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08 February 2009 AT CAPITAL RESEARCH

AT Capital Weekly Update


Key themes in this issue are:

Overview:

• There has been a steady rise in protectionist rhetoric globally in recent months. This has
been seen in the US in terms of “Buy America” clauses in the stimulus package. There
have also been strikes in the UK against overseas workers.
Weekly News Update

• Emerging economies are suffering from the collapse of the US and European financial
sectors. Hedge funds are pulling back. And more importantly, capital constrained banks
are pulling back.

• Such growing protectionism occurs at a time when the major export nations, especially in
Asia, such as Japan, Korea and Taiwan are seeing an unprecedented collapse in their
trade activity.

• Bangladesh is actually a more “open” economy than either India or Pakistan. Thus rising
protectionism, the collapse in global trade and the substantial retrenchment by global
banks is likely to have an increasingly negative impact on Bangladesh.

• Although RMG is nearly 80% of exports, the other 20% is showing significant signs of
slowdown. Ceramics export demand is falling sharply as is the demand for Agro-products,
especially frozen food exports.

• There is likely to be a substantial reduction in available trade finance in BD.

• Global banks have been cutting back international lending including trade finance, partly
due to balance sheet pressure and in part from moral suasion by governments who have
EDITORS bailed them out. This is already being reflected in terms of tougher Letters of Credit (LC)
terms for Bangladeshi exporters.

Ifty Islam • In addition, domestic banks, some of whose clients have lost substantial amounts due to
Asian Tiger Capital Partners

Managing Partner falling commodity prices during the second half of 08 are also risk averse.
ifty.islam@at-capital.com

Syeed Khan • Indian External Affairs Minister Pranab Mukerjee visits Dhaka Feb 8. We discuss some of
Partner the major issues in India-Bangladesh Relations. We recognize there are challenges but
syeed.khan@at-capital.com
argue there are also significant mutually beneficial opportunities.
Jisha Sarwar
Senior Research Associate
jisha.sarwar@at-capital.com
Global Protectionist Pressures Set to Rise in 2009

Asian Tiger
Capital Partners

UTC Building, Level 16


8 Panthapath, Dhaka-1215
Bangladesh
Tel: 8155144, 8110345
Fax: 9118582

www.at-capital.com
08 February 2009 AT CAPITAL RESEARCH
Contents Page

Overview
Growing Global Protectionism 3
Global Exports are Collapsing 3
What does rising protectionism mean for Bangladesh? 5
Indian Foreign Minister arrives in Dhaka this week 6
India an Opportunity not a Threat 6
Composition of India’s Trade with Bangladesh 7
Trade and transaction costs 7
Energy Cooperation 8
“India+1”: Bangladesh attracting diversification investment from India 8

Stock Market Weekly 9


Weekly Stock Market Commentary 10
Stock Market News 10

Economics 13
Economics News

15
Sector News
Agriculture & Food/ Aviation/ Banking 15
Infrastructure & Energy 16
Leather Goods/ Real Estate/ Ship Building 17
Telecoms/ Textiles 18
Tourism 19

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AT Capital Weekly Update 2
08 February 2009 AT CAPITAL RESEARCH
Ifty Islam, Managing Partner
ifty.islam@at-capital.com

Overview
Growing Global Protectionism

“Trade encourages specialization, which brings prosperity; global


capital markets, for all their problems, allocate money more
efficiently than local ones; economic co-operation encourages
confidence and enhances security. Yet despite its obvious benefits,
the globalised economy is under threat…the re-emergence of a
spectre from the darkest period of modern history argues for a
different, indeed strident, response. Economic nationalism—the
urge to keep jobs and capital at home—is both turning the
economic crisis into a political one and threatening the world with
depression. If it is not buried again forthwith, the consequences
will be dire…The links that bind countries’ economies together are
under strain. World trade may well shrink this year for the first
time since 1982. Net private-sector capital flows to the emerging
markets are likely to fall to $165 billion, from a peak of $929
billion in 2007. Even if there were no policies to undermine it,
globalization is suffering its biggest reversal in the modern era.”
(The Economist, Feb 6, 2009) Global Exports are Collapsing

There has been a steady rise in protectionist rhetoric that has Such growing protectionism occurs at a time when the major
manifested itself in different ways, from the proposed inclusion of export nations, especially in Asia, such as Japan, Korea and Taiwan
“Buy American” in the Congressional Stimulus package, to strikes are seeing an unprecedented collapse in their trade activity. As
and demonstrations in the UK against Italian workers at refineries. the Economist notes:”many of Asia’s tiger economies seem to
New Treasury Secretary Tim Geithner’s pointed accusation of have been hit harder than their spendthrift Western counterparts.
Chinese currency manipulation in his confirmation hearings played In the fourth quarter of 2008, GDP probably fell by an average
to a receptive Congress and public. China is also at the receiving annualized rate of around 15% in Hong Kong, Singapore, South
end of a ban on its toy exports to India for 6 months. Korea and Taiwan; their exports slumped more than 50% at an
annualized rate”.
In France and Britain, politicians pouring taxpayers’ money into
ailing banks are demanding that the cash be lent at home. Since In the fourth quarter of 2008, real GDP fell by an annualized rate
banks are reducing overall lending, that means repatriating cash. of 21% in South Korea and 17% in Singapore, leaving output in
Regulators are thinking nationally too. Switzerland now favours both countries 3-4% lower than a year earlier. Singapore’s
domestic loans by ignoring them in one measure of the capital its government has admitted the economy may contract by as much
banks need to hold. This contrasts with foreign lending which as 5% this year, its deepest recession since independence in 1965.
counts in full. In comparison, China’s growth of 6.8% in the year to the fourth
quarter sounds robust, but seasonally adjusted estimates suggest
This is economic nationalism, but of a less obvious type. The output stagnated during the last three months. Asia’s largest
purpose is to steer banks towards supporting businesses and jobs economy, Japan, is yet to report its GDP figures, but exports fell by
at home, not abroad. That has an undercurrent of protectionism 35% in the 12 months leading to December. In the same period,
about it. Taiwan’s exports dropped by 42% and industrial production was
down by an extraordinary 32%, worse than the biggest annual fall
As Brad Stetser of the Council for Foreign Relations has noted, in America during the Depression.
that’s not to say that the problems emerging economies now face
trying to raise funds originated in the emerging world. They didn’t. South Korea released preliminary data for January external trade.
They are suffering from the collapse of the US — and European — The results were grim. Exports tumbled by a great-than-expected
financial sector. Hedge funds are pulling back. And more 32.8% y/y. While that is a terrible figure, looking at the actual total
importantly, capital constrained banks are pulling back. That — decline in exports is perhaps even more shocking - exports are
not the fiscal deficit — is what is pulling funds out of the emerging down 47% since the middle of last year. So the theme of
world. Emerging economies in that sense are no different than collapsing global trade looks to be alive and well. The sheer scale
any other borrower facing difficulties getting a bank loan. He of the fall in Korean and Taiwanese exports shows up most cleanly
concludes that “The fact that the financial sector now depends on if monthly exports are plotted over time (charts below courtesy of
a government backstop may have prompted the banks to pull Brad Stetser).
back more from foreign markets than their home markets, though
they are clearly doing both. Deglobalization — particularly
financial deglobalization — isn’t going to be pretty.”

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08 February 2009 AT CAPITAL RESEARCH

Looking at the annual % change confirms that the current


slowdown is sharper than past slowdowns, and given the strong
growth in exports over the past several years, a bigger percentage
change interacts with a bigger base to produce a far bigger
absolute fall.

Source: Bespokeinvest

However, the rally is still modest relative to the scale of the


decline evidenced in the upper chart. Moreover, the collapsing
trade in the regions other major exporters that we highlighted
above suggests global trade remains under extreme pressure. It is
difficult to see how China can remain immune to that. As a result,
expectations that Chinese GDP may halve towards 6% in 2009, do
not appear over-pessimistic, even in the face of the USD 571bn
stimulus package passed last year.
The latest Chinese purchasing managers’ survey from CLSA wasn’t
as bad as the last one. The fall in the pace of contraction in activity The passing of the USD 780bn US stimulus package looks more
has generated hope that China’s economy will rebound later in certain in the light of Friday’s shocking January Labor Market
the year. China’s stimulus will help, as will the fact that China’s report. The unemployment rate jumped to 7.6% and as the chart
state banks are liquid and have clear instructions to lend. As the below illustrates, the revised job loss picture is looking far worse
chart below illustrates, the Shanghai stockmarket has bounced off than originally reported. The US downturn looks like it is
its lows. accelerating and while the Obama Administration bargaining chips
to secure rapid passage of the stimulus package looks to have
increased, the effects on the US economy may not be felt in a
meaningful way until 2010.

