (upstream) or forward
(downstream) linkage industries. During the early years, the
RMG industry in Bangladesh purchased almost all its material
inputs such as accessories and fabric from overseas. This
was also the period of most rapid growth of RMG export. As
the production of RMG increased by leaps and bounds, so did
the import of these inputs. Local entrepreneurs perceived
profit-earning opportunities in the manufacture of these inputs.
Since the investment cost of manufacturing accessories is
relatively low, this was the first area exploited by domestic
entrepreneurs. The local accessories industry now supplies
most of the requirements of the RMG industry and is also
exporting small quantities.
11
10 August 2008 AT CAPITAL RESEARCH
The increase in import of fabric also encouraged domestic know-how, better management practices and wider linkages
entrepreneurs to move into the primary textile sector, which with the international market.
was then dominated by loss-making public enterprises. This
was helped by generous cash incentives given to textile Successful operation of the dyeing and finishing units would
production for exports or deemed export and the duty-free critically depend on the availability of grey fabric. Large stocks
access to EU market. of grey fabric of the most common constructions would,
therefore, need to be held to supply the processing units as
However, the two sections of the clothing industry, knit and and when demanded. It is clear that measures other than the
woven, did not benefit equally from the expansion of domestic existing individual bonded warehouse system, where fabric
fabric production. Most of the fabric sold to the clothing can be imported only against confirmed letter of credit, will
industry was used by the knit section of the industry. have to be devised to make large-scale fabric processing
worthwhile for investors. One such system is Central Bonded
The production of knit fabric has expanded sufficiently to Warehouse which would increase handling efficiency of the
meet most of the demand for such fabric (more than 90%) by items.
the knit industry. In contrast, woven garment industry is still
overwhelmingly dependent on imported woven fabric and Since an internationally competitive domestic primary textile
about 35% of the fabric is produced locally. Domestic fabric sector contributes to the competitive strength of local RMG by
producers are unable to meet the demand of the woven reducing cost and lead time, a favorable environment for their
sector, which is by far the larger section of the RMG industry growth should be ensured by removing any constraints.
accounting for about 60% of the total value of exports (and However, this should not mean adopting (or not adopting)
output) of RMG. such measures that would raise the cost of inputs for the
RMG industry or prevent them from reducing the lead time.
Industry assistance could take the form of availability of long
Self-
Self-sufficiency of Different Sectors term loans at reasonable rates through reforms of the
Self sufficiency woven garments in % financial sector, the development of more efficient
infrastructure, and greater emphasis on skill development
Prod. Step BD China India Indonesia Pakistan Sri Lanka
through education5.
Spinning 20 70 10 30 100 20
Weaving 20 70 95 30 100 20

Finishing 20 70 95 30 100 20
Clothing Prod. 100 100 100 100 100 100
Self sufficiency
sufficiency cut and sew knitted garments in %
Prod. Step BD China India Indonesia Pakistan Sri Lanka

Spinning 70 90 100 80 100 30

Weaving 95 90 100 80 100 70

Finishing 95 90 100 80 100 80
Garment P. 100 100 100 # 100 100

Self sufficiency knitted garments in %

Prod. Step BD China India Indonesia Pakistan Sri Lanka
Spinning 10 100 100 60 100 40
Weaving 20 100 100 90 100 70

Finishing 100 100 100 100 100 100

Garment P. 100 100 100 100 100 100
Source: GTZ/PROGRESS

The large investment requirements of primary textile

manufacturing and low international prices due to worldwide
excess capacity limited the growth of woven fabric
manufacturing. It has barely managed to retain its share of the
demand of woven fabric at around 15%. The trend of
consumption of domestic fabric by the woven sub-sector
seems to suggest that the domestic primary textile sector will
be unable to supply the greater part of the total demand for
fabric of woven RMG in the near future. However, substantial
FDI in this sector could change the picture very quickly.
5
There are some encouraging signs that foreign textile The article above is a short extract of the AT Capital Textiles Report. The report can be
manufacturers are showing interest in establishing production found at the following link:
http://at-capital.com/index.php?option=com_content&task=view&id=38&Itemid=63
facilities in Bangladesh. FDI will also help the overall
productivity of the sector by bringing in advanced technical
_______________________________________________________________________________________
AT Capital Weekly Update 12
10 August 2008 AT CAPITAL RESEARCH

Stock Market Weekly

DSE performance: 52 weeks Market news

• Aktel announces listing by the end of the year

th
• Market fell for the 10 consecutive week
• Titas gas finally gets good response from investors
• HSBC will help NRBs invest in stock market
• High Court stays SEC ban on issuance of bonus,
rights shares by mutual funds
• SEC approves new issuances of National Housing
and Mutual Trust Bank

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

Market summary Valuation snapshot

DSE General Sector P/E

Index performance DSE 20
Index Mar-08 Apr-08 May-08 Jun-08
Opening of this week 2,761.1 2,526.2 Banks 21.9 22.2 22.6 21.7
Closing of this week 2,732.0 2,490.6 Cement 14.7 14.7 17.6 12.4
Change within a week (%) -1.1% -1.4% Ceramic 43.2 43.7 42.7 42.0
Change within a week (Point) -29.0 -35.6 Engineering 33.7 38.9 41.4 39.1
Food & Allied 24.5 28.2 28.5 13.2
Fuel & Power 28.3 25.8 26.2 23.6
This Last %
Capitalization and turnover Insurance 23.0 28.1 32.4 26.9
Week Week Change
Investment 40.5 64.9 65.2 53.1
Number of Trading Days 5 5
IT 18.3 18.4 17.6 20.0
Market Capitalization (USD bn) 13.90 13.96 -0.4%
Jute 18.6 16.4 16.0 16.0
Total Turnover (USD mn) 191 232 -17.5%
Miscellaneous 22.3 23.0 25.9 23.2
Daily Avg. Turnover (USD mn) 38 46 -17.5%
Paper & Printing 11.0 9.2 9.5 9.2
Total Volume (mn) 87 110 -20.9%
Pharmaceuticals 25.0 26.7 29.8 28.1
Daily Avg. Volume (mn) 17 22 -20.9%
Service & Real Estate 10.8 20.5 19.5 20.8
Tannery 19.9 25.1 23.1 19.8
This Last 15.2
Weighted avg. P/E Ratio* Issues Textiles 14.6 14.9 14.4
Week Week
Source: Dhaka Stock Exchange
This Week 20.61 Advanced 41 63
Last Week 21.02 Declined 205 183
% Change -1.95% Unchanged 5 8
*Weighted on Market Cap. Not Traded 36 33

