At Capital Weekly 08 September 2008

08 September 2008 AT CAPITAL RESEARCH
AT Capital Weekly Update

ws Update
Key themes in this issue are:

Bangladesh:
• We discuss the dispute between Prof Yunus and Telenor on Grameenphone’s control
News
that will undoubtedly give many foreign investors significant concerns.

• Dr Yunus continues to claim that Telenor refused to honour an agreement sealed in
Weekly Ne
1996 to transfer its majority holding to his Grameen Telecom by 2002

• However the battle in the court of public opinion runs a number of risks for the IPO.
• One potential investor fear is event risk of future bad news/unforeseen accusations if
Professor Yunus continues to attack GP’s business practices/ ethics in the press.
• Another question will be: What is the business model a GP majority owned by
Grameen is likely to follow in the future. Will act more like an NGO with a not-for-profit
ethos at the expense of other shareholders?
• There is also potential uncertainty over not only the potential distribution of dividends
but also whether a greater emphasis on social responsibility might come at the
expense of profit-maximization.
• We would argue that it is in the interest of both Telenor and Prof Yunus to reach an
agreement behind closed doors and publish a binding statement as to their intent to
reassure prospective investors. Otherwise they risk short-circuiting what is
undoubtedly a seminal event in the evolution of Bangladesh’s capital markets.
Global Markets:
• US August unemployment rate spikes

• GSE Semi-Nationalization imminent
• PIMCO's Bill Gross on need for broader government intervention
Asian Tiger Capital Partners
EDITORS
• Roger Lowenstein on lessons not learnt after LTCM
Ifty Islam
Managing Partner Hopefully not the Grameenphone shareholder discussion
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
Contents Page
Overview – Bangladesh 3
The Grameen saga – Shakespearian high drama risks more than IPO delay 3
Battle of words on GP business ethics and terms of ownership agreement 3
Current dispute undoubtedly risks damaging prospective overseas investor in GP issue 4
Overview – Global Markets

US Government plan’s semi-nationalization of GSEs 6
Weak August US labour report triggered another round of investor gloom 6
Bill Gross of PIMCO highlighted need for new balance sheet capital from Government 7
What happens during delevering 7
Roger Lowenstein on similarities between LTCM crisis of 1998 and 2008 subprime shock 8
Long term capital: it’s a short term memory 8
Brad Stetser on petro surpluses 11
Stock Market Weekly 12

Weekly Stock Market Commentary 13
Stock Market News 13
Economics 16
Economic News 17
Sector News 18
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AT Capital Weekly Update 2
possibility, a remote possibility…We are not the kind of people
to rush to the courts." Ifty Islam, Managing Partner
Grameenphone shareholder debate

Overview – Bangladesh
The Grameen saga – Shakespea
Shakespearian high drama risks more
than IPO delay
As we have highlighted in previous issues of the ATC

Weekly, Grameenphone’s (GP) proposed IPO is an
important event in the evolution of Bangladesh’s capital
markets. Its significance lies not only in the fact that it is by
far the largest proposed issue (at a proposed USD 300mn of
a USD 3.2bn valuation), but also that:
1) Greater Supply: The GP IPO will likely encourage other

corporates in Bangladesh to come to market as they become
more convinced that the regulators are allowing “fairer” or
market-driven valuations. We will also likely see greater
supply from other Telecoms companies and potentially
privatization issues.
2) More Overseas Demand: It is also potentially a catalyst for

greater liquidity in the market and critically more overseas But there is little doubt that the Grameen founder is
investor involvement in the Bangladesh stock market. Larger appealing to what he calls the “court of public opinion” in
foreign investment companies have for some time been stating that, "I am confident the people of Norway will see to
waiting for sizeable and liquid issues to invest in. it that the companies that they own and control honour their
written intention, in all cases, and especially when dealing
However, the events over the past few days will undoubtedly with the poor women of Bangladesh.”
give many foreign investors significant concerns. On
September 7, Securities and Exchange Commission Professor Yunus also highlighted a lapse in business ethics
Chairman Faruq Ahmad Siddiqi told bdnews24.com, "The as a reason why Telenor should transfer management
information GP sent to the Commission is not enough. We ownership to Grameen. Among other comments, he said that
asked for more details… It may not be possible to complete although both Telenor and Grameen Telecom were seeking
the process for GP to offload shares by the end of this year”. growth in the phone company, Telenor's agenda to
He went on to state that the SEC would make a final decision "maximize returns for the benefit of its owners" was in conflict
on the matter after examining all relevant information on the with the "social and non-profit agenda of Grameen Telecom".
company.“ He also highlighted that Telenor has also faced criticism over
safety conditions and use of child labour by its
His statement was consistent with Telenor spokesman Dag subcontractors in Bangladesh. A new report from public
Melgaard who told Reuters Friday that "The IPO could be broadcaster NRK on Thursday disclosed another incident of
this year or next... at the moment, things are a bit child labour at a subcontractor to a Grameenphone supplier.
unpredictable." Dr. Yunus commented that "Grameen and I cannot be
identified with this.”
If the debate was on whether the 17-times face value was
aggressive, or if there were any more technical "In light of the recent alleged illegal activity, that transfer
considerations then investors would likely be more should now occur as soon as possible before further damage
understanding. But it is difficult to blame the SEC for caution is inflicted on the Grameen name. Although Grameen
given what can only be described as “high drama” and a Telecom will see that social objectives will be implemented in
number of statements and counter-statements between the management of the phone company, Grameenphone, it
Grameen founder Professor Yunus and Telenor about the will seek to maintain and expand the growth and the profits in
issue of the Norwegian company giving up management the phone company.”
control.
Dr. Yunus continues to claim that Telenor refused to honour
Battle of words on GP business ethics
ethics and terms of an agreement sealed in 1996 to transfer its majority holding
ownership agreement to his Grameen Telecom by 2002 stating that:
Among other comments, the Professor Yunus stated "Back in 1996, Telenor and we agreed that the joint company
September 4 that: "The recent activities (of Telenor- within six years should be a locally operated company with
controlled management) in Bangladesh leave me with little Bangladeshi management and Bangladeshi majority
alternative other than to investigate the possibility of taking ownership. This has not happened… Telenor now tells me
legal action”. He softened his stance on September 5 by that it was a mistake to rely on their words. We now are
stating a lawsuit was only a "remote possibility (and that) this being told that the words of the written agreement in a legal
is not an outcome that we think is necessary...It is a sense are non-committing statements. We relied on the
words of the agreement."
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Telenor, however, has its own interpretation of the 1996
partnership deal. The company stated that "In the conflict
regarding the ownership of Grameenphone, Telenor
disagrees with Muhammad Yunus that we have an
agreement to sell our stake in the company to him… We
would like to emphasise that the shareholder agreement
clearly states that any disagreements should be resolved
through the Swedish courts."
The professor was particularly scathing about Telenor's way