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08 February 2009 AT CAPITAL RESEARCH
As the chart below from Paul Swartz of CFR also illustrates, things unemployment rises, that consumers in developed markets cut
seem to be getting worse in the current US downturn. The fall in back on all discretionary expenditure, even in lower priced
industrial production in the current cycle is already worse than the products which might outweigh the substitution benefits for
fall in an average post World War 2 recession. Bangladeshi garment exports. Anecdotal evidence from textile
producers as well as cotton importers we have spoken to in
Bangladesh suggest dramatic declines in raw material imports
which in turn suggest a scaling back of future RMG production.

Secondly, although RMG is nearly 80% of exports, the other 20% is


showing significant signs of slowdown. Ceramics export demand is
falling sharply as is that for Agro-products, especially frozen food
exports. Between July and December the country's exports of
goods such as shrimps, jute, vegetables and cut flower have
declined by more than five per cent to US$488.23 million, or a 20
per cent drop from the target. Shipment of frozen food, the
second biggest export item after apparel, dropped by four per
cent, but exporters said the decline would be steeper in the
coming months due to fall in shrimp consumption in Europe and
America.
What does rising protectionism mean for Bangladesh?
Kazi Belayet Hossain, president of frozen food association was
It can be argued that Bangladesh’s performance in 2008 leaves it quoted in a Feb 8 interview in the Financial Express as stating that
as one of the few EM economies that can claim to be "Restaurant and hotel business are the worst victims of the global
“decoupled”. The much documented economic resilience where recession. Shrimp is a rich people's luxury in the western hotels
GDP growth in FY 2008/9 might come in at around 5.5% versus and in this time of crisis there have been fewer orders for such
expectations of 6.5% contrast with the truly breathtaking luxuries….The precipitous decline has resulted in a huge stockpile
collapses in GDP growth and industrial production seen in the rest of shrimps at dozens of processing plants. I don't think the
of the region. Even India and China are seeing a dramatic slowing situation will improve this year. He went on to say that the
in growth from expectations of 9% and 12%, respectively, for 2009 ultimate victims would be the coastal districts' millions of fry
from a year ago to sub-6% now. catchers, farmers, ice workers, traders and processing workers
who make their living on the BDT 40bn industry. The FE report
But Bangladesh is actually a more “open” economy than either went on to say that other raw jute and jute goods such as yarn,
India or Pakistan. hessian and sackings have been faring worse since the economic
crisis gripped the developed nations in the latter half of 2008.
The chart below shows the “openness” of economies in Asia on Shahidul Karim, secretary general of Bangladesh Jute Spinners
the basis of exports and imports as a percentage of GDP. Clearly Association, stated that "Jute spinners have shut down three
Bangladesh is far less dependent on exports than a number of factories, shed some 25,000 jobs and cut raw jute purchases to
other economies in the region - Malaysia and Vietnam stand out cope with ebbing demand caused by the global economic crisis.”
as being especially vulnerable to the global downturn. The Export of jute goods --- the fourth biggest export item of the
contrast between China and India with the former being much country --- slumped a 17.86% in the first six months while raw jute
more open is also noteworthy. fell by 9%. Karim said declining orders from key markets such as
Belgium and Turkey meant that the chances are bleak for a jute
rebound in the next six months and he underlined that
Bangladesh’s 20 million farmers who grow jute as a cash crop
during the rainy season will bear the brunt of the crisis as the
prices of raw jute have already nosedived in local markets.

Thus rising protectionism, the collapse in global trade and the


substantial retrenchment by global banks is likely to have an
increasingly negative impact on Bangladesh. While RMG exports
have been somewhat insulated via the so called “Walmart effect”
that is a substitution towards cheaper products, there is a growing
risk as the US and European downturns persist and Thirdly, there is likely to be a substantial reduction in available
trade finance on two fronts. As we highlighted earlier, global
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AT Capital Weekly Update 5
08 February 2009 AT CAPITAL RESEARCH
banks have been cutting back international lending including trade
finance partly due to balance sheet pressure and in part from With the author having received 120+ emails of feedback, it is fair
moral suasion by governments who have bailed them out. This is to say that the India issue draws strong reactions on both sides.
already being reflected in terms of tougher Letters of Credit (LC) However, overall, the author was encouraged that a majority of
terms for Bangladeshi exporters. In addition, domestic banks, the feedback agreed with the need for a constructive dialogue to
some of whose clients have lost substantial amounts due to the work through the areas of disagreement while staying focused on
dramatic collapse in commodity prices in the second half of 2008 the opportunities to achieve a mutually beneficial outturn. As one
are also more risk averse. of the more compelling pieces of feedback noted” what is also
important to realize from the point of view of a policy-maker/
All these factors suggest Bangladesh policymakers need to diplomat is that we have to deal with India not from a belligerent
increase their policy ammunition in terms of having fiscal, and standpoint (in retaliation to their past and on-going bully attitude)
potentially monetary stimulus measures ready to counteract the but more from the point of view of extracting maximum mutual
lagged prospective slowdown in Bangladesh this year. benefits through carefully crafted diplomatic efforts.”

Indian Foreign Minister arrives in Dhaka this week We are working on a more detailed analysis on India- Bangladesh
Relations but in the interim, please see an expanded version of
Indian External Affairs Minister Pranab Mukherjee arrives in the Daily Star Column reproduce below:
Dhaka Feb 9 for a one day visit. The Times of India stated Feb 3
that Bangladesh is as yet 'undecided' about acceding to India's India an Opportunity not a Threat
long-pending plea for transit facility to the latter's northeastern
region and Bangladesh might offer a trade concessions-for-transit With the upcoming visit of Indian Foreign Minister Pranab
when Mukherjee visits. Media reports have also indicated that Mukherjee, it is important to discuss a mutually beneficial regional
while Delhi wants a bilateral anti-terror pact with Dhaka, the latter integration strategy. India- Bangladesh relations might be
wants to talk of a regional task force that would include other characterized, simplistically, of one of relative indifference on the
South Asian nations. The report went on to state that “During India side to one of fears of being overwhelmed by the much
Mukherjee's visit, Bangladesh and India may sign two key larger “big brother” on the Bangladesh side. At the beginning of
agreements on bilateral trade, and investment promotion and October 2008, I participated in an Indian Private Equity seminar in
protection. The trade agreement needs to be signed as the Mumbai. I was surprised at the lack of awareness of recent trends
existing three-year bilateral trade agreement will expire in March in the Bangladesh economy among many of the 300 attendees I
this year and be renewed through a fresh accord.” had a chance to speak to. Many were focused on “Incredible
India” companies buying up assets in Europe and the US.
Manik Sarkar, Chief Minister of Tripura, told a Bangladeshi Bangladesh appeared an after-thought.
business delegation recently that transit and trans-shipment
facilities can help both India and Bangladesh promote business However, a re-newed interest by India in their neighbor is justified
and investment enormously, especially in seven northeastern given what one might argue has been a disastrous strategy of
Indian states, including Tripura. over-rapid globalization by a number of Indian companies. Tata’s
purchase of Corus and Jaguar sees them sitting on billions of
To say the relationship between Bangladesh and India is complex dollars of paper losses and an extremely challenging operational
is the height of understatement. This has accurately summed up environment in the developed economy steel and auto sectors
in the following quote: respectively. By contrast, Bangladesh offers a relatively stable
Island of stability in a global sea of extreme volatility for
“Bangladesh’s relations with India are multi-dimensional - prospective Indian corporate investors.
ideological, political and also economic. An extreme sense of
distrust, insecurity and perceived domination by India has shaped What is needed on the Bangladesh side is to form a clear
Bangladesh’s foreign policy in recent years. It at the same time, consensus among not just businessmen and policy makers, but
hesitant and finds it uncomfortable to function within a bilateral critically the broader general public, that India is an opportunity,
parameter. Whether it is trade, export of gas, provision of transit not a threat.
or the water issue, Bangladesh has argued for multilateral
arrangements. Though India played an important role in the A number of valuable themes emerged. For us to see greater FDI
creation of Bangladesh, it is primarily seen by the political class in will require a number of changes. Firstly a focused and proactive
Dhaka as a concern due to its overwhelming size and presence but strategy by Bangladesh, both the government and the private
more importantly because of the nature of domestic politics of sector, to market sectors and specific JV opportunities to Indian
the country. A divided polity polarized on ideological lines and an companies. There needs to be a quarterly series of seminars held
extremely sensitive political atmosphere has made Bangladesh’s alternatively in Dhaka and Mumbai/Delhi attended by the
relations with India subject to domestic dynamics.” (Smruti S respective foreign and commerce ministers and secretaries along
Pattanaik, 2005) with leading corporate sector representation by the FICCI and
FBCCI. Secondly, greater encouragement of higher level
Below we reproduce the Feb 5 Daily Star Column “India as an interaction can come about through easing up visa restrictions
Opportunity not a Threat”. With apologies to our domestic and also establishing direct flights between Dhaka and Mumbai +
audience who may well have read the article already,, many NE Indian cities. Thirdly, we may want to extend the Special
international readers of the AT Capital Weekly may not have seen Economic Zones initiative to offer affirmative action or incentives
it. In addition, we have expanded the discussion. for Indian FDI.