_______________________________________________________________________________________
AT Capital Weekly Update 13
 10 August 2008
Weekly Stock Market Commentary
Last week’s close marked the tenth consecutive weekly fall in
the DGEN. On Sunday 3 August it fell 2.6%, the penultimate
day of a seven-day losing streak, before it gained 2% on
Tuesday and 0.75% on Wednesday. The rebound however
was short lived with a fall of 0.1% on Thursday. There were
high intraday volatilities throughout the week and daily
trading volume fluctuated sharply. The market closed at
2732 - 12% down from the beginning of the year.
The Titas Gas direct listing continued its poor run till Monday.
Under the direct listing rules, Titas needs to sell 10% of its
shares (roughly 8.6mn shares) within 30 working days of
listing. In 23 working days it had only sold 9% of what they
needed to sell. Titas’s application for an extension was
declined by the SEC this week. However, it seems that the
extension is no longer required, as much to many observers’
surprise, the stock suddenly became flavor of the month
when its share price shot up by 17.5% on Tuesday with 4mn
shares bought in a day, taking them closer to the finishing
line.
Titas: Daily Price and Volume Trends
Mutual funds continue to hit the headlines, when the High
Court (HC) stayed (for three months) the SEC’s decision, in
July, to disallow close ended mutual funds to increase their
fund size by issuing right shares or bonus shares. The
SEC’s original decision prompted large declines in the
shares of mutual funds. To avoid potential price volatility
following this week’s HC decision, the DSE suspended the
trading of mutual funds on Tuesday. Trading recommenced
on Thursday. Contrary to general expectations, most of the
mutual funds declined, with Aims 1st Mutual Fund &
Grameen One Mutual Fund, the two most actively traded
funds, suffering 14% and 8% declines respectively. The
market clearly has taken the HC judgment as purely a
revision in timing.
Following GP announcing their imminent listing last month,
Aktel, the country’s number three mobile operator, is
following suit. The CFO of Aktel, in an interview with a
newspaper announced they are working towards a listing by
the end of the year. Earlier, the company was valued at more
than USD 1bn when AK Khan and Company agreed to sell
its 30% stake in the company to NTT Docomo for USD
350mn. The market will surely benefit from the listings of GP
and Aktel, both good quality large caps.
_______________________________________________________________________________________
AT Capital Weekly Update
AT CAPITAL RESEARCH
We also feel the market will benefit from the new insurance
ordinance which stipulates that insurance companies
increase their paid up capital significantly. Unlisted
insurance companies are expected to expedite their listings
and many of the listed companies are expected to issue
rights shares. We remain bullish on the sector, with
significant opportunities in product development, improved
asset-liability management and market penetration, which is
currently amongst the lowest in the world.
Stock Market News
Aktel share offloading by year-
year-end
The Daily Star, Wednesday, August 6, 2008
Aktel, the country's third largest mobile operator, has
announced its plan for an IPO by year end.
The company officials said the commitment made earlier to
the Securities and Exchange Commission (SEC) about
listing a portion of its shares will be followed. "We had a
roadmap to go for public by the end of the year. We are
working on it," the CFO of Aktel, told The Daily Star.
If the plan goes ahead, Aktel will be the second telecom
company to be listed following GrameenPhone (GP) planned
listing, by September.
http://www.thedailystar.net/story.php?nid=49109
SEC okays Nat'l Housing IPO, Mutual Trust Bank's right
share offer
The Daily Star, Wednesday, August 6, 2008
National Housing Finance and Investment Ltd received SEC
approval on August 5 from to raise BDT 50mn (USD 0.73mn)
through an IPO.
The market regulator also approved the right share offer of
Mutual Trust Bank. The bank will offer one right share at BDT
100 for every five shares held.
http://www.thedailystar.net/story.php?nid=49071
High Court stays SEC ban on issuance of bonus, rights
shares for mutual funds
The Daily Star, Tuesday, August 5, 2008
On August 4, the High Court (HC) postponed for three
months the SEC’s ban on the issuance of bonus shares or
rights issues for close-end mutual funds. The HC also stayed
the dividend declaration by all mutual fund managers until
the new rules come into force. The mutual funds, which
already declared dividends, will also fall under this rule,
meaning the mutual funds cannot disburse the declared
dividends to the unit holders until the rules come into force..
Earlier on July 22 this year, the SEC formally approved the
changes in mutual fund rules that barred close-end mutual
funds from offering bonus shares as dividends or offer right
issues in order to increase their capital base. Following the
decision, prices of mutual funds, which were skyrocketing on
rumours that some of the funds were going to declare rights
or bonus shares to increase their capital base, witnessed a
significant fall.
http://www.thedailystar.net/story.php?nid=48954
14
10 August 2008 AT CAPITAL RESEARCH
DGEN Performance LTM DGEN Performance YTD

Turnover leaders Best performers* Worst performers*

(All figures in mn) BDT USD % Change % Change
Titas Gas 2,250 32.9 Titas Gas 26.6 Metalex Corporation -32.4
Beximco Pharma 876 12.8 Modern Industries 20 Wata Chemicals -23.5
BEXIMCO 721 10.5 Maq Paper 18.3 Meghna Life Insurance -20.7
Lankabangla Finance 699 10.2 Sonali Paper 13.2 BEXIMCO -16.3
Square Pharma 530 7.7 Rahman Chemicals 10.8 Apex Spinning -16.3
UCBL 484 7.1 Bd.Thai Aluminium 10.5 Apex Adelchi Footwear -15.7
Keya Cosmetics 398 5.8 Rahima Food 9.4 Popular Life -14.6
BATBC 369 5.4 ICB 9.1 Meghna Shrimp -13.9
Aims 1st M.F. 349 5.1 Aims 1st M.F. 9.1 Chittagong Vegetable -12.9
ACI Limited. 337 4.9 CMC Kamal 8.8 BD Zipper Ind. -12.5

*By closing price

Market cap. by sector*
Banks 54.96%
Pharmaceuticals 11.21%
Fuel & Power 9.65%
Correlation with other Indices*
Insurance 6.85% S&P FTSE NIKKEI KSE
Cement 5.43% 500 DJIA 100 SENSEX 225 100 DSE
Miscellaneous 2.68% S&P 500 1.00
Engineering 2.59% DJIA 0.94 1.00
Textile 1.91% FTSE 100 0.65 0.63 1.00
Foods 1.70% SENSEX -0.09 -0.13 -0.07 1.00
Tannery 1.40% NIKKEI 225 -0.13 -0.12 0.07 0.53 1.00
Service & Real Estate 0.92%
KSE 100 0.02 0.03 0.07 0.24 0.29 1.00
IT 0.45%
DSE -0.14 -0.22 -0.12 0.17 0.12 0.16 1.00
Ceramics 0.13% * Based on the last 65 monthly returns
Paper & Printing 0.07%
Jute 0.03%
Total 100%
*As of June 30, 2008

