CREDIT RATING REPORT

Raj Lanka Power Company Limited

Particulars Preference Share amounting BDT 2,760.0 million of 52.2MW HFO-based power plant of Raj Lanka Power Company Limited at Natore
**SO-Structured Obligation

Provisional Rating*

AA3(SO)**

Date of Rating: 05 October 2011 Validity: 04 April 2012 Rating Based on: Draft Power Purchase Agreement, Draft EPC Contract, Draft O&M Contract, Project Profile, and Financial Model. Methodology: CRABs Project Rating Methodology (www.crab.com.bd) * The Power Company has received Letter of Intent (LOI) from BPDB. However, all other proceedings will be finalized after the Financial Closure for the project. As a result, the rating would be PROVISIONAL and contingent to the finalization of the following contracts, BPDB Contract Fuel Supply Contract EPC Contract O&M Contract Environmental Clearance Information Memorandum Fuel Oil (HFO) fired power plant at Rajshahi (Natore), Analysts: Md. Hussainul Islam Sajib sajib@crab.com.bd Sajjad-Bin-Siraj sbsiraj@crab.com.bd Bangladesh for a period of 15 years. The power plant will be connected to the 132/33 kV Natore Grid Substation.

RATIONALE
Credit Rating Agency of Bangladesh (CRAB) Limited has assigned AA3(SO) (Pronounced as Double A Three-Structured Obligation) rating in the Long Term to the 52.2 MW HFO-based power project of RajAmount 47.0 2,400.1 320.9 225.0 214.7 183.3 21.4 42.9 235.7 3,691.0 931.0 2,760.0 75:25 The fixed cost of the project has been estimated by sponsors to be BDT 3,691.0 million, of which BDT 931.0 million will be financed through equity and the remaining amount of BDT 2,760.0 million will be financed by Preference Share with tenure of 10 years (with grace period of 5 quarters), at a preference-tocommon equity ratio of 75:25. The Preference Share would be redeemable, convertible, and cumulative in nature and would have two different investment options. Under one option, the loan equivalent dividend return would be 12.55% per annum (based on a quarterly dividend rate of 9.0% p.a., which is subject to 20% tax). Additionally, 15% of the
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Project Cost (Mil. BDT) Particulars Land Plant & Machinery/EBOP/MBOP Civil Construction Transmission Line/Sub Cost Transport/Contingency Participation Fees Licenses/Fees Financing Fees Working Capital Total Project Costs Common Equity Preferred Equity Preferred to Common Equity ratio

Lanka Power Company Limited (hereinafter referred to as RLPCL or the Project or the Power Company) which has planned to issue Redeemable Convertible Cumulative Preference Share (RCCPS) amounting BDT 2,760.0 million for setting up of the power plant at Rajshahi (Natore) to meet the growing electricity demand of the country.

PROFILE
Raj Lanka Power Company Ltd, a Consortium between Lakdhanavi Limited of Sri Lanka and A&A Fashions Sweaters Ltd. of Bangladesh, is entitled to build, own, operate and maintain a 52.2 MW Heavy