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AT Capital Weekly Update 6
08 February 2009 AT CAPITAL RESEARCH
At the time of Indian Independence, intra-regional trade was 19%,
which fell to 2% in the 1990s and has since risen to around 4%. On
reducing the trade deficit, one school of thought was that we
import cotton and yarn from India and our RMG creates value-
added products that go to the west so our Indian deficit is a
necessary side-product of our surplus with the US. But I also feel
that a focused policy of industrial and export diversification will
also help reduce the India-Bangladesh trade deficit. Simply put, if
we made more of the goods India wanted to import, we could
reduce our trade deficit. Other practical steps we could take
include warehouses at the land stations and more staff on both
sides of the border to reduce delays in the passage of goods. The
adoption of a Free-Trade Area will also help, but the impact will be
limited in the absence of progress in Bangladesh’s industrial
diversification strategy.

Composition of India’s Trade with Bangladesh

India has a large number of exportable goods. The composition of Source: World Bank
India’s exports to Bangladesh is diversified with cereals, cotton,
and vegetable products accounting for a quarter of India’s exports Another major opportunity is for Bangladesh to be a regional
to Bangladesh in 2004–2005. Next in importance comes textile transport hub. There has been a great deal of sensitivity to the
and textile products, followed by base metals and related articles. issue of transit rights. But if we think more broadly about
Over five years starting in 2000-01 while the share of vegetable integrating into the regional network for not only India, but also
products increased, that of textile and textile article declined. The Nepal, Bhutan and indeed China, then we can away from some of
shares of most of the remaining product group increased, the security sensitivities. One transportation expert at the seminar
reflecting greater product diversification. The top 10 export underlined the fact that the proposed $ 6bn Chittagong deep sea
commodity groups (at HS 2-digit level) from India to Bangladesh port is not economically viable on the basis of Bangladesh trade
account for about 70% of India’s total exports to Bangladesh. The flows, but would be a compelling proposal if we could act as a hub
degree of trade complementarity between Bangladesh’s imports for countries in the region including even Kunming in China. We
and India’s exports was quite high during 1980 to 2004. The trade could charge for transportation services to foreign companies that
complementarity index for India’s exports to Bangladesh was 59% would effectively subsidize faster port facilities that would also
on average for the period 1980–2004, whereas the same for enhance Bangladesh competitiveness.
Bangladesh’s exports to India was 28%. In other words, estimated
indices indicate that India’s exports to Bangladesh enjoyed Trade and transaction costs
comparatively higher complementarity than Bangladesh’s exports
to India. Supply constraints make it difficult for Bangladesh to take The Petrapole crossing in India handles by far the largest share of
advantage of the Indian market. Nevertheless, India’s tariff the recorded India-Bangladesh land border trade. Petrapole is on
concession has been helping Bangladesh expand its export baskets a major road 95 kilometres from Kolkata. The neighbouring town
to India, the results of which were reflected in higher exports in on the Bangladesh side of the border is Benapole, which in turn is
2005–2006. linked by a highway to Jessore and Dhaka. The infrastructure
deficiencies and procedural hazards at Petrapole include
inadequate and congested roads, absence of government bonded
warehouses, irregular power supplies, inadequate sanitary
facilities and drinking water, prevalence of theft and other crimes,
frequent strikes, prevalence of speed money, a single border gate
which handles all truck and other traffic as well as individual
travelers and which is wide enough for only one truck at a time to
pass through.

Investments need to be made for improving the infrastructure and


facilities at Petrapole and at the other land border Customs
stations. For Bangladesh the present system involves substantial
terms of trade losses, since the landed costs of imports from India
of products such as wheat, rice, fruit, cattle feed, bauxite and
other products appear to be much higher than they would be if
the congestion were removed. Bangladesh exporters and
potential exporters also have an obvious interest in faster and less
expensive commodity movements across the border. If the
required investments are not made, congestion will increase with
the general growth of trade, and would largely cancel or offset

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AT Capital Weekly Update 7
08 February 2009 AT CAPITAL RESEARCH
economic benefits that would otherwise occur if tariffs or other “India+1”: Bangladesh attracting diversification investment from
trade barriers were to be reduced. Without very substantial India
investments in infrastructure and administrative capabilities,
increases in trade would be slowed down or blocked by increases Another major opportunity for Bangladesh is to pursue an
in congestion and the associated increases in economic rents, and “India+1” strategy in the same way that Vietnam has attracted $
an FTA would become ineffective. 40bn of FDI in 2008, in part by being an effective “China+1”. By
this, I mean that Bangladesh can be an alternative manufacturing
Hence, both countries will need to improve the infrastructure – hub for global companies and investors who already have over-
physical and administrative-at their land border Customs posts. reliance on India for a wide range of services and products, from
This would need to be done in a coordinated way-there would no IT outsourcing to truck assembly and auto parts. The government
point if the infrastructure were improved on one side of the should commission a detailed analysis of which companies and
border but bottlenecks were to remain or even increase on the investors have entered India in the past 5 years and then have a
other side of the border. targeted strategy to persuade them to consider setting up similar
facilities in Bangladesh in industries where we have, or can
Energy Cooperation develop, a competitive advantage. “

The last caretaker government had decided to initiate talks with


India on interconnecting the national power grid of Bangladesh
with the north-eastern power grid in India based on the feasibility
study of the USAID, Asian Development Bank (ADB) and SARI-
Energy co-operation. Bangladesh could bring 200 MW of
electricity from Tripura or Assam, where India has hydroelectric
plants.

India has also offered to link Bangladesh to its electricity grid and
sell it power to help it overcome persistent shortages in peak
demand periods. At the DCCI 50th Anniversary conference held in
November, Indian State Minister for Power, HE Jai Ram Ramesh
stated that Bangladesh could buy electricity from plants in
Tripura, where generation capacity exceeds demand, and other
north-eastern Indian states bordering Bangladesh. "India is ready
to pen a deal with Bangladesh to sell up to 1,000 MW of
electricity."

Country-
Country-wise distribution of India’s outward FDI in the SAARC Region (US$ Mn)

Total Outward South Bhutan BD Maldives Nepal Pakistan Sri Lanka


Asia
1996-02 6353.6 2.6 0.0 9.1 12.8 40.7 0.0 37.4
2002-03 1334.3 1.2 0.0 7.4 0.0 35.6 15.7 41.3
2003-04 1191.2 4.5 0.0 7.6 0.0 9.9 0.0 82.6
2004-05 2262.9 0.7 0.0 11.1 0.0 24.9 0.0 64.1
2005-06 2136.3 1.0 0.0 5.9 5.4 3.9 0.0 84.9
2006-07 5370.7 0.1 0.9 11.1 0.9 2.1 0.0 85.0

Source: Computed from the Ministry of Finance Database

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AT Capital Weekly Update 8
08 February 2009 AT CAPITAL RESEARCH
Stock Market Weekly
DSE performance: 52 weeks Market news

• Government to strengthen securities market, activate


bond market
• ACI to introduce 'zero coupon bond'
• Market turnover decreased by 13.2%
• "Investment" sector rose by 10% driven by ICB
• "Insurance" sector continued to perform strongly