Research Team

Professor Jahangir Sultan Shahidul Islam

Senior Advisor Investment Manager
jahangir.sultan@at-capital.com shahid.islam@at-capital.com

Rashed Hasan Syed Najibullah

Research Associate Research Assistant
rashed.hasan@at-capital.com syed.najibullah@at-capital.com

_______________________________________________________________________________________
AT Capital Weekly Update 15
10 August 2008 AT CAPITAL RESEARCH

Economics

Export figures across different sectors (USD millions) Market

Market news

Jul-
Jul-Apr Jul-
Jul-Apr • Bangladeshi exports exceed USD 14bn in 2007-
Particulars Growth
2006--07
2006 2007--08
2007
Raw jute 124.84 143.36 14.83%
08 fiscal
Jute goods (excl. carpets) 268.62 265.96 -0.99% • Budget fails to ignite prices as inflation reaches
Tea 5.21 13.96 167.95%
Frozen food 416.87 449.39 7.80% 7.8% in June
Leather 221.79 236.75 6.75% • Remittances and exports likely to offset
RMG woven 3,814.45 4,185.50 9.73%
RMG knit 3,661.00 4,392.71 19.99% depreciation of the taka
Chemical products 144.26 153.20 6.20% • Government to start FTA talks with India,
Agro products 45.64 74.76 63.80%
Engineering & electronic Pakistan, Sri Lanka
196.03 176.47 -9.98%
goods
Others 1,014.08 1,273.67 25.60% • BoI directed to redesign strategic plan to attract
Source: Export Promotion Bureau investment
Recent export trends (USD millions) • Bangladesh July foreign exchange reserves fall
from record high
A. Annual exports 2004-05 2005-06 2006-07
8,654.52 10,526.16 12,177.86
(+13.83) (+21.63) (15.69)
B. Monthly exports Month 2007-08 2006-07
July 902.33 1,143.36 Bangladesh foreign exchange reserves (USD billions)
August 1,129.08 1,155.85
September 1,042.85 950.07
October 941.48 870.78
November 1,144.47 916.04
December 1,329.70 1,174.88
January 1,231.97 816.39
February 1,198.91 979.23
March 1,224.65 1,010.05
April 1,203.97 875.04
May 1,269.35 1,043.95
12,638.86 10,958.62
July-
July-May
(+15.33) (+16.56)
Source: Export Promotion Bureau