of doing business or running Grameenphone. "The agenda of
Telenor to maximize returns for the benefit of its owners is,
however, in conflict with the social and non-profit agenda of
Grameen Telecom… Unfortunately, the telephone company
recently has been criticized for labour violations by its
contractors, for violation of environmental law and for
engaging in illegal telecom activities in Bangladesh.
Journalists have recently revealed cases where children
have been working for the subcontractors of
Grameenphone." Current dispute undoubtedly risks damaging prospective
overseas
overseas investor in GP issue
He also referred to the telecoms regulators fining the
company for rogue operations. "Bangladeshi authorities on One would be hard pressed to come up with a more
two different occasions found that the telephone company potentially damaging and confusing issue ahead of the
was not in compliance with Bangladeshi law. In total, the proposed IPO. Reports of Professor Yunus’ comments have
company was fined USD 60mn… USD60mn is a huge amount appeared in as diverse a range of media as Bloomberg, the
of money. In Bangladesh, USD 60mn is enough to pay for Guardian in the UK and Reuters, as well as extensive
over 2 million cataract eye operations, giving that many coverage domestically. A public dispute between the two
people get their sight back… It is enough to educate over main shareholders ahead of an IPO is pretty much
500,000 girls for one year… The breach of Bangladeshi law unprecedented in developed markets, especially for such a
imposed a risk of loss of the company's license as a large company offering. Among other things, one can
telephone operator. Furthermore, I personally have been imagine that foreign investors might be concerned about:
condemned by the Bangladeshi media for this violation of
Bangladeshi laws and have been accused of making illegal 1) Event risk of bad news and unforeseen accusations if
money… We recently have received the police report from the Professor Yunus continues to attack GP’s business practices
authorities' investigation of the illegal activities. Another or ethics in the press. As Bangladesh’s first Nobel Prize
company, Malaysian-based DiGi Telecom Ltd., is accused of winner, his comments clearly carry a great deal of weight in
contributing to the illegal activities. DiGi Telecom also is terms of domestic and critically, international opinion.
accused of laundering money through an account in
Singapore. DiGi Telecom Ltd is owned 61% by Telenor… It 2) What is the business model a GP majority-owned by
can be perceived to the committee members that the majority Grameen likely to follow in the future? Will it act more like an
shareholders of Grameenphone Ltd are involved in NGO with a not-for-profit ethos at the expense of other
encouraging the illegal VoIP business in the international shareholders?
field… The reputation of Grameen and the hard and honest
work of its now 300,000 telephone ladies have been an 3) There is potential uncertainty over not only the potential
important factor in the success of the phone company in distribution of dividends, but also whether a greater
Bangladesh… The telephone ladies became internationally emphasis on social responsibility might come at the expense
acclaimed as successful entrepreneurs through mobile of profit-maximization. There is clearly nothing wrong with
technology, and Telenor reaped financial benefits from this… this corporate objective and much to admire in its ethos. But
Now the goodwill the Grameen name provides to the financial investors must have clarity on what business model
telephone is being undermined by these alleged illegal they are investing in.
activities."
Clearly one potential outcome that Telenor are rejecting at
What is more concerning is that this is not an isolated the moment is a Grameen buyout of 12.1% of their stake by
argument or disagreement. In an Associated Press Report in Grameen to give the latter majority control. As Grameen
December 2006, it was reported that Norway's Telenor Bank has a USD 1bn balance sheet with USD 850mn of
rejected an offer to sell control of GP to partner Grameen capital and little bank borrowing, they can undoubtedly afford
Telecom, saying its strategy is to own majority stakes in joint the cost based on a USD 3.2bn proposed valuation for the
ventures. Newspaper Dagbladet quoted Muhammad Yunus, whole company.
as saying Grameen Telecom was ready to offer Telenor NOK
2.6bn (USD 426.9mn) to buy a 13% stake in Grameenphone It might be argued that GP already faces a number of
and gain a majority. business challenges that potential investors will be focusing
on including:
1) Prospective threat from WiMAX companies as they

compete in voice, as well as data
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2) Intense competition on price given six competitors. Since 2004
Landline operators also likely to be given licenses to enter
mobile market in 2011
3) Potential support for Aktel in 3G space from NTT Docomo,
who are buying a 30% stake and one of the world’s leaders
in 3G technology
As more foreign investors buy into the Bangladesh stock

market, there will undoubtedly be greater scrutiny of news,
information and risk assessment. You can guarantee that
almost every major Telecoms research and deal team in Asia
from all the major global and regional investment banks will
be analyzing and publishing their thoughts on the
implications of the latest fallout between the two major
stakeholders for valuations and whether their clients should • Grameenphone subscriber Growth:
be buying into the IPO and at what price.
We would argue that it is in the interest of both Telenor and

Professor Yunus to reach an agreement behind closed doors
and publish a binding statement as to their intent to reassure
prospective investors. Otherwise they risk short-circuiting
what is undoubtedly a seminal event in the evolution of
Bangladesh’s capital markets.
Appendix
Grameenphone
• 28 November, 1996: Received License to operate

mobile phone operation in Bangladesh
• 26 March 1997: Launched service in Dhaka
• September 1997: Leased railway fiber optics
• June 1998: Launched services in Chittagong
• July 1999: Signed loan agreement with IFC, CDC &
ADB of USD 50mn Source: Grameenphone
• August 1999: Launched first prepaid service
• May 2000: First month of net profit • 16 November 2006, Grameenphone changed its
• January 2002: Reached 500,000 subscriber base logo to match its parent company Telenor’s logo
• October 2003: First dividend payout • Telenor has mobile operators in 12 countries:
• Grameenphone ownership:
Prior to 2004
Source: Telenor
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Ifty Islam, Managing Partner
The move is also likely to nudge down mortgage interest

Overview
Overview – Global Markets rates for households and help prevent a deepening of what is
already the worst housing slump since the 1930s. Despite
US Government plan’s semi-
emi-nationalization of GSEs steep interest-rate cuts by the Federal Reserve, the cost of a
typical 30-year fixed-rate mortgage has remained well over
In the most dramatic market intervention since the S&L crisis, 6% for most of the past year. To bolster the mortgage
on Sep 7 the U.S. government seized Fannie Mae and market, Treasury said it will buy, on the open market, at least
Freddie Mac, the two US largest financial companies, taking USD 5bn of new mortgage-backed securities issued by
direct responsibility for firms that provide funding for around Fannie and Freddie.
three-quarters of new home mortgages.
The government rescue of Fannie and Freddie is likely to
Treasury Secretary Henry Paulson announced a plan to result in billions in losses for stock holders, including major
replace the companies' chief executives and provide up to US banks. But it protects the investments of bondholders,
USD 200bn in capital to restore the firms to financial health. including mutual funds, foreign central banks and
The Treasury's plan puts the two companies under a government investment funds that own large amount debt
conservatorship, giving management control to their issued by the two companies.
regulator, the Federal Housing Finance Agency, or FHFA. In
return for agreeing to provide as much equity capital as It is unclear how much the government's intervention will
needed later to cover losses stemming from mortgage ultimately cost taxpayers. In exchange for agreeing to
defaults, the Treasury gets USD 1bn of preferred stock in provide as much capital as needed to the companies as they
each company without providing any immediate cash. cope with heavy losses on mortgage defaults, the Treasury
will acquire USD 1bn of preferred shares in each company. It
has obtained warrants that give it the right to a stake of
79.9% for a nominal sum. The Treasury's preferred shares
will be senior to those earlier issued, meaning the
government will have the first right to receive dividends.
The new overseers will also eliminate dividends on billions of

common and preferred stock, moves that are expected to
drive down the price of those shares, which have already
dropped precipitously this year. The issue of additional
preferred shares will dilute common shares.
The Treasury's move doesn't answer what could be the USD