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

Market summary Valuation snapshot


DSE General Sector P/E
Index performance DSE 20
Index Sep-08 Oct-08 Nov-08 Dec-08
Opening of this week 2649.49 2,175.1 Banks 18.24 15.62 15.62 16.62
Closing of this week 2634.48 2,153.6 Cement 10.34 10.32 8.91 10.26
Change within a week (%) -0.6% -1.0% Ceramic 43.93 41.76 32.17 47.80
Change within a week (Point) -15.0 -21.6 Engineering 41.36 40.8 31.94 30.24
Food & Allied 19.44 17.09 14.77 16.93
Fuel & Power 20.2 19.14 16.29 15.83
Capitalization and turnover This Week Last Week % Change
Insurance 24.77 23.12 17.69 21.81
Number of Trading Days 5 5 Investment 55.48 28.93 21.42 20.37
Market Capitalization (USD bn) 14.75 14.87 -0.79% IT 45.64 47.89 33.96 46.52
Total Turnover (USD mn) 174 200 -13.2% Jute 16.16 14.18 14.18 12.15
Daily avg. Turnover (USD mn) 34.73 40.03 -13.2% Miscellaneous 33.95 32.2 23.32 34.43
Total Volume (mn) 98 119 -17.2% Paper & Printing 8.08 9.97 7.32 9.36
Daily avg. Volume (mn) 20 24 -17.2% Pharmaceuticals 28.45 30.25 26.26 30.96
Service & Real Estate 22.87 23.55 18.74 22.66
This Last Tannery 19.89 18.44 14.87 16.43
Weighted avg. P/E Ratio* Issues
Week Week Textiles 15.45 14.55 12.43 13.85
This Week 16.88 Advanced 145 161 Source: Dhaka Stock Exchange
Last Week 16.94 Declined 127 111
% Change -0.4% Unchanged 3 4
*Weighted on Market Cap. 22 Not Traded 21
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AT Capital Weekly Update 9
08 February 2009 AT CAPITAL RESEARCH
Weekly Stock Market Commentary − Increase of paid up capital from BDT 200mn to BDT
400mn for general insurers, and from BDT 90mn to BDT
The DSE General Index was down by 0.6% this week - the fifth 300mn for life insurers
consecutive weekly fall. Turnover was also down 13.2%, with
average daily turnover at USD 34.7mn. Among the 297 issues, 145
advanced, 127 declined, 3 remained unchanged and 22 were not
traded.

The reduction in turnover has been driven by a decrease in


institutional activity - additionally, it has been reported that due
to year end provisioning for loans, the merchant banks have set
aside funds, leading to a temporary liquidity squeeze. Investors
and market participants are also increasingly starting to question,
the impact of the global recession in Bangladesh.

While the DSE fared much better than its EM counterparts in 2008
- the DSE was truly one of the most decoupled stock markets in
the world falling by only 7% versus around 38% for the US S&P
500, 50% in India, 65% in China, and more than 70% in Dubai - the
risk in 2009, is that the Bangladesh economy and exports will
likely slow to a greater extent than in 2008, given that the global
recession is getting worse. In the fourth quarter of 2008, real GDP
fell by an annualised rate of 21% in South Korea and 17% in
Singapore, leaving output in both countries 3-4% lower than a
year earlier. Singapore’s government has admitted the economy
may contract by as much as 5% this year, its deepest recession
since independence in 1965. The US and Europe also see a
deepening slowdown with Japan in even worse shape.

Given this backdrop, some modest correction in the stock market,


as we have seen in the past few weeks, should not come as a
major surprise. Stock prices, to the extent they are fundamentally
driven, should reflect expectations of future earnings. If the
economy slows then corporate may also adjust lower. So it seems
unlikely that the DSE will see the sorts of price appreciation we
have seen in recent years.

The “Investment” sector increased by 10% this week, which was


mainly driven by the Investment Corporation of Bangladesh (ICB)
which accounts for 57.3% of the sector’s market capitalization.
The ICB rose by 21.7% while most other investment funds were
down.

The Insurance sector continued to perform strongly, increasing


6.7%. The market is anticipating the expected adoption of the
New Insurance Ordinances (2008) to replace the 77-year-old With the minimum capital requirements, listed insurance
Insurance Act 1938. As we have already discussed in the special companies will have to raise capital through bonus and rights
th
focus section of our weekly on 12 October, some of the major issues, while unlisted companies are compelled to list with a
developments with the implementation of these ordinances minimum 50% of paid up capital free float. We expect this will
include: amount to more than BDT 2bn of capital issues by 17 private life
insurers and more than BDT 6bn by the 43 general insurers.
− Approval of foreign ownership in insurance companies Industry consolidation may also be a consequence of the
− Emergence of brokers as intermediaries. requirements – clearly something the regulator had in mind to
− Formation of an independent insurance regulatory ‘professionalise’ a sector, which has operated been loosely
authority which will regulate all the insurance regulated.
companies, including the 2 state owned corporations
− Prohibition of concurrent operation of Islamic and Monno Jutex, Janata Insurance and National Polymer were the
conventional insurance by a single insurer top gainers from A - category shares. While the gains ware
− Introduction of mandatory solvency margin significant in percentage terms, these are low cap stocks with
limited free float.

_______________________________________________________________________________________
AT Capital Weekly Update 10
08 February 2009 AT CAPITAL RESEARCH
Stock Market News

Government to strengthen securities market, activate bond


market
The Financial Express, Sunday February 8, 2009

The country’s finance minister, AMA Muhith, has assured that the
government will take all necessary steps to strengthen the
country’s securities market, which can be a vital source for
industrialisation of the country.

The minister stated, "About 92% scrip less shares are now being
traded, indicating that the market is developing.” He also pledged
to activate the bond market, and stated that measures will be
taken to increase the number of beneficiary owners' (BO)
accounts from the existing 1.9mn to 5.0mn.

Furthermore, the long awaited book-building method, scientific


price fixing mechanism for IPOs (initial public offering), will be
finalised this month in order to attract large private companies in
the stock market. The book building method will encourage the
big companies to go public as they will get a fair price of the
issues.

http://www.thefinancialexpress-
bd.com/search_index.php?page=detail_news&news_id=58315

ACI to introduce 'zero coupon bond'


The Financial Express, Wednesday February 4, 2009

ACI Limited will raise BDT 1.0bn (USD 14.5mn) by issuing


convertible Zero Coupon Bonds (ZCB) worth BDT 1.36bn (USD
19.7mn), the first of its kind in Bangladesh’s capital market. ACI
signed an MOU with Industrial and Infrastructure Development
Finance Company Limited (IIDFC) and Alliance Financial Services
Ltd regarding this recently. Under the agreement, IIDFC will act as
a facility arranger and Alliance Financial Services will act as an
issue manager of the bond.

The ZCB will be listed and publicly traded in the country’s stock
exchanges. The investors will have the option of converting 20%
of the face value upon each maturity of outstanding bonds at a
predetermined Conversion Strike Price into common stocks of ACI
Ltd.

http://www.thefinancialexpress-bd.com/2009/02/04/57874.html

_______________________________________________________________________________________
AT Capital Weekly Update 11
08 February 2009 AT CAPITAL RESEARCH
DGEN Performance YTD DGEN Performance LTM

Turnover leaders Best performers* Worst performers*


(All figures in mn) BDT USD % Change % Change
Delta Life Insurance 1177 17.1 Alpha Tobacco Maksons Spinning Mills
Renata Ltd. 804 11.7 138.5% Limited -18.1%
Beximco Pharma 744 10.8 Monno jutex 36.8% Quasem Textile -14.9%
Summit Power 558 8.1 Amam Sea Food 33.4% Meghna Condensed -14.3%
1st ICB M.F. 519 7.6 Janata Insurance 33.2% Jute Spinners -13.0%
BEXIMCO 514 7.5 Maq Paper 30.4% Quasem Silk -12.77
Uttara Bank 488 7.1 Sreepur Textile 30.2% Al-Haj Textile -12.4%
Dutch-Bangla Bank 448 6.5 Mithun Knitting 28.1% Meghna PET -10.5%
Shinepukur Ceramics 392 5.7 Lexco 26.4% 5th ICB M.F -10.1%
Limited National Polymer 25.9% Saleh Carpet -9.9%
Square Pharma 391 5.7 Bd. Autocars Rahim Textile
23.7% -8.9%
Source: Dhaka Stock Exchange
*By closing price
Source: Dhaka Stock Exchange
Market cap. by sector*
Banks 45.77% Correlation with other indices*
Pharmaceuticals 11.49%
S&P500 Sensex NIKKEI225 KSE100 SSECI FTSE100 Hangseng DSE
Fuel & Power 14.40%
Insurance 5.54% S&P500 1

Investment 4.29% Sensex 0.609533 1


Miscellaneous 3.13% NIKKEI225 0.479296 0.57751 1
Engineering 2.36%
KSE100 0.137983 0.245628 0.136849 1
Textile 1.91%
SSECI 0.315464 0.411735 0.245613 0.09449 1
Foods 2.0%
Tannery 1.09% FTSE100 0.843726 0.610483 0.494904 0.238387 0.431538 1
Service & Real Estate 1.38% Hangseng 0.704434 0.677905 0.526227 0.110829 0.509843 0.786434 1
IT 0.59% DSE 0.161589 0.193995 0.103366 -0.05588 0.035032 0.131261 0.143725 1
Cement 4.75% * Based on the last 86 months’ USD returns
Ceramics 0.86% Source: AT Capital Research
Paper & Printing 0.06%
Jute 0.03%
Total 100%
*As of December 30, 2008