Top Bangladeshi export destinations

S Adeeb Shams
Research Associate
adeeb.shams@at-capital.com

_______________________________________________________________________________________
AT Capital Weekly Update 16
10 August 2008
Economic News
Bangladeshi
Bangladeshi exports exceed USD 14bn in 2007-
2007-08 fiscal
The Financial Express, Wednesday August 6, 2008
The country’s exports in 2007-08 fiscal year totaled USD
14.1bn, representing an increase of 15.9%. According to the
Export Promotion Bureau (EPB), goods worth USD 1.5bn
were shipped out of the country in June, a 20.65% increase
over the same period last year. This was the highest ever
monthly export figure.
According to Md. Khalilur Rahman, Director General of EPB,
exports made a comeback in the last nine months of the
period, with both the knitwear and woven garments sectors
experiencing significant growth. Knitwear and woven
garments, comprising 76% of Bangladesh's total exports,
grew by 16% to USD 10.7bn. This was also the first time that
garments exports crossed the USD 10bn mark. Individually
the knit and woven sectors grew at 21.5% and 11%,
respectively.
Officials reported that export orders boomed in the latter part
of the fiscal year, as global buyers switched their focus
towards Bangladesh, because of a combination of a weaker
taka and external factors, such as currency appreciation and
wage hikes in China and India.
Anwar-ul Alam Chowdhury Parvez, President of Bangladesh
Garment Manufacturers and Exporters Association
(BGMEA), is optimistic that the country’s total garments
exports will grow to USD 18bn by 2011, with the right
environment and competitive advantages.
EPB data also revealed that most of the other major export
items fared well, despite the recent global economic
downturn. Frozen food exports, the second largest export
item, grew by 3.6% to USD 534.1mn. Footwear experienced
a 24.8% increase to USD 169.6mn, whereas
Pharmaceuticals grew 53.4% to USD 39.5mn.
http://www.thefinancialexpress-
bd.info/search_index.php?page=detail_news&news_id=41872
Budget fails to ignite prices as inflation reaches 7.8% in June
The Financial Express, Monday August 4, 2008
Point-to-point inflation in June edged up slightly to 7.8%, as
the caretaker government’s trillion taka budget has not
stoked prices as much as expected, according to a senior
Finance Ministry official. Point-to-point inflation data recorded
in April and May were 7.6% and 7.4% respectively. This was
very uncharacteristic of previous occasions, where new
budget have spurred inflation. Average monthly inflation
however, stood at 9.8%, owing largely to high food prices,
despite a record yield of 17mn tonnes of rice in the outgoing
boro harvest. Average inflation recorded in the first nine
months of the outgoing fiscal year was in excess of 10%.
http://www.thefinancialexpress-
bd.info/search_index.php?page=detail_news&news_id=41661
_______________________________________________________________________________________
AT Capital Weekly Update
AT CAPITAL RESEARCH
Remittances and exports likely to offset depreciation of the
taka
The Financial Express, Thursday August 7, 2008
Some commentators expect the taka is unlikely to depreciate
against the dollar in the near future, due to a combination of
strong inflows of remittances and record exports thus
offsetting the import-driven demand. During 2007-08, exports
rose 16%, whereas remittances reached an all-time high of
USD 8bn.
http://www.thefinancialexpress-
bd.info/search_index.php?page=detail_news&news_id=41958
Govt to start FTA talks with India, Pakistan, Sri Lanka
The Daily Star, Monday August 4, 2008
The government has decided to start bilateral free trade
agreement talks (FTA) with India, Pakistan and Sri Lanka.
The decision was made during a high-level meeting, held at
the Commerce Ministry. India, Pakistan and Sri Lanka have
long been pushing Bangladesh to sign an FTA with them.
A decision was also made on forming a multi stakeholder
working group with the objective of identifying the different
pros and cons under an FTA. It was proposed that the group
will consist of both public and private sector representatives,
and trade experts.
http://www.thedailystar.net/story.php?nid=48803
BoI directed to redesign strategic plan to attract investment
The Financial Express, Sunday August 10, 2008
Chief Adviser Dr. Fakhruddin Ahmed has directed the Board
of Investment (BoI) to redesign its strategic plan by
incorporating new ideas, practical suggestions and forward-
looking proposals as a means to enhance investment. He
also asked the Board for placing the restructured strategic
plan in the next BoI meeting.
The overall development of BoI including updating its
organogram, amendment to investment-related laws and the
process of approval of investment projects and enhancing
the capacity and efficiency of the organization were also
discussed.
http://www.thefinancialexpress-
bd.info/search_index.php?page=detail_news&news_id=42167
Bangladesh July FX reserves fall from record high
Reuters, Sunday August 3, 2008
Bangladesh's foreign exchange reserves fell to USD 5.8bn at
the end of July, from an all-time high of USD 6.2bn in June,
according to Bangladesh Bank.
The fall was attributed mostly to increased cost of imports.
However, this was offset owing to higher inflows of
remittances from Bangladeshis working abroad.
http://in.reuters.com/article/companyNews/idINDHA1249520080803
17
10 August 2008
Sector News
Agriculture
Rice price reducing both in domestic and international
market
Prothom Alo, Saturday, August 09, 2008
Farmers in Bangladesh have started harvesting Aus variety
rice and are expected to harvest in the crop in about two
months time, leading experts to predict an abundant supply
of rice in the domestic market following the bumper harvest
in Boro variety. The officials are expecting to get 1.5 to
2.0mmt rice from the Aus harvest and 13.6mmt from the
Aman harvest. The favourable climate has also helped the
farmers in rice cultivation. If 80% of the expectation is fulfilled
there will be no rice crisis in the country. Rice prices in the
local market have decreased by BDT 2-3 per kg in the last
few days. Two months ago, rice prices in international
markets were closer to USD 1,000 per ton, which are now as
low as USD 525 in Thailand and Vietnam.
http://www.prothom-
alo.com/archive/news_details_home.php?dt=2008-08-
09&issue_id=1009&nid=MTgwMzY
Export price of maize fixed at USD 600
The Daily Star, Wednesday August o6, 2008
The government moved to restrict the export of locally
produced maize by fixing its minimum export price at USD
600 per tonne. Poultry feed producers' have been calling for
a ban on the export of maize. Maize production had almost
doubled to about 2.2mmt this year from about 1.2mmt last
year.
Already two trading houses have exported about 0.43mmt of
maize to Malaysia and Indonesia at over BDT 18,000 (USD
263) per ton. With the news of maize export spreading
among the traders, suppliers have kept their stocks on hold
waiting for the price to rise. At present, the price of a ton of
maize stands between BDT 12,000 and13,000 (USD 175
and 190) in the local market.
http://www.thedailystar.net/story.php?nid=49112
Suspension of shrimp import likely
The Daily Star, Tuesday August 05, 2008
The European Commission has given an ultimatum to
Bangladesh that it will suspend shrimp imports if it fails to
effectively implement its residue-monitoring plan before the
next inspection takes place in November this year.
The Bangladesh government in a meeting with a EU
representative on April 24 this year assured that it will
effectively implement the residue monitoring plan and test all
the consignments of crustaceans prior to their exports to the
EU member states.
Bangladesh promised it would implement the 'Method
validation' and HACCP (hazard analysis and critical control
points) standards to ensure all sources of harmful
substances are checked.
_______________________________________________________________________________________
AT Capital Weekly Update
AT CAPITAL RESEARCH
Bangladesh exported USD 449mn of frozen foods, mostly