5 trillion question of what ultimately happens to Fannie and
Freddie. Under the conservatorship of their regulator, the
companies will still have their shares listed on the New York
Stock Exchange, but management control goes to the
regulator until it deems the companies financially healthy.
Congress ultimately will have to decide in what form Fannie
With that, the U.S. mortgage crisis entered a new and and Freddie will be re-launched or whether they will be
uncharted phase, potentially saddling American taxpayers replaced by different types of entities.
with billions of dollars in losses from home loans made by the
private sector. Mr. Paulson noted that more than USD 5 The Treasury plan limits the size of each company's
trillion of debt and mortgage-backed securities issued by mortgage portfolios to a maximum of USD 850bn as of the
Fannie and Freddie is owned by central banks and other end of 2009. After that, the Treasury intends for the mortgage
investors world-wide. He stated that "Failure of either of them holdings to shrink about 10% a year until they reach about
would cause great turmoil in our financial markets here at USD 250bn at each company.
home and around the globe," Mr. Paulson said.
Many economists and analysts believe the government had
As the Wall Street Journal has noted, by taking this action, to wade deeper into the mortgage market because for now
the government has seized control of the vast bulk of the "private markets are just not willing to put up the capital" for
secondary market for home mortgages, where these loans home mortgages at prices U.S. consumers could afford.
are sold to investors, and will have a more direct Without government support for the mortgage market, home
responsibility than ever for solving the housing crisis. The prices would fall much farther, exposing the country as a
intervention also marks the failure of the public-private whole to greater economic strain.
experiment that was created to boost home ownership
among Americans. Though Fannie and Freddie were created Fannie and Freddie's credit problems are largely a reflection
by Congress to help prop up the housing market, they have of the overall weakness in the housing market. Some 9.2% of
long been owned by private shareholders seeking to mortgages on one-to-four family homes were at least a
maximize profits. month overdue or in the foreclosure process in the second
quarter, according to the latest survey of the Mortgage
_______________________________________________________________________________________
Bankers Association. That is the highest percentage in the The economy expanded in the second quarter at a healthy
39 years that the trade group has been doing the surveys. annual rate of 3.3%, a response in part to families spending
their rebate checks from the first stimulus package and to a
As the Financial Times noted on September 8 in their Lex surge in exports as the dollar weakened. Now the dollar is
Column: ”The US government's decision to place Fannie rising, the last of the stimulus checks were mailed weeks
Mae and Freddie Mac into "conservatorship" came without a ago, and the credit crisis — particularly the reluctance of
specific cause – such as a failed debt refinancing – but rather banks and other financial institutions to lend to consumers
a sense they were both failing to provide affordable mortgage and businesses alike — is restricting economic activity.
debt while also threatening to upend the US financial system.
The looming election, combined with increasing reluctance Given these pressures, many economists expect third-
by foreign central banks to buy US mortgage-backed paper, quarter growth to be barely positive. In any case, the
may also have helped prompt his early intervention.” government is not scheduled to announce the third-quarter
number until late October, just days before the election.
How much might it cost taxpayers? The Treasury can inject
as much as USD 100bn into each GSE to help support their The August jobs report seemed to suggest that the
combined USD 5,400bn portfolio of bonds – although it is deterioration in the economy is accelerating. The
unlikely to need to do so. It may even make a profit from the unemployment rate has risen 1.4% points over the last year
GSE mortgage-backed debt that it buys directly and then and is now at its highest level since September 2003, when
holds to maturity. the economy was just beginning to emerge from a jobless
recovery.
Even so, the bailout is potentially huge, although it will
probably not be the US's biggest: the cost to the taxpayer What’s more, those who swelled the unemployment rolls last
from the savings and loan crisis was USD 300bn in today's month were adults, many over the age of 45, and not teen-
money. Against that – and billed as saving the global financial agers, who were the main contributors to the jump in
system from unimaginable turmoil – the expense of saving unemployment in May, when the rate rose to 5.5% from 5%
the mortgage financiers may even prove moderate. in April. The nearly 600,000 people added to the
unemployment roles in August included almost as many
college graduates as those with only a high school degree.
Manufacturing companies shed the most jobs last month,

61,000, mostly at auto plants and in housing-related
industries. There were also sharp cutbacks in the use of
temporary workers, and across most of the work force hourly
and weekly wages once again failed to keep pace with
inflation.
Bill Gross of PIMCO highlighted need for new balance sheet

capital from Government
Bill Gross is the Co-Chief Investment Officer of PIMCO which

is the largest bond fund in the world with USD 830bn of
assets under management. He is genuinely one of the few
players in global financial markets beyond central banks and
government that can move investor sentiment. His comments
below from his September 2008 PIMCO Investment Outlook,
Weak August US labou
abour report triggered another round of provide a valuable perspective on why the government will
investor gloom be forced to bail out not only Fannie Mae and Freddie Mac
but US households more broadly. In the absence of this, the
The unemployment rate jumped to 6.1 percent in August, its US housing downturn, and hence the prospects for a global
highest level in five years, pushing the troubles of American recession, will persist.
workers to the center of the political debate as the
presidential campaign enters its final weeks. “So the lesson must be to go forth and find the bull market,
wherever it is. Almost always – but not now because in a
For the eighth consecutive month, the nation’s employers global financial marketplace in the process of delevering,
shed jobs, 84,000 last month, the Bureau of Labor Statistics assets that go up in price are rare diamonds as opposed to
reported Friday. In all, 605,000 jobs have been lost since grains of sand. For the past several months our PIMCO
January. The steady rise in unemployment, from 5.7% in July Investment Committee blackboard has continued to display
and 5% in April, is one that many economists associate with the following lesson plan:
recession.
What happens
happens during delevering?
Apart from the 84,000 jobs lost in August, the bureau
yesterday revised its original estimates for June and July, Risk spreads, liquidity spreads, volatility, term premiums –
saying that an additional 58,000 jobs had disappeared in they all go up. Delevering slows/stops when assets have
those months. Nearly all represented cutbacks by state and been liquidated and/or sufficient capital has been raised to
local governments struggling with lower tax revenues in a produce an equilibrium. The raising of sufficient capital now
_______________________________________________________________________________________
depends on the entrance of new balance sheets. Absent in the form of monthly mortgage payments (many of which
that, prices of almost all assets will go down. are in-creasing due to adjustable or option-related
contractual provisions) lead to foreclosures, which in turn
cause a debt liquidation. The bank in this case, takes
possession of the home and dumps it back on the market,
lowering the price even further, which leads to more
foreclosures, which leads to….
This rarely observed systematic debt liquidation is what