Research Team

Ifty Islam
Syeed Khan
Managing Partner
Partner
ifty.islam@at-capital.com
syeed.khan@at-capital.com

Mohammad Emran Hasan


Senior Associate
emran.hasan@at-capital.com
_______________________________________________________________________________________
AT Capital Weekly Update 12
08 February 2009 AT CAPITAL RESEARCH
Economics
Selected macroeconomic indicators Market news

03-Feb-08 29-Jan-09 03-Feb-09


Forex reserves (USD mn) 5352.84 5577.12 5571.51 • Recession to hit Bangladesh: CPD
USD-BDT average rate 68.5800 68.9000 68.9587
Call money rate 10.51 9.29 9.40 • Capital machinery import plummets amid global
recession, textile woes
Dec-07 Dec-08 2007-08
• FDI rises 101% in July-November
Remittances (USD mn) 635.34 765.79 7,914.78
Annual %age change 14.46 20.53 32.39
• Intervention in forex market ruled out

Nov-07 Nov-08P 2007-08


Imports (USD mn) 1,661.80 1,816.50 21,629.00
Latest Bangladesh Inflation Rates
Annual %age change 7.91 9.31 26.07

Oct-08 Nov-08 Dec-08


Jul-Dec FY
Dec -07 Dec -08P General 209.31 207.14 204.90
09
Exports (USD mn) 1329.70 1195.83 7754.70 Inflation 7.26 6.12 6.03
Food 226.88 223.98 220.64
Annual %age change 13.18 -10.07 19.38
Inflation 8.08 6.68 6.83
P Non-food 186.13 184.95 184.29
Sep-07 Sep-08 2007-08
Inflation 5.95 5.25 4.76
Current A/C Balance (USD mn) 20.00 46.00 672.00
Source: Bangladesh Bureau of Statistics

Dec-07 Dec-08P 2007-08


Tax revenue (USD mn) 524.12 538.81 6,868.43
Annual %age change 26.59 8.96 27.06
In December 08 total exports fell by 10.07% from the
previous month
Source: Selected indicators by Bangladesh Bank, 4 February 2009

LCs opened for capital machinery imports declined by


20% in Jul-Dec FY09 from a year ago

July-Dec.2007-08 July-Dec.2008-09 Percentage Change


[July-Dec.2008-09]
L/COpening and Settlement Opening Opening
(million US$)
(a)FoodGrains (Rice & 1018.79 448.42 -55.99%
Wheat)
(b)Capital Machinery 792.83 628.87 -20.68%
(c)Petroleum 1000.87 1163.49 16.25%
(d)Industrial RawMaterials 4086.31 4587.58 12.27%
(e)Others 3823.29 4348.29 13.73%
Total 10722.09 11176.65 4.24% Source: Bangladesh Bank

Source: Bangladesh Bank


Jisha Sarwar
Senior Research Associate
Jisha.sarwar@at-capital.com

_______________________________________________________________________________________
AT Capital Weekly Update 13
08 February 2009 AT CAPITAL RESEARCH
Economic News FDI rises 101% in July-November
The Daily Star, Thursday February 5th, 2009
Recession to hit Bangladesh: CPD
The Daily Star, Sunday February 8th, 2009 In the first five months of the current fiscal year foreign direct
investment (FDI) rose by 101%, although portfolio investments
The global financial crisis will certainly affect Bangladesh as the declined.
country is exposed to global economies, said Prof Mustafizur
Rahman, executive director of Centre for Policy Dialogue (CPD). The country's external balance sheet witnessed a deficit of over
USD 500mn because of the global currency market volatility
The Bangladesh economy is worth USD 84bn, with USD 21bn stemming from the ongoing financial crisis. The balance of
imports and USD 14bn exports. Any event in the global economy payment had a surplus of USD 77mn during July-November, 2007.
will certainly affect the country, said Rahman, while speaking as
the chief guest at a seminar in Dhaka called "Global Financial According to Bangladesh Bank (BB), FDI inflow was USD 480mn
Crisis: Are We Ready". during July-November 08, compared to USD 238mn during the
same period a year earlier. According to the central bank, the
Rahman added that as a safeguard measure, the country should purchase of AKTEL's 30% stake at USD 350mn by a Japanese
strengthen its institutions, as several countries, including the US, company was a major factor contributing to the surge in
have undertaken steps to reform their institutions. Bangladesh's FDI inflow. On the contrary, during July-November
08 portfolio investment dropped by USD 34mn, compared to an
Prof Mahmood Osman Imam, chairman of the finance increase of USD 45mn during the same period in 2007.
department, also spoke at the seminar and stated that the global
financial crisis is likely to affect remittance earning. http://www.thedailystar.net/newDesign/news-
details.php?nid=74421
http://www.thedailystar.net/newDesign/news-details.php?nid=74932
Intervention in forex market ruled out
Capital machinery import plummets amid global recession The Financial Express, Wednesday February 4th, 2009
The Daily Star, Friday February 6th, 2009
Finance Minister AMA Muhith ruled out the possibility of any
Import of capital machinery declined sharply by 32% in January government intervention in the country's foreign currency market.
from a year ago, as the global economic crisis has started to The existing free-floating exchange rate mechanism will remain,
impact the country's manufacturing sector. he stated.

Machinery worth USD 95.36mn was imported during Jan 09,


The finance minister told the media that exchange rate
which is about USD 45mn lower than that of January 2008,
movements -- depreciation or appreciation of the local currency --
according to Bangladesh Bank (BB) provisional data.
would depend on the overall state of the situation relating to the
cross-rates of currencies that are included in the country's trade
The central bank does not foresee any immediate improvement in
weighted currency basket that sets the real effective exchange
machinery imports - a vital indicator of the country's near-term
rate (REER).
manufacturing activities - as opening of letters of credit (LCs)
against imports of capital equipment has been low in the past
seven months. In the current fiscal year investors opened LCs Mr. Muhith said: "I never said the BDT would be devalued. I am
worth USD 628.87mn during the July-December period, averaging still saying the value of local currency may not remain inflexible or
USD 107mn a month, compared to USD 792.83mn during the intact in the backdrop of the emerging global perspectives… we
corresponding period in FY08. In January LCs for machinery import are still trying to keep our currency value stable, despite the fact
plunged, falling by more than 36% to USD 64.4mn. that the currencies of some neighbouring countries like India and
Pakistan have depreciated in value, particularly in relation to the
According to Zaid Bakth, research director of the Bangladesh US dollar."
Institute of Development Studies (BIDS), a 'massive fall' in demand
for local yarn has also affected machinery import, as the textile http://www.thefinancialexpress-bd.com/2009/02/04/57919.html
and garment sectors alone account for more than 50 % of the
country's machinery import. During the first six months of the
current fiscal year, LCs opened for textile machinery imports
dropped by 38% to USD 145.64mn from the same period in FY 08.

http://www.thefinancialexpress-bd.com/2009/02/06/58125.html

_______________________________________________________________________________________
AT Capital Weekly Update 14
08 February 2009 AT CAPITAL RESEARCH
Sector News
start exporting processed agro products to Papua New Guinea,
Agriculture & Food East Timor, Brunei, Mauritius, Algeria and some other countries
soon.
Tea output slightly below target
The Daily Star, Sunday, February 8, 2009 http://www.thedailystar.net/story.php?nid=74944