shrimp, in the first ten months of this year against USD
691mn target for the full year.
http://www.thedailystar.net/story.php?nid=48949
No hike in edible oil prices in Ramadan
The Daily Star, Thursday August 07, 2008
Representatives of edible oil refiners and importers have
assured the government that the prices of oils will not
increase during the upcoming holy month of Ramadan. The
assurance came at a meeting held between the government
and the leaders of the Bangladesh Edible Oil Millers and
Importers Association in Dhaka. The government will also
take initiatives to reduce the existing prices of edible oil
despite price increases in international markets.
There are currently domestic reserves of 250,000 metric tons
of edible oil, while another 50,000 metric tons are in the
import pipeline. The country's monthly demand averages
125,000 metric tons.
http://www.thedailystar.net/story.php?nid=49249
Aviation
Airfreight business booming
The Daily Star, Friday August 8, 2008
Private airfreight business in the country is booming as
domestic and international trade has grown recently,
according to industry sources. Since 1998, seven local
private airfreight companies have been operating on both
domestic and international routes.
The operators carrying goods and equipment on domestic
routes include Zoom Airlines, Voyager Airlines, MGH
Airlines, Galaxy Airways and Best Air, while Bismillah
Airlines and South Asian Airlines Ltd (SAAL) fly international
routes.
Additionally, SAAL carried United Nations relief goods from
Bangladesh to Tsunami ravaged areas last year. Private air
transport is also used for carrying equipment used in the
telecommunications sector, as well as garments and
perishable items. Domestically, the airfreight companies
operate primarily between Cox's Bazar and Jessore, carrying
mainly shrimp fry.
http://www.thedailystar.net/story.php?nid=49492
Banking
Warid and BRAC Bank sign SMS banking deal
The New Nation, Friday, August 08, 2008
Warid Telecom, the fourth largest mobile phone operator in
the country, on August 06 signed an agreement with BRAC
Bank to introduce the SMS banking services for its
subscribers. Warid subscribers, who maintain accounts with
BRAC Bank, will be able to get basic banking information on
18
10 August 2008
their mobile phones via Short Message Service (SMS) and
will be able to check information including account balances,
and latest transaction details.
http://nation.ittefaq.com/issues/2008/08/09/news0390.htm
Bangladesh Bank to review key rates to tame inflation
Reuters, Friday, August 08, 2008
Bangladesh Bank plans to review key interest rates to curb
inflation as it aims to achieve slightly faster economic growth
of 6.5% this fiscal year. Bangladesh achieved growth of 6.2%
in the previous fiscal year ended in June.
The policy rates, including those for repurchase agreements,
reverse repurchase agreements and government approved
securities, will also be reviewed to anchor inflation
expectations, the central bank said in its latest April-June
quarterly report.
The central bank has left key rates, the repo rate, unchanged
at 8.50% and the reverse repo rate at 6.50% for more than a
year. Bangladesh Bank will closely monitor the monetary
aggregates such as reserve money, broad money, and credit
growth and shall take corrective measures if necessary, it
added.
http://in.reuters.com/article/domesticNews/idINDHA2255282008080
8 considering reducing the existing licence fees on captive and
16 banks fail to cut interest rates
The Daily Star, Friday, August 08, 2008
Sixteen private commercial banks (PCBs), out of 30, have
failed to keep their commitment to cut the lending rates by
Bangladesh Bank (BB) June deadline, flouting both central
bank and bank owners association's advice.
“These banks did not go by their own commitment despite a
passage of one month from the deadline,” a senior BB official
said quoting the bank's July lending rates. Bangladesh
Association of Banks (BAB), a platform of bank owners, said
they have nothing to do with the issue, as they cannot
enforce banks to revise their rates. Businesses however
asked the BB to be more active and stringent in ensuring
banks honour their own pledges.
The banks that have failed to cut the interest rates are;
Pubali, Uttara, AB, Islami, UCBL, ICB Islamic (Oriental),
Prime, Dhaka, Al-Arafah, Social Investment, Premier, First
Security, Standard, Bank Asia, Bangladesh Commerce and
Jamuna Bank.
Earlier in March, BAB and the Association of Bankers
Bangladesh, a forum of managing directors of PCBs,
pledged to reduce the maximum rate for term loans for large
and medium industries at a joint meeting with the BB, by over
one-percentage point capped at a maximum of 14% to be
effective within three months, till June.
BB on July 30 warned these 16 PCBs for not reducing the
lending rates and sent letters to the bank managing directors
asking them to take immediate steps resolve the issue.
http://www.thedailystar.net/story.php?nid=49490
_______________________________________________________________________________________
AT Capital Weekly Update
AT CAPITAL RESEARCH
Commercial Bank of Ceylon gets AA+ rating
The Daily Star, Tuesday, August 05, 2008
The Commercial Bank of Ceylon (CBC) was awarded a
rating of AA+ for long term and ST-1 for short term, based on
its 2007 balance sheet by Credit Rating Information and
services Ltd (CRISL), said a press release.
The previous rating of AA held by CBC was enhanced to
AA+ based on its asset quality, capital adequacy, liquidity,
diversification in product lines, IT infrastructure and corporate
governance.
Analysts, view CBC positively, with a stable outlook with
expected steady business growth, stable financial and
operating performance.
http://www.thedailystar.net/story.php?nid=48923
Infrastructure & Energy
BERC issues licences to 50 captive power generators
The Financial Express, Saturday 9 August, 2008
The Bangladesh Energy Regulatory Commission (BERC)
has given over 50 licences to operators of captive and stand-
by power generators with the process of issuing 125 more
licences underway. The regulatory authority is also
stand-by generators to be used for industrial and business
purposes, following a demand for exemption of such a levy
from the country's top businesses. After preparing a concrete
proposal on the reduction of such licence fees, the BERC will
place it before the Ministry of Law for approval.
On January 10, 2008, the BERC served a public notice,
making it mandatory for the users to obtain licences for the
captive/stand-by generators having over 1MW capacity.The
extended deadline for obtaining or seeking licences from the
BERC for captive power generators expires on August 31.
http://www.thefinancialexpress-
bd.info/search_index.php?page=detail_news&news_id=42110
Technical assessment
assessment being done to double gas output from
Bibiyana
The Financial Express, Friday August 8, 2008
The government is conducting a technical assessment for
doubling gas production from the Bibiyana field, operated by
international oil company Chevron, following a shortfall in
supply. The US company wants to supply 600 mn cubic feet
per day (mmcfd) gas from the field, which is now supplying
300 mn mmcfd. Total national production of natural gas is
1800 mmcfd compared to demand for 2,000 mmcfd leaving a
shortfall of 200 mmcfd.
http://www.thefinancialexpress-
bd.info/search_index.php?page=detail_news&news_id=42054
BPC to import 0.15m tonnes of fuel oil from Maldives by
December
The Financial Express, Friday August 8, 2008
State-owned Bangladesh Petroleum Corporation (BPC) will
import 0.15 mn MT of refined petroleum oil from the Maldives
19
10 August 2008
by December 2008 to meet the country's requirement. The
Maldives National Oil Company Ltd (MNOC), a state-owned
company, will supply 90,000 MT of diesel, 30,000 MT of
Mogas oil and another 30,000 MT of Jet A-1 fuel to
Bangladesh. The premium paid for diesel from the Maldives
will be USD 5.19 per barrel, USD 5.6 per barrel for Jet A-1
and USD 7.5 per barrel for Mogas oil.
Bangladesh, a net oil importing country, has demand for