confronts the U.S. and perhaps even the global financial
system at the current time. Unchecked, it can turn a campfire
into a forest fire, a mild asset bear market into a destructive
financial Tsunami. Central bankers, of course, adopting the
cloak and demeanor of firefighters or perhaps lifeguards,
have been hard at work over the past 12 months to contain
the damage. And the private market, in its attempt to
anticipate a bear market bottom and snap up "bargains," has
been constructive as well. Over USD 400bn in bank- and
finance-related capital has been raised during the past year,
a decent amount of it, by the way, having been bought by
yours truly and my associates at PIMCO. Too bad for us and
for everyone else who bought too soon. There are few of
these deals now priced at par or above, which is bondspeak
The above might seem simplistic to us at PIMCO but it is not for "they are all underwater." We, as well as our SWF and
necessarily clear to all readers. Term premiums? Risk central bank counterparts, are reluctant to make additional
spreads? Volatility? What do they have to do with bull or bear commitments.
markets? Well, what Step 1 really says is that as GSEs,
banks, investment banks, global hedge funds and even Step 2 on our delevering blackboard therefore has stalled
individual households delever their balance sheets by and is inevitably morphing towards Step 3. Assets are still
shedding assets, they lower the prices of not just what they being liquidated but there is an increasing reluctance on the
are selling, but other securities that are arbitrageable within part of the private market to risk any more of its own capital.
the marketplace. The past 12 months, for instance, have Liquidity is drying up; risk appetites are anorexic; asset
focused on subprime and alt-A mortgages and their prices, despite a temporarily resurgent stock market, are
drastically lowered prices. Stocks of companies that own mainly going down; now even oil and commodity prices are
them are of course marked down, but so are other assets of drowning. There may be a Jim Cramer bull market
impeccable quality. Because junk mortgages now in some somewhere, but it's primarily a mirage unless and until we
cases yield 15%, money at the margin is pulled out of the get the entrance of new balance sheets, and a new source of
agency mortgage market where implicit guarantees and liquidity willing to support asset prices.
explicit Treasury promises to provide standby capital lead to
bona fide AAA quality ratings. We estimate that the process If we are to prevent a continuing asset and debt liquidation of
of delevering has lowered the price on FNMA and FHLMC near historic proportions, we will require policies that open up
mortgages by as much as 3-4% and raised the yield on their the balance sheet of the U.S. Treasury – not only to Freddie
30-year fixed paper by as much as 75 basis points. and Fannie but to Mom and Pop on Main Street U.S.A., via
subsidized home loans issued by the FHA and other
Similarly, the volatility associated with asset liquidation as government institutions.
well as the observable lack of liquidity adds additional risk
spread premia, which in turn lower the price of almost any Roger Lowenstein on similarities between LTCM crisis of
stock, bond or piece of real estate that you or anyone else 1998 and 2008 subprime
subprime shock
owns. In combination, the current delevering has managed to
sink all three primary asset classes in aggregate, as shown Roger Lowenstein is the author of “When Genius Failed” the
in Chart 1. At first, one might wonder why all the fuss. As the story of when hedge fund Long-Term Capital Management
chart demonstrates, there have been prior periods when this (LTCM) collapsed and almost brought down the global
trio has not done well and the U.S. economy has hardly financial system. In the article below written for the Sep 7
blinked. However, the current year-over-year decline of over New York Times, he compares the similarities between the
10% has never really been witnessed since the Great current crisis of 2008 and the events almost exactly 10 years
Depression. That, in and of itself, is a potential red flag. Yet a ago. His comments on why markets fail to learn from past
10% aggregate asset price decline does more than make us experience are extremely illuminating.
all 10% less wealthy. Because many of these assets are
leveraged and margined, the more they decline, the more Long term capital: it’s a short term memory
frequent and frenzied the margin calls, and if the additional
cash flow is not provided, not only an asset liquidation but a A financial firm borrows billions of dollars to make big bets on
debt liquidation follows. It is the debt liquidation that esoteric securities. Markets turn and the bets go sour.
potentially turns a stagnant/recessionary economy into Overnight, the firm loses most of its money, and Wall Street
something much worse. In the housing market for instance, it suddenly shuns it. Fearing that its collapse could set off a
is one thing to observe a 15% national decline in home full-scale market meltdown, the government intervenes and
prices. It is much more serious however, when margin calls encourages private interests to bail it out.
_______________________________________________________________________________________
The firm isn’t Bear Stearns — it was Long-Term Capital that invested in high-rated mortgage securities imploded. As
Management, the hedge fund based in Greenwich, Conn., foreclosures kept rising, other institutions suffered losses and
and the rescue occurred ten years ago this month. the crisis spread.
The Long-Term Capital fiasco momentarily shocked Wall Bear was warned to raise more capital by selling stock, but
Street out of its complacent trust in financial models, and was its senior executives, led by James E. Cayne, the chief
replete with lessons, for Washington as well as for Wall executive, thought the company’s stock was cheap and
Street. But the lessons were ignored, and in this decade, the refused. Mr. Cayne, who was an original investor in Long-
mistakes were repeated with far more harmful Term Capital, should have remembered that the hedge
consequences. Instead of learning from the past, Wall Street fund’s most obvious flaw was its excessive borrowing, or
has re-enacted it in larger form, in the mortgage debacle cum leverage. Before its annus horribilis, Long-Term had
credit crisis. intentionally reduced its equity to a mere 3% of assets. It was
a fatal mistake.
In the wake of Long-Term Capital’s failure, Wall Street
professed to have learned that even models designed by This time around, Bear gambled that it could survive with a
“geniuses” were subject to error and to the uncertainties that weak balance sheet — its equity-to-assets ratio was an
inevitably afflict human forecasts. It also professed a identical 3 percent. By March, worries that Bear was
newfound respect for the perils of borrowing. Whether this overleveraged prompted a run on its stock and pushed it to
wisdom endured may be judged by events of the past year, the brink of bankruptcy. Again, Wall Street feared that a
when not only Bear Stearns but also scores of banks and chaotic collapse could jeopardize the financial system, and
financial institutions have written off hundreds of billions of the Fed orchestrated a rescue.
dollars — a result of blithe faith in models of the housing
industry, not to mention a voracious hunger to do business AS striking as the parallel is to Bear, Long-Term Capital’s
on credit. echo is far more profound. Its strategy was grounded in the
notion that markets could be modeled. Thus, in August 1998,
Regulators, too, have seemed to replay the past without the hedge fund calculated that its daily “value at risk” —
gaining from the experience. What of the warning that meaning the total it could lose — was only USD 35mn. Later
obscure derivatives needed to be better regulated and that month, it dropped USD 550mn in a day. How could the
understood? What of the evident risk that intervention from fund have been so far off? Such “risk management”
Washington would foster yet more speculative behavior — calculations were and are a central tenet of modern finance.
and possibly lead to a string of bailouts? “Risk” is said to be a function of potential market movement,
based on historical market data. But this conceit is false,
Indeed, through the lens of today’s more widespread failure, since history is at best an imprecise guide.
the Long-Term Capital collapse looks like a small dress
rehearsal. But at the time, it sent tremors of fear through the Risk — say, in a card game — can be quantified, but financial
corridors of Wall Street, along the electronic byways of markets are subject to uncertainty, which is far less precise.
finance and around the globe. Somehow, a geeky band of We can calculate that the odds of drawing the queen of
bond traders was able to throw the financial world off kilter. spades are 1 in 52, because we know that each deck offers
52 choices. But the number of historical possibilities keeps
In its first four years, Long-Term Capital achieved changing.
phenomenal profits with virtually no downside. Thanks to its
seemingly flawless computer models, as well as its Before 1929, a computer would have calculated very slim