The tea industry failed to meet its production target last year, Aviation
owing mainly to a delay in the supply of fertilizer by state-run
Bangladesh Chemical Industries Corporation (BCIC). Total tea RAK Airways shuts operation
output stood at around 58.75mn kg against the target of 60mn. The Daily Star, Thursday February 5, 2009
Industry insiders and a number of tea scientists, however, said a
good yield of tea was possible because of comparatively favorable UAE-based carrier RAK Airways has shut down its operation in
weather conditions throughout the year. In 2007, production Bangladesh as the global recession is causing a decline in air
stood at 57.96mn kg, and in 2006 it was 53.41mn kg. travel. Resultantly, 15 employees at the Airline’s Dhaka office
have lost their jobs.
Tea Production in Bangladesh
Year Production (mn kg) However, according to the carrier's General Sales Agent (GSA), the
1997 50.83 airline will suspend its operations in Bangladesh only on a
1998 55.83 temporary basis.
1999 47.19
2000 52.64 Earlier, Singapore Airlines declared that it will reduce its flights
2001 56.82 from Dhaka to five days a week from seven days a week presently.
Slowing demand for air travel also prompted Thai Airways to
2002 53.62
suspend operations from Chittagong earlier and cut the number of
2003 58.30
flights from Dhaka.
2004 56.00
2005 60.14 http://www.thedailystar.net/newDesign/news-details.php?nid=74420
2006 53.41
2007 57.96 Banking
2008 58.75
According to producers, tea is a very sensitive crop, which needs Islami Bank total deposit reaches BDT 202.89bn
uniform rainfall and sunshine, especially from March to October. The Daily Star, Saturday February 7th, 2009
The region experienced good rainfall from the beginning of March
and the temperature was favorable. However, a delay in supple of The total deposit of Islami Bank Bangladesh Limited (IBBL) reached
fertilizers resulted in a low output of tea. BDT 202.89bn (USD 2.94bn) in January 09, growing by 22% since
Jan 08. Total investments of the bank grew by 15% in January
Potash and NPK fertilizers are very important for tea plants during from a year ago, reaching BDT 205.55bn (USD 2.98bn).
the March-April period; however, tea gardeners did not receive
these imported fertilizers on time. Furthermore, most of the http://www.thefinancialexpress-bd.com/2009/02/07/58174.html
gardeners failed to apply the second installment of urea as the
BCIC supplied it much later than its required time. Bankers fear slow loan payback from spinners
The Daily Star, Thursday February 5th, 2009
There are 160 tea estates. Roughly, two third of the productions is
consumed at home, while the remaining is exported. Bankers are concerned that the import of low-cost yarn from India
will affect them as this will increase the rate of defaults among
http://www.thedailystar.net/story.php?nid=74930 their clients. According to the CEO of Eastern Bank, loan
repayments from spinning millers have already slowed. He added
Pran signs deal on USD 1.5mn exports to Somaliland that banks are at risk as they have a large exposure to spinning
The Daily Star, Sunday, February 8, 2009 mills, which are capital-intensive industries.

Pran Export Ltd, a local company, will export processed agro-food According to industry insiders presently the BDT 270bn spinning
products worth USD 1.5mn to Somaliland over the next year. An mill industry of the country is struggling with an inventory of
agreement was signed between Pran Export Ltd, a concern of the 250,000 tonnes of yarn worth BDT 25bn that could not be sold
Pran-RFL Group, and Hadrawi Trading Establishment at the due to a decline in demand and an influx of comparatively low
National Press Club in Dhaka. According to Hadrawi Trading cost yarn from India. Manufacturers are now importing Indian
Establishment, there is a huge demand for Bangladeshi processed yarn at 15 to 20 cents per pound lower than locally produced
agro-food products in African countries. Pran products are being yarn.
exported to 70 countries across the globe and the company will
http://www.thedailystar.net/newDesign/news-details.php?nid=74418
_______________________________________________________________________________________
AT Capital Weekly Update 15
08 February 2009 AT CAPITAL RESEARCH
IBBL projects BDT 10.47bn operating profit in 2009, 50% increase to the cabinet for a final nod." During the previous caretaker
in remittance government the energy ministry had finalised the draft of the coal
The Daily Star, Thursday February 5th, 2009 policy and had placed it twice to the council of advisers, but did
not receive a final approval.
The country's largest private bank IBBL has projected an ambitious
BDT 10.47bn (USD 0.15bn) operating profit in 2009 (an increase of Investment proposals in the coal sector worth several billion US
26% from 2008), but sees over-investment in the garments and dollars from a number of foreign companies have long been
textile sector as a risk. pending with the Board of Investment (BoI). The UK-based Asia
Energy, South Korean Luxon Global and US-based Global Vulcan
IBBL’s operating profit of BDT 8.30bn (USD 0.12bn) last year was Energy are among the foreign companies that are now eagerly
almost double the amount of Prime Bank, and at least 30% more waiting for the national coal policy and subsequent government
than Sonali Bank. decisions to develop and extract coal from the coalmines. Indian
business conglomerate Tata group that had made investment
In 2009 the bank with 196 branches expects to handle at least BDT proposals worth USD 3.0bn for projects including development of
211bn (USD 3.06bn) in remittances, or about 30% of the country’s a coalmine and setting up a coal-fired power plant, recently pulled
total remittances. IBBL also projects a 45% growth in its import back after waiting for over two years due to the indecisiveness of
business, 40% in export and a 28% increase in deposits. The bank the government.
expects to increase its deposit by 28% to BDT 256.5bn (USD
3.72bn) and increase investments by 29% to BDT 255.5bn (USD The draft national coal policy does not allow foreign companies to
3.71bn). develop coalmines independently - foreign companies must have
joint venture with local partners to develop and extract coal. Like
http://www.thefinancialexpress-bd.com/2009/02/04/57872.html elsewhere in the world coalmines in Bangladesh can be developed
by either open pit or underground method. But the mining
Infrastructure & Energy method should be determined on the basis of geological structure
and reserve potentials, the draft policy recommended. The draft
Hopes high for new gas discoveries as Total to share Bay survey policy has not kept any option for coal export other than 'cocking
results coal' from the country.
The Financial Express, Sunday February 8, 2009
http://www.thefinancialexpress-
French energy giant Total will share its offshore gas survey results bd.com/search_index.php?page=detail_news&news_id=58213
with Bangladesh authorities later this month, with the officials
expecting discoveries of new reserves in the country's Petrobangla asked to raise gas production
southeastern region. Total, the world's fourth largest energy The Financial Express, Thursday February 5, 2009
company conducted surveys in the offshore blocks no. 17 and 18
in Cox's Bazar and Teknaf areas, hoping to strike major natural gas The energy ministry has asked Petrobangla to increase gas
fields close to the hydrocarbon rich Myanmar border. production to meet the growing demand for fuel in the country.
The energy ministry's instruction to raise gas production came
If gas is discovered, Total will make a work-plan for field after Petrobangla failed to initiate gas supply of around 40mn
development and submit it to Petrobangla for approval; it will cubic feet per day (mmcfd) from two fields.
take four to five years to produce gas from the structures.
According to Petrobangla's existing work-plan, the country has
Total E &P conducted a two-dimensional (2D) seismic survey in an established sources for fresh supply of only 155 mmcfd from five
830 square kilometre-long area in 2007 and a three-dimensional gas fields by 2011. But the overall gas supply might not increase to
(3D) survey in March last year in Saint Martin's and Shahporir that extent as the supply from existing fields might decline. For
Dwip areas in the Bay. Total E&P holds a 30% stake in the two producing gas beyond that level Petrobangla needs to conduct
blocks. Irish oil company Tullow has 32% stake, while Thai energy exploration and discover new gas reserves. Petrobangla's
giant PTTEP owns 30% stake 0and US companies Oakland and subsidiary, Bangladesh Petroleum Exploration and Production
Rexwood have 8% stakes. State energy corporation Petrobangla Company Ltd (BAPEX), has planned to conduct explorations in
rented the two blocks to US joint venture Rexwood-Oakland in seven new gas fields by 2011.
January 1997, but the companies did not carry out any exploration
work due to poor gas demand in the country during the time. At present, around 1800 mmcfd of gas is supplied against the
demand for over 2050 mmcfd. Half of the produced gas comes
http://www.thefinancialexpress-bd.com/2009/02/08/58317.html from gas fields operated by Petrobangla subsidiaries, and the
remaining half is supplied from fields run by international oil
Government starts reviewing draft coal policy companies (IOCs). The government stated that the country needs
The Financial Express, Saturday February 8, 2009 at least USD 7.7bn (USD 111.7mn) worth of investment in gas
exploration and development to sustain a moderate annual
The government has started reviewing the draft national coal economic growth of 7.0% until 2025.
policy in order to make a final decision regarding the policy. A top
government official said, "On completion of the review the draft http://www.thefinancialexpress-
of the national coal policy will be placed to the Prime Minister, bd.com/search_index.php?page=detail_news&news_id=58044
who is also the minister for energy, for consent before placing it

_______________________________________________________________________________________
AT Capital Weekly Update 16
08 February 2009 AT CAPITAL RESEARCH
BDT 3.4bn (USD 49.3mn) boost for Bapex “The cost of production of quality leather shoes is lower in
The Daily Star, Thursday February 5, 2009 Bangladesh than in China and India, and this is the main reason for
receiving more orders from European countries,” said Tipu Sultan,
The Executive Committee of the National Economic Council former chairman of Bangladesh Finished Leather, Leather Goods
(Ecnec) approved a BDT 3.4bn (USD 49.3mn) project that will help and Footwear Exporters Association.
Bapex increase its oil and gas exploration capability, and will help
Bakhrabad Gas Field Company increase its gas supply to China, India and Vietnam were the largest leather shoe exporters
Chittagong within two years. Ecnec also approved a BDT 2.75bn in the world, but in recent years these countries are failing to
(USD 39.9mn) district road development project in Barisal and a make and sell quality low-cost leather shoes. According to Sultan,
BDT 2.25bn (USD 32.6mn) district road development project in Bangladesh is now getting more orders from Germany, Italy,
Rajshahi. France, Japan and Canada.