nearly 3.8mn MT per year of which 2.8mn MT is for diesel
and the remaining 1.0mn MT for other types of petroleum oil.
http://www.thefinancialexpress-
bd.info/search_index.php?page=detail_news&news_id=42057
Dhaka-
Dhaka-Chittagong Highway project skids to a halt
The Financial Express, August 7, 2008
A three-member committee has been asked to look into
alleged irregularities and corruption in the tender process for
the Dhaka-Chittagong Highway project and submit a report
within 15 days.
The project, which was initially budgeted at BDT 17.50bn
(USD 255.6mn), was first put out to tender in 2006. However,
the tender process was cancelled following allegations of
irregularities and corruption. When the current caretaker
government came to power, the process was again initiated
in January 2007, with a revised budget of BDT 21.7bn (USD
316.6mn).
The process, however, again ran into difficulties, as it failed
to fulfill conditions of the Public Procurement Regulations
(PPR), with winning tenders being required to deposit monies
within 7 days rather than the prescribed 28 days per the
regulations. Following the communications ministry’s
cancellation of the tenders, the winning companies filed
petitions with the High Court (HC) on 21 July, challenging the
legality of the cancellation where the HC ordered a stay on
the cancellation order. On the 28 July a government
purchase committee did not approve a re-tender proposed by
the Communications Ministry. The fate of the project now
hangs in the balance.
http://www.thefinancialexpress-
bd.info/search_index.php?page=detail_news&news_id=41963
Three more landports will be handed over to pvt operators
Financial Express, August 6, 2008
Three land ports, Tamabil in Sylhet, Akhaura in
Brahmanbaria and Burimari in Lalmonirhat, will be handed
over to private operators under Build-Operate-Transfer
(BOT) arrangement for a period 25 years by 2009 to help
boost cross border trade. The first meeting of Pre-
qualification and Tender Evaluation Committee (PTEC) is
scheduled to be held at the Bangladesh Land Port Authority
(BLPA) office in Dhaka next Sunday, August 10. The
government earlier decided to hand over the operations of
the country's 12 land ports to the private operators in phases
under the BOT arrangement. The ports that have already
been transferred through open tenders to the private
operators include Sona Masjid in Chapai Nawabganj, Hili in
Dinajpur, Banglabandha in Panchagarh, Bibir Bazar in
Comilla, Birol in Dinajpur and Teknaf in Cox's Bazar.
_______________________________________________________________________________________
AT Capital Weekly Update
AT CAPITAL RESEARCH
Bhomra in Satkhira, Darshona in Chuadanga and Haluaghat
in Mymensingh will also be transferred to the private sector in
the third phase after successful completion of the second
phase.
http://www.thefinancialexpress-
bd.info/search_index.php?page=detail_news&news_id=41875
Government plans to adopt Coal Sector Master Plan
The Financial Express, Thursday August 7, 2008
The government plans to adopt the country's first Coal Sector
Master Plan (CSMP) in line with the proposed national coal
policy for proper utilisation of the country's large coal
reserves. The coal master plan will be aimed at achieving the
ultimate target of coal production in phases within the next
two decades. If adopted it will be the third such master plan
to develop the country's energy sector after the already
adopted Power System Master Plan (PSMP) and Gas Sector
Master Plan (GSMP). Due to the absence of any concrete
master plan the coal reserves have remained untapped for
many years.
http://www.thefinancialexpress-
bd.info/search_index.php?page=detail_news&news_id=41964
MCCI seeks license fee withdrawal from captive power
plants
The Daily Star, Wednesday August 6, 2008
The Metropolitan Chamber of Commerce and Industry
(MCCI) urged the government to immediately withdraw the
provision in the Bangladesh Energy Regulatory Commission
License Regulations, 2006 that imposed license fees for
establishing captive power plants ranging from BDT 0.5mn
(USD 7,303) to BDT 2.5mn (USD 36,512). The MCCI also
opposed the Power Development Board’s (PDB) proposal to
raise the average electricity tariff by 40%. The MCCI
publication suggested that the PDB could save around BDT
17.5bn (USD 255.6mn) a year by reducing 5% system loss in
generation and transmission without increasing tariffs.
http://www.thedailystar.net/story.php?nid=49102
Government set to adopt policy for merchant power plants
The Financial Express, Monday August 4, 2008
The government is set to adopt a merchant power plant
policy to promote private sector investments and develop
public-private partnership in the country's ailing power sector.
Unlike the existing regulations of providing fuel supply and
power purchase guarantees to power plant sponsors by the
government, the new policy would provide liberty to the
sponsors to make own arrangements for fuel and select their
own customers. The private sector would also be allowed to
have access to transmission and distribution lines in
exchange for payment of agreed wheeling charges.
http://www.thefinancialexpress-
bd.info/search_index.php?page=detail_news&news_id=41669
New power connection in rural areas uncertain
The New Nation, Monday August 4, 2008
New electricity connections in rural areas remain uncertain
for the next two years, as the Rural Electrification Board
20
10 August 2008
(REB) has not taken up any expansion programme yet in
2008 due to budgetary constraints. The REB has already
received over 0.7mn applications from rural people for new
connections. REB has submitted six expansion projects for
six divisions under 70 Palli Biddut Samity, including Rural
Electrification (RE) Expansion Programme 1 in Dhaka,
Chittagong, Rajshahi, Khulna, Barisal and Sylhet divisions to
the Power Ministry for approval.
The REB has 7.3mn consumers now where it is only able to
supply 955MW of power against the demand of 1,851MW in
last couple of months.
http://nation.ittefaq.com/issues/2008/08/04/news0768.htm
Insurance
Islamic, conventional insurers to get 6 months to choose any
one
The Daily Star, Tuesday August 5, 2008
Insurance companies engaged in both Islamic and
conventional insurance businesses will be given six months
to choose between conventional and Islamic insurance, as
the newly approved Insurance Ordinance 2008 will allow only
one type to be practiced by a single company. A senior
official of the Ministry of Commerce said that after the expiry
of the timeframe of six months, actions, including
cancellation of licenses, will be taken against violators.
Of the 60 insurance companies that are operating in
Bangladesh, six are full-fledged Islamic insurance
companies. Three of them are life insurance companies and
the rest are general insurance companies.
Income of Islamic Insurance Companies 2007 (USD mn)
Non--life Insurance Companies
Non
Islami Insurance Bangladesh 3.1
Takaful Islami Insurance 2.4
Islami Commercial Insurance Co. 1.7
Life Insurance Companies
Fareast Islami Life Insurance 34.9
Prime Islami Life Insurance 11.7
Padma Islami Life Insurance 9.8
Source: The Daily Star
http://www.thedailystar.net/story.php?nid=48950
IT
Some IT firms see good prospects
The Financial Express, August 5, 2008
A number of IT companies in the country are now opting for
the production of animation programmes, which are in high
demand in local and international markets. The international
animation market is estimated to be around USD 1trn a year
mainly because of the rise in the cartoon-based TV channels
worldwide.
Companies from North America and Europe are now
outsourcing their animation programmes. Outsourcing giant,
_______________________________________________________________________________________
AT Capital Weekly Update
AT CAPITAL RESEARCH
India is targetting export animation programmes business
worth around USD 42bn by 2009. Bangladesh needs more
entrepreneurs in the field and hundreds of studios each
having the capacity of more than 20 minutes, the preferred
de minimus capacity of international buyers. So far around