formidable arbitrageurs — including two Nobel laureates and odds of a Great Depression; after it, considerably greater
a former vice chairman of the Federal Reserve — it odds. Just so, before August 1998, Russia had never
quadrupled its capital without having a single losing quarter. defaulted on its debt — or not since 1917, at any rate. When it
did, credit markets behaved in ways that Long-Term didn’t
But in the summer of ’98, its fortunes took a frightful predict and wasn’t prepared for.
downturn. With terrifying suddenness, bond markets turned
skittish and all the fund’s gambits ran into trouble. This was the same mistake that scores of lenders would
make in the housing industry. The United States had never
As Long-Term Capital teetered, Wall Street feared that its suffered a nationwide contraction in housing prices; they
unraveling could set off a systemic meltdown, and William J. assumed that the pattern would hold.
McDonough, president of the Federal Reserve Bank of New
York, agreed. On Sept. 22 and 23 — by which time Long- Modern finance is an antiseptic discipline; it eschews
Term had lost almost USD 4.5bn — he summoned the heads anecdotes and examples, which are messy and possibly
of the major Wall Street firms, along with senior bankers from misleading — but nonetheless real. It favors abstraction,
Europe, to a conference at the Fed. Fearing chaos, 14 banks which is perfect but theoretical. Rather than evaluate
— Bear Stearns, ironically, was the lone naysayer — agreed to financial assets case by case, financial models rely on the
rescue Long-Term by investing USD 3.65bn. Within a few notion of randomness, which has huge implications for
weeks, calm returned and the crisis passed. diversification. It means two investments are safer than one,
three safer than two.
No firm had a closer view of Long-Term Capital than Bear
Stearns, the broker that cleared its trades. And it was Bear The theory of option pricing, the Black-Scholes formula, is
that sounded the first shot in the current mortgage crisis. In the cornerstone of modern finance and was devised by two
summer 2007, amid a sharp rise in delinquencies on Long-Term Capital partners, Robert C. Merton and Myron S.
subprime mortgages, two hedge funds sponsored by Bear
_______________________________________________________________________________________
Scholes, along with one other scholar. It is based on the idea it could tempt financial players to take excessive risk. The
that each new price is random, like a coin flip. warning was ignored. And the notion that a private hedge
fund with but 16 partners and fewer than 200 employees
Long-Term Capital’s partners were shocked that their trades, could cause lasting harm was never truly examined. It was
spanning multiple asset classes, crashed in unison. But simply accepted.
markets aren’t so random. In times of stress, the correlations
rise. People in a panic sell stocks — all stocks. Lenders who The concept of too-big-to-fail, exceptional in 1998, is now a
are under pressure tighten credit to all. staple in the regulators’ playbook. Bear Stearns and, by
implication, other troubled investment banks have been
And Long-Term Capital’s investments were far more taken under Washington’s protective skirts; Fannie Mae and
correlated than it realized. In different markets, it made Freddie Mac, too. The Federal Deposit Insurance
essentially the same bet: that risk premiums — the amount Corporation is pushing for easier terms for millions of
lenders charge for riskier assets — would fall. Was it so homeowners; auto companies are demanding loan
surprising that when Russia defaulted, risk premiums guarantees.
everywhere rose?
Where does it end? If individual responsibility is to be fully
More recently, housing lenders — and the rating agencies excised from American capitalism, the free-market
who put triple-A seals on mortgage securities — similarly enthusiasts who founded Long-Term Capital deserve no little
misjudged the correlations. The housing market of California credit.
was said to be distinct from Florida’s; Arizona’s was not like
Michigan’s. And though one subprime holder might default, The shock of their failure was such that hedge funds have
the odds that three or six would default were exponentially been regarded as especially suspect ever since. This, too, is
less. Randomness ensured (or so it was believed) a diverse a misbegotten lesson; an investment bank (Bear Stearns)
performance; diversity guaranteed safety. could and did wreak similar havoc. Long-Term Capital’s
woes had less to do with who was trading than with the kind
After Long-Term Capital’s fall, many commentators blamed a of assets they were playing with, namely that potent tinder of
lack of liquidity. They said panic selling in thin markets modern finance: derivatives (these are off-balance sheet
pushed its assets below their economic value. That’s why agreements whose value “derives” from that of underlying
leverage is dangerous; if you operate with borrowed money, assets like stocks or bonds).
you lack the luxury of waiting until prices correct.
In traditional finance, borrowers borrow and lenders lend.
The fund’s partners likened their disaster to a “100-year The only firms exposed to, say, home mortgages, are the
flood”— a freak event like Katrina or the Chicago Cubs banks that issue them. Thanks to derivatives, a firm with
winning the World Series. (The Cubs last won in 1908; right exposure can pass it off, and a firm with no exposure can
on schedule, they are in contention to repeat.) But their assume it.
strategies would have lost big money this year, too.
Markets thus have less information about where risk lies.
John W. Meriwether, the fund’s founder, later organized a This results in periodic market shocks. Put differently,
new fund, which suffered big losses early this year, derivatives, which allow individual firms to manage risk, may
according to press reports. accentuate risk for the group. Markets were stunned to
discover that Long-Term Capital owned outsized portions of
If 100-year floods visit markets every decade or so, it is obscure derivatives. They dealt with that shock in typical
because our knowledge of the cards in history’s deck keeps fashion: they panicked.
expanding. When perceptions change, liquidity evaporates
quickly. Indeed, the belief that one can safely get out of a Incredibly, six months after the Long-Term Capital affair, Mr.
“liquid” market is one of the great fallacies of investing. Greenspan called for less burdensome derivatives
regulation, arguing that banks could police themselves. In the
This lesson went unlearned. Banks like Citigroup and Merrill last year, he has been disproved to a fault.
Lynch felt comfortable owning mortgage securities not
because they knew anything about the underlying properties, Investors have no confidence in banks or in their disclosures.
but because the market for mortgages was supposedly How much will each downward tick in housing prices hurt the
“liquid.” Each firm would write down the value of its mortgage bottom line? No one knows. Failing to inspire confidence,
investments by more than USD 40bn. banks cannot raise (enough) capital; thus, they do not lend.
Bear Stearns had on its books USD 2.5 trillion of a derivative
Such stupefying losses suggest the biggest difference known as a credit default swap. Perplexed and alarmed,
between 1998 and today. In ’98, though credit markets froze investors dumped the stock. And Bear was party to a
and stocks plunged, they recovered quickly. Long-Term hopelessly complex web of such derivative deals. Rather
Capital was wholly a financial episode; it left no scar on Main than let its contracts fail, regulators forced it to merge.
Street. The current crisis has its roots in housing, a mainstay What we need from Washington now is not a promise of help
of the economy, and with the bubble’s bursting the damage after the next bust, but a show of wisdom before it. Requiring
has been enduring and severe. full, meaningful derivatives disclosure would be a good start.
Investors, meanwhile, could help themselves by preparing
But Long-Term Capital’s influence on regulatory practice is for the next 100-year flood. Rest assured, it will arrive before
anything but forgotten. Alan Greenspan conceded at the time then.
that the fund’s rescue could lead to “moral hazard,” meaning
_______________________________________________________________________________________
Brad Stetser on petro surpluses sometimes seemed jealous of Dubai’s ability to draw
attention to itself,” I get a sense that the al-Nahyan family got
International Macro watcher Brad Stetser makes the tired of seeing all the talk of big “Dubai” wealth funds . Abu
following useful observations oil surpluses in the face of the Dhabi certainly hasn’t been trying to hide its wealth recently
current softening in commodity prices: — which is something of a change. It also calls into question
why Abu Dhabi continues to avoid disclosing ADIA’s size.
“The recent fall in oil prices seems to have caused a wee bit The argument that Abu Dhabi doesn’t want to attract too
of trouble at a few commodity hedge funds. much attention doesn’t really cut it these days.”
But it is important to keep the fall in perspective. If oil stays