Under the project, Bakhrabad along with Bapex will build a 65km http://www.thedailystar.net/story.php?nid=74580
10-inch pipeline from the recently developed Semutang gas field
up to Chittagong. This pipeline is expected to increase gas supply Real Estate
to Chittagong by 20mn cubic feet per day by June 2010.

http://www.thedailystar.net/story.php?nid=74306 BDT 2000mn (USD 29.01mn) in apartment orders placed during


Chittagong REHAB fair
Gas development fund to be set up The Daily Star, M9onday February 2, 2009
The Financial Express, Wednesday February 4, 2009
Apartments worth BDT 2000mn (USD 29.01mn) were sold during a
The government has decided to establish a 'gas development
fund' with the proceeds from gas sales to facilitate hydrocarbon three-day housing fair in Chittagong organised by REHAB. The
exploration and production to meet the mounting energy demand organisers and participants are expecting to earn an additional
across the country. Stateowned Petrobangla will be in charge of BDT 1000mn (USD 14.7mn) from potential customers.
managing and disbursing the proposed fund to local gas
exploration and production companies. A total of 69 firms, including three financial institutions, from the
Dhaka and Chittagong took part in the fair, which was visited by
http://www.thefinancialexpress- around 13,000 visitors.
bd.com/search_index.php?page=detail_news&news_id=57931
Visitors said apartment prices should come down as prices of
Energypac Confidence Power begins commercial operation construction materials have been declining. However REHAB’s
The Financial Express, Tuesday February 3, 2009 president said that among construction materials only the price of
rods declined, but the price of land has been appreciating, which
Energypac Confidence Power Venture Ltd., a subsidiary of has pushed up overall prices of apartments.
Confidence Cement Ltd, has started operating an 11MW natural
gas power plant in Habiganj, Sylhet, and is selling electricity to the http://www.thedailystar.net/newDesign/news-details.php?nid=73973
Rural Electrification Board (REB). According to the managing
director of Confidence Cement Ltd., the new business of the Shipbuilding
company with an investment of BDT 500mn (USD 7.3mn) is
expected to earn around BDT 200mn (USD 2.9mn) annually.
BB set to form BDT 5bn (USD 72.5mn) fund for shipbuilding
The Financial Express, Saturday February 7, 2009
Confidence Cement Ltd. was incorporated as a public limited
company on May 2, 1991.The main activities of the company were
manufacturing and marketing cement. Later, it diversified its The central bank is planning to form a BDT 5.0bn (USD 73.5mn)
business in power and paint. fund for the country's emerging shipbuilding industry, in an
attempt to make it a significant export earning sector.
http://www.thefinancialexpress-bd.com/2009/02/03/57784.html
The central bank will create the fund under a "refinancing
Leather Goods scheme". The commercial banks will take money from the
proposed "fund" and lend it to shipbuilders.
Footwear a bright spot in dim exports
The Daily Star, Thursday February 6th, 2009 "If the fund is created, one of our major problems will be solved,"
shipbuilder Abdullahel Bari of Ananda shipbuilding said adding,
"Funding is a major obstacle in expanding our shipyard to secure
The country’s leather footwear manufacturers are optimistic more export orders."
about the industry’s future, after an increase in exports by 39 % in
the July-November period of FY 09. During the period export The country's booming shipbuilding industry has so far earned
earnings from footwear stood at around USD 85mn, an increase of nearly USD 800mn worth of export orders for making around 50
39% from a year ago, according to Export Promotion Bureau (EPB) ocean-going vessels and cargoes. Three companies -- Ananda,
statistics. Western Marine and Highspeed - have received these orders.
Until 2008 Ananda Shipyard received 40 orders worth USD 450mn
_______________________________________________________________________________________
AT Capital Weekly Update 17
08 February 2009 AT CAPITAL RESEARCH
for making ships and ferries from different European and African While the outlook for the sector is mostly positive, a number of
countries. negative news items were also reported last week. Local bankers
are concerned of slow loan repayment from local spinners as the
http://www.thefinancialexpress-bd.com/2009/02/07/58215.html latter are facing production and revenue shortfalls due to high
competition from imported Indian yarn. Resultantly, banks have
Telecoms decided to tighten their lending to the sector.

Illegal VoIP trade makes a comeback Moreover, import of capital machinery declined by a sharp 32% in
The Daily Star, Thursday February 5, 2009 January compared to the same month last year. As the textiles
sector is one of the largest importers of capital machinery in the
The illegal business of voice over internet protocol (VoIP) has country, a decline in import of machines indicates that
revived after the new government came into power. This illegal manufacturing in the sector is declining, perhaps due to the global
telecom business has been eroding the market for new legal economic crisis.
international gateway (IGW) businesses. Industry insiders said
VoIP based call termination businesses already captured 40% of One of the important issues raised last week is the local textile
the market of all incoming and outgoing international calls. The sector’s inability to enter the Japanese market. According to the
three new IGWs were handling 12mn minutes of calls a day while Head of Japanese External Trade Organization (JETRO) in Dhaka,
BTCL was handling 20mn, till December 2008. But the numbers the China + 1 Strategy adopted by the Japanese apparel buyers
rose significantly in January as illegal VoIP operators returned. has encouraged Japan to import from low cost producers such as
Bangladesh. Moreover, Japanese buyers are impressed with the
BTRC recently awarded six licenses to the private sector to handle quality of products from Bangladesh. However, the lack of
international voice and data traffic. Among the six call handlers, foresight of Bangladeshi exporters who prefer to receive big
three IGWs are mainly responsible for handling international voice orders from Europe or America than smaller orders from Japan
calls.Two other legal interconnection exchanges (ICXs) transmit has hindered exports to Japan. The exporters need to understand
the calls between the IGWs and telecom operators. that Japanese companies usually start with small orders, but
eventually increase their orders with quality assurance.
http://www.thedailystar.net/newDesign/news-details.php?nid=74477
RMG exporters upbeat on target
Textiles The Daily Star, Sunday, February 8, 2009

ATC Comment Garments exporters are optimistic about meeting the current
fiscal year’s export target, although exports of some other
During last week, there were both positive and negative news products from Bangladesh have declined during the July-
regarding the country’s textile sector. Exporters are quite December period. Bangladesh exported woven garment worth
optimistic about exceeding EPB’s tentative apparel export target USD 2.8bn against the target of USD 2.73bn, knitwear worth USD
of USD 25bn by 2013. Indeed there is reason for optimism - global 3.24bn against the USD 3.17bn target, terry towel worth USD
apparel buyers are seeking cheaper sources such as Bangladesh 66.39mn against the USD 59.83mn target, and textile fabrics
for importing garments, as their purchasing power is declining due worth USD 41.63mn against the target of USD 38.49mn in the
to the economic collapse. Hence, foreign buyers are increasingly July-December period of FY 09. However, during the same period
shifting their orders from China and Cambodia to Bangladesh; exports of raw jute, handicrafts, jute goods, electronics, leather,
furthermore, local textile companies have increased their frozen foods and ceramic products declined, according to the EPB
productivity and have adopted new diversification strategies, data.
which are also attractive factors for international buyers.
The export trend of RMG products shows that the export target of
In the July-December period of the current fiscal year, woven USD 12.27bn for woven and knitwear products for FY 09 is
garment exports surpassed the target by 2.5%, knitwear by 2.2%, achievable.
terry towel by 11%, and textile fabrics by 8.2%, according to data
of Export Promotion Bureau (EPB). http://www.thedailystar.net/story.php?nid=74879

The sector is also attracting significant investments – S&S Clothing Exporters' lack of vision blamed for slow entry of Bangladeshi
Limited, a USA-Bangladesh joint venture company, has decided to apparel to Japan
set up a USD 2.67mn garments factory in the EPZ. The Financial Express, Friday, February 6, 2009

Other positive developments in the industry last week include the Apparel exporters' lack of foresight has slowed RMG exports to
launching of a ‘Productivity Improvement Cell’ by BGMEA in Japan, according to the Head of Japanese External Trade
collaboration with GTZ. The project was implemented under the Organization (JETRO) in Dhaka.
'BGMEA Competitiveness Enhancement Programme' managed by
international experts from Rajesh Bheda Consulting (RBC), which He also said that Bangladesh's apparel export to Japan is poised to
increased the labor productivity of 10 factories by over 10%, and jump three-fold to USD 100mn in the current fiscal year. But the
trained 80 middle managers in the industry. The project will growth would have been several times more had not Bangladeshi
undoubtedly be useful in enhancing performance in the sector. manufacturers rejected some of the small orders placed by big
Japanese retailers, he added. Japan is the world's fourth largest