six large studios have been set up in the Dhaka.
http://www.thefinancialexpress-
bd.info/search_index.php?page=detail_news&news_id=41772
Real Estate
ME firm to build 2 townships in Dhaka
The Daily Star, Sunday August 10, 2008
A leading Middle East-based developer is working to
establish two modern townships in Dhaka. The Ras Al
Khaimah-based Rakeen Development Company has already
got approval from the Board of Investment (BoI) for
establishing the proposed townships in Dhaka's suburb
areas. They have plans of making around 6,000 flats at the
proposed luxurious townships and have further plans to
engage in the Bangladesh housing sector. The Ras Al
Khaimah (RAK) is one of the largest housing companies in
the Gulf region having an authorised capital of USD 817mn.
It has stakes in property development, tourism, township
building, commercial and industrial sectors. SAK
Ekramuzzaman, Bangladesh Country Director of Rakeen
Development said that the site selection process is currently
under process and the company is conducting feasibility
study for the projects at six to seven sites of the city. He
mentioned that Rakeen Development wants to set quality as
its USP.
http://www.thedailystar.net/pf_story.php?nid=49729
Real estate agent business gains recognition
The Daily Star, Thursday August 07, 2008
Century 21 Reality (pvt) Ltd, a local real estate services
providers has announced it is focusing on providing
residential and commercial real estate agency services for
foreigners. Century is one of the few companies involved in
providing housing related services such as residential and
commercial space rental and sales, relocation of commercial
and residential units, property management, and negotiation
for selling and buying of land and properties, among others.
Century also provides furnished apartments to cater to the
demands of the foreigners.
Renewable Energy
Renewable energy producers
producers allowed to supply power thru'
national grid
The Financial Express, Sunday, August 10, 2008
Dr M Fouzul Kabir Khan, the Power secretary announced
that renewable energy producers will be able to provide
electricity to their consumers through the state-controlled
electricity national grid, State-owned power entities will
purchase the renewable electricity offering attractive rates to
encourage more production of such energy.
21
10 August 2008
He also mentioned that work is going on to adopt the
country's first-ever renewable energy policy to attract
investments for electricity generation from unconventional
resources. The policy is likely to make the use of solar power
systems in multi-storied buildings and apartments mandatory
for lighting and water heating.
http://www.thefinancialexpress-
bd.info/search_index.php?page
1m solar household systems by 2012 to achieve target
The Daily Star, Sunday, August 10, 2008
IDCOL, a company under the Ministry of Finance, has set a
target to install 1mn Solar Household Systems (SHSs) by
2012 to help government achieve the target of providing
electricity to all by 2020. IDCOL is implementing the solar
electrification programme in remote areas far from the power
grid since 2003 through 15 NGOs and Micro Finance
Institutions (MFI) including Grameen Shakti and Brac with
financial support of different development partners. Grameen
Shakti, one of pioneer NGO SHS providers, has installed
1.70 lakh solar panels with an average per month installation
rate of 8,000 panels.
The price for the whole SHS system including PV, battery,
wire and other accessories ranges between BDT
21,000(USD 307) and BDT 70,000(USD 1022) and
consumers can purchase a solar home system both in cash
and credit
To enjoy the credit facility, a customer has to pay a minimum
10-15% of total cost of a system as down payment; and the
balance can be paid by installment within two to five years.
http://www.thedailystar.net/story.php?nid=49782
Telecoms
Obopay and Grameen Solutions Partner to Bank a Billion
Foxbusiness.com, Wednesday, August 06, 2008
Obopay, Inc., the pioneering service provider for payments
via mobile phones, and Grameen Solutions, the company
globally recognized for promoting economic and social
development through information and communications
technology, today announced a unique, first-of-its-kind
alliance to use mobile technology to deliver banking services
to a billion people by 2018. The Grameen-Obopay Bank A
Billion Initiative will provide access to affordable financial
services, including savings, cross-border remittances, money
transfer, payments, and micro-credit.
http://www.foxbusiness.com/story/obopay-grameen-solutions-
partner-bank-billion/
Aktel plans to go public by the end of the year
The Daily Star, Wednesday August 06, 2008
Aktel, the country's third largest mobile operator, has
announced it plans to go public by the end of 2008. This
follows Grameenphones' plans to do an IPO in Sept-Oct this
year. See our stock market section for further commentary.
http://www.thedailystar.net/story.php?nid=49109
_______________________________________________________________________________________
AT Capital Weekly Update
AT CAPITAL RESEARCH
Three IP telephony licenses for local firms by Oct
The Daily Star, Monday August 04, 2008
The country's telecoms regulator, Bangladesh
Telecommunications Regulatory Authority (BTRC), has
decided to issue IP (internet protocol) telephony licenses to
three local internet service providers by October. In a
meeting with Internet Service Provider Association of
Bangladesh (ISPAB), the telecom watchdog also said it has
already formulated a draft policy to introduce the internet-
based telephony that uses the internet protocol's packet-
switched connections to exchange voice data.
This starts another chapter in BTRCs efforts to liberalize the
telecommunication sector in Bangladesh. BTRC has already
started to the process of issuing WiMax licenses and is
expected to provide three licenses by the end of the year.
The telecoms regulator is also expected to issue 3G mobile
telecommunication licenses within this year.
http://www.thedailystar.net/story.php?nid=48801
Tourism
Bangladesh Parjatan Corporation trying to revive tourism
sector
The Daily Star, Friday August 8, 2008
Bangladesh Parjatan Corporation (BPC) is actively
identifying the different problems associated with the
country's tourism sector, announced its Chairman, Shafique
Alam Mehdi. The BPC is making a concerted effort to
introduce multidimensional tourism, with respect to religious,
natural and archaeological spots. There are also plans of
appointing local and foreign tourist experts, including tour
operators, architects and professionals involved within the
hospitality sector. He said that BPC has major shortcomings
in exploring all the places that have the potential to become
tourist destinations and these spots need to be identified. A
major obstacle is a lack of proper infrastructure, such as a
weak communications system to various sites. The BPC
plans to form a committee led by Professor Abdullah Abu
Sayeed, winner of the prestigious Ramon Magasaysay
Award 2004, to brand the country.
The Chairman also mentioned plans to restructure the BPC.
After being established in 1972, the BPC has been working
to develop the country's tourism sector and maintaining
commercial activities by running hotels, motels, bars,
swimming pools and golf clubs. From May 2008, 15 out of 35
existing establishments have been privatized under lease
agreements for 15 years. The others are to be privatized by
the end of the year.
The BPC has already finalised a draft Tourism Act. Upon
government approval, the BPC will be converted into the
National Tourism Board or the Bangladesh Tourism Board,
which will be an autonomous body, maintained by an
independent Board of Directors. Moreover, the government is
planning to set up a tourism department, which will act as the
regulatory body to the newly formed establishment. The body
will oversee the development of the sector, ensure service
quality, as well as coordinate public and private initiatives.
http://www.thedailystar.net/story.php?nid=49409
22
10 August 2008 AT CAPITAL RESEARCH
Appendix
What are REITs?