around USD 110 for the rest of the year, the sweet light stuff
should average about USD 112-113 dollars in 2008, about
USD 40 a barrel more than it averaged in 2007. If it slides to
around USD 100, oil will still average close to USD 110
dollars this year, or almost USD 40 a barrel more than in
2007.
I did some very ballpark math to calculate the annual

increase in oil export revenues associated with oil price
moves since 1990. To keep everything simple, I assumed the
big oil exporters exported a constant 40 mbd during the
entire period. I know that is wrong, but I don’t have an “net oil
exports of the big oil exporters by month” (or even by year)
going back to 1990 readily available. It isn’t wildly off though,
and it tells the story well. A USD 112 average oil prices
means the oil exporters should have about USD 500bn more
than in 2007. That is probably a bit low, as I suspect net oil
exporters of the big oil exporters are now a bit over 40 mbd
(oil experts, please chime in!)
And just to be clear, despite the chart’s title, the chart shows
the estimated change in oil export revenues for all oil
exporters, not just the Saudis.
Incidentally, the oil exporters probably now need an oil price

of around USD 70 a barrel to cover their import bill, so USD
500 billion plus isn’t a bad estimate for their combined
current account surplus — or for their official asset growth — in
2008. I’ll be interested to see the IMF’s estimate of this in the
WEO.
The Saudis don’t have a thing to worry about it oil stays at its
current level. They can spend more at home and buy more
assets abroad. And Abu Dhabi can continue its current
spending (oops, investment) spree — and make sure the
world knows that Abu Dhabi, not Dubai, has the real cash.
Like Landon Thomas, who recently wrote “Abu Dhabi has
_______________________________________________________________________________________
Stock Market Weekly
DSE performance: 52 weeks
weeks Market news
• Grameenphone IPO unlikely by December
• Dr. Mirza Azizul Islam suggests suspension of Z

category share trading
• Ananda Shipyard to go public by year-end to finance its

expansion
• Body formed to reduce IPO processing time
• International Leasing's brokerage house begins journey
DSE performance: 30 days Regional stock market performance (last week)
Market summary Valuation snapshot

Sector P/E
DSE General
Index performance DSE 20 Apr-08 May-08 Jun-08 Jul-08
Index
Banks 22.2 22.6 21.7 19.2
Opening of this week 2,765.5 2,425.9
Cement 14.7 17.6 12.4 11.2
Closing of this week 2,803.0 2,410.0
Ceramic 43.7 42.7 42.0 50.3
Change within a week (%) 1.4% -0.7%
Engineering 38.9 41.4 39.1 38.4
Change within a week (Point) 37.5 -15.9
Food & Allied 28.2 28.5 13.2 19.3
Fuel & Power 25.8 26.2 23.6 16.1
This Last % Insurance 28.1 32.4 26.9 22.8
Capitalization and turnover
Week Week Change 53.1 33.5
Investment 64.9 65.2
Number of Trading Days 5 4 IT 18.4 17.6 20.0 20.3
Market Capitalization (USD bn) 14.44 14.07 2.6% Jute 16.4 16.0 16.0 16.3
Total Turnover (USD mn) 202 156 29.4% Miscellaneous 23.0 25.9 23.2 25.2
Daily Avg. Turnover (USD mn) 40 39 3.5% Paper & Printing 9.2 9.5 9.2 7.9
Total Volume (mn) 82 61 33.1% Pharmaceuticals 26.7 29.8 28.1 25.6
Daily Avg. Volume (mn) 16 15 6.5% Service & Real Estate 20.5 19.5 20.8 20.5
Tannery 25.1 23.1 19.8 21.3
This Last Textiles 14.9 14.4 15.2 16.3
Weighted avg. P/E Ratio* Issues
Week Week Source: Dhaka Stock Exchange
This Week 20.26 Advanced 117 178
Last Week 20.12 Declined 129 54
% Change 0.70% Unchanged 5 13
*Weighted on Market Cap. Not Traded 37 42
_______________________________________________________________________________________
Weekly Stock Market Commentary theoretically similar collective value. Although it seems their
rationale works – a self fulfilling prophesy!
This week the market extended the gains that it made in the
earlier week. The benchmark DGEN index gained 1.36 %. And finally, the Grameenphone IPO continues to make the
The average trading volume in the week was up by 3.5%. headlines - the much talked about marquee IPO may not
This week the markets largest mutual fund made its debut - happen by the end of this year. Noble laureate Professor
Grameen 1: Scheme 2 started trading on September 2. The Yunus who represents, Grameen Bank group, the 38%
BDT 1.25 billion (USD 18.2mn) fund, managed by Aims owner of Grameenphone, has threatened that he will sue
started trading at a premium of 330%. Two months ago, the Telenor, the majority owner. According to Professor Yunus,
2nd largest mutual fund, managed by ICB Asset Management there was an agreement in 1996 that Telenor would
nd
Company - a BDT 1 billion (USD 14.6mn) fund, called 2 relinquish control to Grameen Bank after six years. Not good
NRB mutual fund, started trading at a premium of 80%. news given the approaching deadline. And furthermore, to
add salt to wounds, the SEC Chairman told the media that
We have previously queried the rationality, or rather, the they need clarifications on certain points before they approve
irrationality of such high premiums. On the face of it one the IPO. The listing process normally takes couple of
would, thinking rather simplistically expect the mutual funds months even after SEC approval. Please see overview for
to trade at around the ‘marked to market’ net asset values of further commentary.
the fund – after all a fund is merely a collection of traded
stocks. Why is there a difference in premiums of the two Stock Market News
mutual funds which have similar investment objectives?
Grameenphone IPO unlikely by December
December
bdnews24.com, Saturday, September 06, 2008
The stock market debut of Grameenphone is unlikely this