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AT Capital Weekly Update 18
08 February 2009 AT CAPITAL RESEARCH
apparel buyer with its knitwear market alone worth over USD textile and garments, dyeing and finishing and embroidery and
10bn. The largest economy in Asia, however, buys some 90% of its knitting will be put on display at the exposition.
apparel from its traditional source, China. In recent months
Japanese yen's appreciation has prompted the companies to http://www.thedailystar.net/story.php?nid=74447
diversify their supply chains. Resultantly, top Japanese retailers,
notably Fast Retailing, Seiyu, Ito-Yokado and Aoyama Trading have BTMA points to 'crisis' in primary textile sector
started to seek cheaper sources such as Bangladesh, Vietnam, The Daily Star, Monday, February 5, 2009
Cambodia and Pakistan. Around five-six Japanese buyers have
been visiting Bangladesh each week, and they are impressed with Spinning mills, apparently affected by the global financial crisis,
the quality of Bangladeshi products. have reported BDT 300bn (USD 4.37bn) worth of yarn in unsold
stocks. Leaders of the Bangladesh Textile Mills Association (BTMA)
The reason for poor export to Japan, Kinomoto, the Head of sought a stimulus package from the government to overcome the
JETRO, explained, is due to the lack of foresight of Bangladeshi situation. Most spinning mills are facing a serious liquidity crisis, as
exporters who prefer big orders from Europe or America than a huge amount of yarn remains unsold, according to the BTMA. As
smaller orders from Japan. Japanese companies usually start with yarn could not be marketed, the mills cut their production by 30%.
small orders, and eventually increase the orders as they gain If the situation goes unchecked, a large number of workers will
confidence in the quality of products. lose their jobs at the mills and the number of loan defaulters will
increase, BTMA leaders said. There are 1150 mills under the
Kinomoto, however, is hopeful that the situation will change once BTMA, including spinning, dyeing and finishing factories, which
Japanese companies set up trading posts here. At present, only a have an investment of BDT 400bn (USD 5.83bn).
number of companies, including Fast Retailing, have a buying
house in Dhaka. The BTMA made a series of demands, including a hike in cash
subsidy to 15% from 5%, deferring term loan repayment and
http://www.thefinancialexpress-bd.com/2009/02/06/58127.html freezing of interest for two years, the formation of a research and
development fund and devaluation of the taka against the dollar.
USD 2.67mn US-Bangla co to produce garments accessories
The Financial Express, Thursday, February 5, 2009 http://www.thedailystar.net/story.php?nid=73953

S&S Clothing Limited, a USA-Bangladesh joint venture company, EPB eyes USD 25bn RMG exports by 2013
will set up an industry in the Karnaphuli Export Processing Zone in The Financial Express, Thursday, February 5, 2009
Chittagong, Bangladesh. The company will invest USD 2.67mn in
setting up their plant and will produce garments accessories. The 76 % of the country’s total export trade is attributed to the
company is expected to create employment opportunities for textiles sector - if the trend continues, the country is likely to earn
2,028 local people and two foreign nationals. up to USD 25bn by the year 2013, stated an EPB official during a
seminar. Other speakers at the seminar pointed out that,
http://www.thefinancialexpress-bd.com/2009/02/05/57974.html international buyers have been seeking cheaper options for
importing apparels as their purchasing power has been declining,
BGMEA opens productivity improvement cell As comparatively better quality goods are produced in Bangladesh
The Financial Express, Thursday, February 5, 2009 at cheap rates, the demand for Bangladeshi products is on the rise
in developed countries.
The Bangladesh Garment Manufacturers and Exporters
Association (BGMEA) recently launched a 'Productivity http://www.thefinancialexpress-bd.com/2009/02/04/57878.html
Improvement Cell', in collaboration with GTZ. The project was
implemented under the 'BGMEA Competitiveness Enhancement Tourism
Programme' managed by international experts from Rajesh Bheda
Consulting (RBC), which increased the labor productivity of 10 Radisson’s profit increases
factories by over 10%, and trained 80 middle managers in the The Daily Star, Sunday February 9, 2009
industry.
In 2008 the gross operating profit of Radisson Water Garden Hotel
http://www.thefinancialexpress-bd.com/2009/02/05/57980.html Increased by 8.9% to USD 7.33mn, driven by a high occupancy
rate. The hotel earned USD 14.71mn in revenues in 2008, a 10 %
Textile, garment machinery expo starts Sunday rise from a year ago. Total foreign currency revenue earned in
The Daily Star, Thursday, February 5, 2009 2008 was USD 9.95mn (cash and credit cards).

The sixth Dhaka International Textile and Garments Exhibition The hotel gained a 40% share of the total market of five-star
began at the Bangladesh-China Friendship Conference Centre in hotels in the capital and achieved an occupancy rate of more than
the capital on Sunday to showcase textile and garment machinery. 80 % in 2008. According to Industry insiders, Radisson’s profits
The four-day exhibition will continue until February 11 where were partly driven by the fact that the hotel is located in the
around 600 leading textile and garment machinery producers northern part of the city, which has better access to Zia
from 30 countries will exhibit products at 800 booths. Bangladesh International Airport and the garment belt in Ashulia-Savar.
Textile Mills Association (BTMA) and ES Event Management of
Malaysia have co-organized the exhibition. The machinery used in http://www.thedailystar.net/story.php?nid=74584

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AT Capital Weekly Update 19
08 February 2009 AT CAPITAL RESEARCH
Sheraton's star at risk
The Daily Star, Thursday February 5, 2009

Sheraton is leaving its existing management contract as


Bangladesh Services Ltd (BSL) has not agreed to renovate the
country's first five-star hotel. Now instead of having a world-class
company like Sheraton to run the business, the hotel may be
operated by a local entrepreneur under a franchise from a
second-grade international hotel operator.

Situated in a prime location, close to the downtown business


district and the Prime Minister's Office, Sheraton last year earned
revenues of around USD 13mn, up from USD 11.27mn in 2007.The
hotel made an operating profit of around USD 4.79mn in 2008, a
10% rise from a year earlier, amid intense competition from its
new rivals in the hospitality sector.

Despite such profitability, Sheraton is now leaving the hotel


management because of BSL's refusal to renovate the hotel. Since
last June, at least seven international hotel chains including
InterContinental, Hilton, Carlson, Marriott and Wyndham
expressed interest to take over the hotel management following
Sheraton's exit. But all of them, except Wyndham, demanded
immediate renovation of the hotel by the government, saying the
hotel building and its interiors are too old. Wyndham is likely to
strike the franchise deal under the name of Ramada Plaza in mid-
February, said a BSL official. Ramada is a three-star hotel chain
owned by US-based Wyndham Worldwide.

http://www.thedailystar.net/newDesign/news-details.php?nid=74463

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AT Capital Weekly Update 20
08 February 2009 AT CAPITAL RESEARCH
AT Capital Team – Dhaka
Ifty Islam Managing Partner (880-2)-8155144, ext. 132 ifty.islam@at-capital.com
Syeed Khan Partner (880-2)-8155144, ext. 109 syeed.khan@at-capital.com
Akther Ahmed Senior Advisor (880-2)-8155144, ext. 108 akther.ahmed@at-capital.com
Masud Khan Senior Advisor (880-2)-8155144, ext. 113 masud.khan@at-capital.com

Jisha Sarwar Senior Research Associate (880-2)-8155144, ext. 119 jisha.sarwar@at-capital.com


Mohammad Emran Hasan Senior Associate (880-2)-8155144, ext. 120 emran.hasan@at-capital.com

S Adeeb Shams Research Associate (880-2)-8155144, ext. 128 adeeb.shams@at-capital.com


Ahmad Sajid Research Associate (880-2)-8155144, ext. 135 ahmad.sajid@at-capital.com
M. Emrul Hasan Research Associate (880-2)-8155144, ext. 138 emrul.hasan@at-capital.com
Abdullah-Al-Farooq Research Associate (880-2)-8155144, ext. 133 abdullah.farooq@at-capital.com
Ohidul Alam Chowdhury Analyst (880-2)-8155144, ext. 130 ohidul.alam@at-captial.com
Sohana Alam Seraj Office Manager (880-2)-8155144, ext. 132 sohana.alamseraj@at-capital.com

AT Capital Team – North America/Asia

Zarif Munir Senior Advisor zarif.munir@at-capital.com


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

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

_______________________________________________________________________________________
AT Capital Weekly Update 21

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