Over nearly half a century, the U.S. real estate investment trust (REIT) industry has become an important segment of the US
economy and investment markets. U.S. REITs have seen their equity market capitalization soar from $90 billion to more than $300
billion in just the past 10 years. In the process, that growth has set the stage for the adoption of the REIT approach to securitized
real estate investment across the globe.

In many developed economies, and indeed EM, investing in income-generating real estate can be an attractive either from a stable
income or portfolio diversification perspective. But for many retail investors, investing in real estate, particularly commercial real
estate, is simply out of reach financially. But what if you could pool your resources with other small investors and invest in large-
scale commercial real estate as a group? REITs allow you to do just that.

REIT stands for real estate investment trust and is sometimes called "real estate stock." Essentially, REITs are corporations that
own and manage a portfolio of real estate properties and mortgages. Anyone can buy shares in a publicly traded REIT. They offer
the benefits of real estate ownership without the headaches or expense of being a landlord.

Investing in some types of REITs also provides the important advantages of liquidity and diversity.
diversity Unlike actual real estate
property, these shares can be quickly and easily sold. And because you're investing in a portfolio of properties rather than a Single
building, you face less financial risk.

REITs came about in the US in 1960, when Congress decided that smaller investors should also be able to invest in large-scale,
income-producing real estate. It determined that the best way to do this was the follow the model of investing in other industries --
the purchase of equity.
equity

There are a number of specific rules, especially with respect to tax, which REITs have to follow to maintain their favourable fiscal
treatment. These VARY

A company must distribute at least 90 percent of its taxable income to its shareholders each year to qualify as a REIT. Most REITs
pay out 100 percent of their taxable income. In order to maintain its status as a pass-
pass-through entity,
entity a REIT deducts these dividends
from its corporate taxable income. A pass-through entity does not have to pay corporate federal or state income tax -- it passes the
responsibility of paying these taxes onto its shareholders. REITs cannot pass tax losses through to investors, however.

From the 1880s to the 1930s, a similar provision was in place that allowed investors to avoid double taxation -- paying taxes on both
the corporate and individual level -- because trusts were not taxed at the corporate level if income was distributed to beneficiaries.
This was reversed in the 1930s, when passive investments were taxed at both the corporate level and as part of individual income
tax. REIT proponents were unable to persuade legislation to overturn this decision for 30 years. Because of the high demand for
real estate funds, President Eisenhower signed the 1960 real estate investment trust tax provision qualifying REITs as pass-through
entities.
A corporation must meet several other requirements to qualify as a REIT and gain pass-through entity status. They must:

1. Be structured as corporation, business trust, or similar association

2. Be managed by a board of directors or trustees
3. Offer fully transferable shares
4. Have at least 100 shareholders
5. Pay dividends of at least 90 percent of the REIT's taxable income
6. Have no more than 50 percent of its shares held by five or fewer individuals during the last half of each taxable year
7. Hold at least 75 percent of total investment assets in real estate
8. Have no more than 20 percent of its assets consist of stocks in taxable REIT subsidiaries
9. Derive at least 75 percent of gross income from rents or mortgage interest

At least 95 percent of a REIT's gross income must come from financial investments (in other words, it must pass the 95- 95-percent
income test).
test These include include rents, dividends, interest and capital gains. In addition, at least 75 percent of its income must
come from certain real estate sources (the 75-
75-percent income test),
test including rents from real property, gains from the sale or other
disposition of real property, and income and gain derived from foreclosure of property

Trends

In its early years, the industry was dominated by mortgage REITs, which provide debt financing for commercial or residential
properties through their investments in mortgages and mortgage-backed securities. The market’s interest in equity REITs, which
today usually both own and manage commercial properties, initially was limited because the ownership and management of assets
were required to remain separate. That restriction changed with the passage of the Tax Reform Act of 1986, which permitted REITs
to both own and manage their properties as vertically integrated companies and helped set the stage for a secular wave of equity
REIT IPOs in the mid-1990s. Currently, more than 90 percent of the nearly 200 publicly traded U.S. REITs are equity REITs that
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10 August 2008 AT CAPITAL RESEARCH
own and most often manage commercial real estate and derive most of their revenue and income from rents. In aggregate, these
companies own properties across all major property sectors and all major geographic regions.

UK REITs

The legislation laying out the rules for REITs in the United Kingdom was enacted in the Finance Act 2006 and came into effect in
January 2007 when nine UK property companies converted to REIT status, including the five that were FTSE 100 members at that
time: British Land, Hammerson, Land Securities, Liberty International and Slough Estates (now known as "SEGRO"). The other four
were: Brixton, Great Portland Estates, Primary Health and Workspace.
British REITS have to distribute 90% of their income. They must be a close-ended investment trust and be UK resident and publicly
listed on a stock exchange recognised by the Financial Services Authority.

Pakistan REITs

Pakistan has just published their REIT Regulatory guidelines. The authorities there hope to attract $ 3bn of REIT financing over the
next 3 years.

A very useful paper on REITs in Pakistan, especially from a Shariah or Islamic Banking perspective, has been published by the
SEC at

http://www.secp.gov.pk/corporatelaws/pdf/reits_researchpaperkasbsecuritieslimited.pdf

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10 August 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 akhter.ahmed@at-capital.com
Masud Khan Senior Advisor (880-2)-8155144, ext. 113 masud.khan@at-capital.com

Junaid Khan Investment Advisor (880-2)-8155144, ext. 121 junaid.khan@at-capital.com

Shahidul Islam, CFA Investment Manager (880-2)-8155144, ext. 122 shahid.islam@at-capital.com
Taufique Hasan Investment Manager (880-2)-8155144, ext. 123 taufique.hasan@at-capital.com

Syeda Tasnuva Akhter Research Associate (880-2)-8155144, ext. 127 syeda.tasnuva@at-capital.com

S Adeeb Shams
A. M. A. Bari Nahid
Mohammad Emran Hasan
Sohana Alam Seraj
Ahmad Sajid
S.M. Rashedul Hasan
Research Associate (880-2)-8155144, ext. 128 adeeb.shams@at-capital.com
Research Associate (880-2)-8155144, ext. 130 nahid.bari@at-capital.com
Research Associate (880-2)-8155144, ext. 131 emran.hasan@at-capital.com
Office Manager (880-2)-8155144, ext. 132 sohana.alamseraj@at-capital.com
Research Associate (880-2)-8155144, ext. 135 ahmad.sajid@at-capital.com
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
Sanwar Ahmed Research Analyst (880-2)-8155144, ext. 139 sanwar.ahmed@at-capital.com
Md. Zahidur Rahman IT Analyst (880-2)-8155144, ext. 140 zahidur.rahman@at-capital.com

Ashek Ishtiak Haq Research Assistant (880-2)-8155144, ext. 136 ashek.haq@at-capital.com

Syed Najibullah Research Assistant (880-2)-8155144, ext. 136 syed.najibullah @at-capital.com
Minul Islam Research Assistant (880-2)-8155144, ext. 136 minul.islam @at-capital.com
Rasidul Hasan Research Assistant (880-2)-8155144, ext. 136 rasidul.hasan @at-capital.com

AT Capital Team – North America

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

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

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AT Capital Weekly Update 25