year as the country's largest mobile phone operator has not
sent all required information to the capital market regulator,
according to a senior SEC official.
Following this statement a Telenor spokesperson was quoted

saying that things are a bit unpredictable and the IPO might
be either this year or the next year.
However, the SEC Chairman has not completely ruled out

the possibility of the Grameenphone listing by year-end.
http://bdnews24.com/details.php?id=61673&cid=4
A general market observation first: the phenomenon of wild
valuations is not surprising in Bangladesh. The P/E multiples Body formed to reduce IPO processing time
of companies in the same industry and similar fundamentals The Financial Express, Wednesday, September 03, 2008
sometime range between 7 and 70.
The Securities and Exchange Commission (SEC) formed a
In case of these two mutual funds, a number of factors may 10-member committee tasked to reduce the time taken to
have contributed to the difference in the valuations: process an IPO. The committee will submit its
recommendations by September 25 next.Currently, it takes
Firstly, the size of the holding of general investors may be a seven weeks to complete the IPO processing which
factor. General investors currently hold 80% of the stock of discourages many companies to go public.
nd
the 2 NRB fund while they hold only 25% of Grameen 1:
http://www.thefinancialexpress-
Scheme 2. One could conclude that the limited freefloat in
bd.info/search_index.php?page=detail_news&news_id=44430
the latter fund is causing price distortion due to illiquidity of
the stock. International Leasing's brokerage house
house begins journey
The Financial Express, Wednesday, September 03, 2008
Secondly, the timing of commencement of trading may have
played some role. The market was experiencing a downtrend International Leasing Securities Limited (ILSL), a fully owned
when the NRB fund started trading while the market was subsidiary company of International Leasing and Financial
somewhat bullish at the time of the debut of the other fund. Services Ltd (ILFSL) commenced operations as a full-fledged
brokerage house, says a press release. ILSL has started its
Thirdly, though it is counterintuitive, the denomination of functions with some value added services like 24-hour phone
share value may have played a significant role. The face banking, daily electronic trade-statement transmission and
value of the NRB fund share is BDT 100 while the face value other trade related information and telephonic order
of the Grameen fund is BDT 10. Earlier, we have seen how processing.
a change in denomination can prompt a rally in the market.
Islami Bank has risen by about 48% to date since it declared http://www.thefinancialexpress-
that it will split its shares 1:10. In the first three days since the bd.info/search_index.php?page=detail_news&news_id=44434
declaration the share gained by 23%. In this market it seems
that retail investors believe they are getting better value
when they hold a higher number of shares albeit, with a
_______________________________________________________________________________________
Dr. Mirza Azizul
Azizul Islam suggests suspension of Z category Government
Government eyes stock market for Padma bridge fund
share trading The Daily Star, Sunday, August 31, 2008
The Financial Express, Sunday, August 31, 2008
The Finance Adviser said, the government plans to part fund,
Speaking about the development of the capital markets the the country's largest civil engineering project, the Padma
Finance Adviser, Dr. Mirza Azizul Islam strongly criticised the Multipurpose Bridge, from the stock market. "Apart from
performance of Z category companies, suggesting external financing, we will have to collect around BDT 40bn
suspension of trading of their shares, and promoted the (USD 584mn) from internal sources to construct the bridge.
development of a bond market. The finance adviser was There is a possibility to raise a portion of the fund from the
speaking at a seminar on 'Contemporary Issues in The capital market," said Dr. AB Mirza Azizul at a conference
Capital Market and The Road Ahead' organised by the 'Contemporary Issues in the Capital Market and the Road
Citibank, N.A. Ahead', organised by Citibank, N.A.
He said: "Representation of various sectors is insignificant in The 6.01km bridge between Mawa and Jajira over the river
the market, dominated by only financial institutions. But in Padma will cost USD 1.8bn, with USD 1.15bn to be provided
order to widen the depth of the market, participation of other by international lenders, including Asian Development Bank,
sectors like manufacturing, services and other sectors are World Bank, Islamic Development Bank and the Japan Bank
required." of International Corporation.
Expressing dissatisfaction about entrepreneurs' reluctance http://www.thedailystar.net/story.php?nid=52625

list their companies on the stock markets, he suggested,
entrepreneurs are reluctant to raise capital from the stock
markets due to perceived hassle and also due to concerns
about achieving IPO fair pricing "But it is their misconception
as the situation has changed, I believe," he said. "It is
necessary to convince the entrepreneurs that SEC does not
determine the prices of the IPO. But the IPO prices are
determined in line with the company's financial strength," he
added.
Ananda Shipyard to go public by year-

year-end to finance its
expansion
The Financial Express, Sunday, August 31, 2008
Bangladesh's pioneer shipbuilder Ananda Shipyard and

Slipways Limited (ASSL) plans to go public by year-end to
raise to finance its massive expansion drive, its chief
executive said Saturday.
"We are deluged with orders from European countries. But

we don't have enough fund to expand our manufacturing
capacity," Abdullahel Bari, chairman of ASSL told the FE.
The company, which has export orders for 22 ocean-going

vessels worth USD 150mn till 2012, borrowed BDT 1.81bn
(USD 26mn) from AB Bank last week to finance part its
expansion plans. "But still, we need more fund to set up more
slipways and manufacturing facilities. At present, we can
build ships weighing 10,000 tonnes a year. We want to
increase the capacity to 35,000 tonnes a year," he said.
"By going public, we will also be able to cut operational costs

as we will enjoy a corporate tax benefit," he said, adding the
new facilities would raise the company's number of workers
from 1000 to 2500 by November this year.
_______________________________________________________________________________________
DGEN Performance LTM DGEN
DGEN Performance YTD
Turnover leaders Best performers* Worst performers*