CRAB I CRAB Ratings on Corporate Credit Digest I December 21, 2011

CRAB Rating Report

Power Project

Raj Lanka Power Company Limited

preference shares would be convertible into ordinary shares at face value. Under the second option, the loan equivalent dividend return would be 14.0% per annum (based on a quarterly dividend rate of 10.1% p.a., which is subject to 20% tax). Additionally, 12% of the preference shares would be convertible into ordinary shares at face value. The investors can choose between either of the options at their discretion. Raj Lanka Power Company Limited is a joint venture between Lakdhanavi Limited (95.0% of total holding) of Sri Lanka and A&A Fashion Sweaters Limited (5.0% of total holding) of Bangladesh. Lakdhanavi Limited will also act as the O&M contractor for the Project. Lakdhanavi is a concern of the LTL Group which is a subsidiary of the Ceylon Electrification Board (CEB). The rating of the Project is supported by the long track record of Lakdhanavi Limited of operating power plants in both Sri Lanka and Bangladesh. The rating is also supported by pass-through of implementation risk to the EPC contractor, LTL Global Engineering Services (Pvt.) Limited, which is an associated company of Lakdhanavi Limited. Operating and performance risk is passed on to the O&M contractor that is Lakdhanavi Limited, itself. In CRABs view, power shortage in Bangladesh has made the sector highly attractive for investment. Power sector investment offers the lenders lower business risk compared to corporate entities. Highly supportive authority offers implied sovereign support to ensure reliability of HFO supply (through Bangladesh Petroleum Corporation) and regulatory framework allows full cost recovery. Large well-protected service area and support for the electric transmission system outweigh user considerations. Competition is absent in the sector and monopoly or oligopoly is contained by contract with public sector entities and regulatory authority. Regulatory framework is designed fundamentally to achieve balance between supply reliability and service, efficiency, price and financial returns to the project undertaker. Electricity is wholly sold under 15 years contract to creditworthy counter party BPDB (a government owned company), which assumes all risk of fluctuation in the market prices of fuel and electricity resulting in lowest business risks. Under Rental Power Agreement, the Power Company receives a capacity charge adjusted by plant load factor, which covers the portion of the fixed costs in relation to the power availability. These fixed payments cover partial debt service and are made irrespective of electricity generation or not. In addition, energy charge is received for energy generation to cover the partial debt and variable costs of the project. The rating accounts for the risk management pass through capability, price considerations, excess reserve capacity of the plant, risksharing arrangements, and default provisions embedded in the 15 years term supply contract. Bangladesh has adopted an ex-ante approach, under which the tariff structure is set in advance. In spite of high leverage, the rating draws comfort for the predictable revenue stream of the project, zero level of demand and product risk, 15 year contracted period, and the nature of tariff structure to hedge against inflation and exchange rate risk.

www.crab.com.bd; www.crabrating.com

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Raj Lanka Power Company Limited

CRAB RATING SCALES AND DEFINITIONS

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

C Single C

D (Default)

*Note: CRAB appends numerical modifiers 1, 2, and 3 to each generic rating classification from AA through CCC. The modifier 1 indicates that the obligation ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the lower end of that generic rating category.
Copyright 2008, CREDI T RATI NG A GENCY OF BA NGLA DESH LIMITED ("CRAB"). All rights reserved. A LL I NFO RMATIO N CO NTAI NED HEREI N IS PROTEC TED BY COPYRI GHT LAW AND NONE O F SUCH INFORMA TION MAY BE COPIED OR OTHERWISE REPRO DUC ED, REPACKAGED, FURTHER TRA NSMITTED, TRA NSFERRED, DISSEMI NATED, REDISTRIBU TED OR RESO LD, OR STO RED FO R SUBSEQUENT USE FOR A NY SUC H PURPO SE, IN W HOLE O R IN PART, IN ANY FO RM O R MANNER O R BY ANY MEA NS WHA TSO EVER, BY ANY PERSO N WITHOUT CRABS PRIO R WRI TTEN CONSENT. All information contained herein is obtained by CRAB from sources beli eved by it to be accurate and reliable. Because of the possi bility of human or mechanical error as well as other factors, however, such infor mation is provided as is without warranty of any kind and CRAB, in particular, makes no representation or warranty, express or impli ed, as to the accuracy, timeliness, complet eness, merchantability or fitness for any particular pur pose of any such information. Under no circumstances shall CRAB have any liability to any person or entity for (a) any loss or da mage in whol e or in part caused by, resulting from, or relating to, any error (negligent or otherwise) or other circumstance or contingency within or outside the control of CRAB or any of its directors, officers, employees or agents in connection with the procurement, collection, compilation, analysis, interpretation, communication, publication or delivery of any such information, or (b) any direct, indirect, special, consequential, compensatory or incidental da ma ges whatsoever (including without li mitation, lost profits), even if C RAB is advised in advance of the possibility of such da mages, resulting from the use of or inability to use, any such infor mation. The credit ratings and financial reporting analysis observations, if any, constituting part of the infor mation contained herein are, and must be construed sol ely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any securities. NO WARRA NTY, EXPRESS OR IMPLIED, AS TO THE ACCURAC Y, TIMELINESS, COMPLETENESS, MERC HANTABILITY OR FITNESS FO R ANY PARTICULA R PURPOSE OF ANY SUC H RATI NG OR OTHER OPINION O R I NFORMA TION IS GIVEN O R MA DE BY CRAB IN ANY FORM O R MA NNER WHA TSO EVER. Each rating or other opinion must be w eighed solely as one factor in any invest ment deci sion made by or on behalf of any user of the information contained herein, and each such user must accordingly make its own study and evaluation of each security and of each issuer and guarantor of, and each provider of credit support for, each security that it may consi der purchasing, holding or selling.

CRAB I CRAB Ratings on Corporate Credit Digest I December 21, 2011

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