(All figures in mn) BDT USD % Change % Change
Titas Gas 1,908 27.9 Bd.Thai Aluminium 41.3 Mutual Trust Bank Ltd. -13.1
ACI Limited. 780 11.4 Pragati Insurance 23.9 Monno Stafllers -9.5
BEXIMCO 607 8.9 ICB Islamic Bank Ltd. 22.3 Rahima Food -8.3
Grameen One: Scheme2 550 8.0 Delta-Brac Housing 22.2 Dynamic Textile -8.2
Beximco Pharma 450 6.6 Titas Gas 21.2 Rupali Bank -7.5
Lankabangla Finance 384 5.6 Chittagong Vegetable 19.2 National Polymer -7.5
Islami Bank 348 5.1 Pragati life Insurance 14.1 Eastern Cables -7.3
ICB AMCL 2nd NRB M.F. 329 4.8 AMCL (Pran) 12.8 Fu-Wang Ceramic -7.2
Square Pharma 318 4.6 Dandy Dyeing 12.8 Bengal Fine Ceramic -7.1
BATBC 290 4.2 Saleh Carpet 12.5 Prime Insurance -6.7
Source: Dhaka Stock Exchange
*By closing price
Source: Dhaka Stock Exchange
Market cap. by sector*
Banks 52.6%
Fuel & Power 12.2%
Pharmaceuticals 10.4% Correlation with other Indices*
Cement 5.7% S&P FTSE NIKKEI KSE
Insurance 5.7% 500 DJIA 100 SENSEX 225 100 DSE
Miscellaneous 3.0% S&P 500 1.00
Engineering 2.6% DJIA 0.94 1.00
Foods 2.4% FTSE 100 0.65 0.63 1.00
Textile 2.1% SENSEX -0.09 -0.13 -0.07 1.00
Tannery 1.5% NIKKEI 225 -0.13 -0.12 0.07 0.53 1.00
Service & Real Estate 1.0% KSE 100 0.02 0.03 0.07 0.24 0.29 1.00
IT 0.5% DSE -0.14 -0.22 -0.12 0.17 0.12 0.16 1.00
Ceramics 0.1% *Based on the last 65 monthly returns
Paper & Printing 0.1%
Jute 0.03%
Total 100%
*As of July 31, 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
_______________________________________________________________________________________
Economics
Annual and monthly trends in remittances (USD mn) Market news
2005-
2005-06 2006-
2006-07 2007-
2007-08 • Iftar prices shoot up by 30%
Annual remittances 4,801.88 5,978.47 7,914.78
(+24.78%) (+24.50%) (+32.39%) • FBCCI to seek law-enforcers' help if price gap is
Month 2007-
2007-08 2006-
2006-07 not narrowed
July 567.11 412.80
• Dhaka targets USD 1bn exports to Turkey in few
August 470.95 471.22
September 590.67 446.00 years
October 559.05 377.34 • Higher import payments put pressure on foreign
November 617.39 598.73
exchange reserves
December 635.34 555.08
Monthly remittances January 710.74 462.55 • Macro-economic unit under Foreign Ministry to
February 689.26 500.32 commence operations
March 808.72 537.29
April 781.71 543.74
May 730.26 557.02 Annual and monthly trends in exports (USD mn)
June 753.58 516.38
2004-
2004-05 2005-
2005-06 2006-
2006-07
7,914.78 5,978.47
July-
July-June Annual exports 8,654.52 10,526.16 12,177.86
(+32.39%) (+24.50%)
(+13.83%) (+21.63%) (+15.69%)
Month 2008-
2008-09 2007-
2007-08
829.50 567.11 Month 2007-
2007-08 2006-
2006-07
July July 924.86 1,167.55
(+46.27%) (+37.38)
August 1,129.08 1,155.85
Source: Bangladesh Bank
September 1,042.85 950.07
October 941.48 870.78
November 1,144.47 916.04
Monetary and credit developments December 1,329.70 1,174.88
Monthly exports January 1,231.97 816.39
Outstanding Stock (USD billions) February 1,198.91 979.23
March 1,224.65 1,010.05
June-06 June-07 June-08
Domestic April 1,203.97 875.04
25.96 29.83 36.12
credit May 1,269.35 1,043.95
Broad money 26.46 30.96 36.41 June 1,469.51 1,218.03
Changes in outstanding stock (USD billions) 14,110.80 12,177.86
July-
July-June
FY 2006-07 FY 2007-08 (+15.87%)
(+ 15.87%) (+15.69%)
Source: Bangladesh Bank
3.87 6.29
Domestic credit
(+14.92) (+21.08)
4.50 5.45
Broad money S Adeeb Shams
(+17.02) (+17.59) Research Associate
Source: Bangladesh Bank adeeb.shams@at-capital.com
_______________________________________________________________________________________
Economic News Higher import payments
payments put pressure on foreign exchange
reserves
Iftar prices shoot up by 30% The Financial Express, Friday September 5, 2008
The Daily Star, Wednesday September 3, 2008
Bangladesh's foreign exchange reserves have fallen to USD
Fasting residents around the city very enthusiastically 5.24bn, owing mainly to higher import payments for
snapped up traditional iftar items on the first day of petroleum products, fertilisers and food grains. In addition to
Ramadan, completely undeterred by soaring food prices. The this, falling inward remittances in August, compared to July,
prices of iftar items were 20 to 30% higher this year as a put pressure on the reserves.
result of the price increases of commodities.
Bangladesh Bank is providing support to commercial banks,
It was reported that people in certain areas purchased less particularly the state-owned commercial banks (SCBs), by
iftar items compared to the amount in the previous year, said using different monetary tools such as overdraft facilities, to
market sources. As usual, hundreds of makeshift iftar shops keep the country's inter-bank foreign exchange market
sprung up at different places in front of markets and stable.
mosques, at intersections and beside lanes.
The country's overall imports grew 23.6% during the first
The prices of jilapi, a very popular iftar item, rose by BDT 20- month of the current fiscal year, compared to the
30 (USD 0.29-0.44) per kg this year, with a kilogram of jilapi corresponding previous period. Import L/Cs worth USD 1.8bn
now sold between BDT 80-100 (USD 1.17-1.46). Puffed rice were settled in the month of July of fiscal 2008-09. The flow
too marked a sharp rise this year- the price now stands at of inward remittances fell by 10.7% in August from that of the
BDT 55-90/kg (USD 0.80-1.31/kg) compared to BDT 30- previous month, due to the labour unrest in two Middle
50/kg (USD 0.44-0.73/kg) last year. Having become pricier Eastern countries caused a number of Bangladeshi workers
this year, people have reportedly expressed less interest in to return home. The figure fell to USD 733mn in August from
fruits. a record USD 820.7mn in July.
http://www.thedailystar.net/story.php?nid=53108 http://www.thefinancialexpress-
FBCCI to seek law-
law-enforcers' help if price gap is not
narrowed Macro-
Macro-economic unit to start functioning today
The Financial Express, Wednesday September 3, 2008 The Financial Express, Sunday September 7, 2008
Annisul Huq, President of Federation of Bangladesh A newly established macro-economic unit under the Finance
Chambers of Commerce and Industry (FBCCI), has warned Ministry will start functioning from September 7, with the
that the assistance of different law-enforcing agencies would objective of assisting the central bank with the formulation of
be sought if the price gap between retail and wholesale the country's monetary policy. A meeting is to be held at the
levels is not narrowed. An FBCCI team visited the two main finance ministry to mark the beginning of the unit that has
kitchen markets of Dhaka, Karwan Bazar and New Market, been created in consultation with the International Monetary
as part of the trade body's market monitoring programme to Fund.The country's monetary policy has been prepared and
rein in the prices of food and other essential commodities. announced by the Bangladesh Bank on a half-yearly basis
The prices of food and other commodities rose sharply with for the last three years. The central bank will now exchange
the advent of Ramadan. It has been alleged that the traders its views and analysis with the unit.
are making higher profits by taking advantage of the surging
demand for commodities. http://www.thefinancialexpress-
Dhaka targets USD 1bn exports to Turkey in few years

The Daily Star, Tuesday September 2, 2008
Commerce Adviser Dr. Hossain Zillur Rahman expects

Bangladesh's exports to Turkey to reach USD 1bn within a
few years. The country's exports to Turkey reached USD
350mn in the first eight months of 2008, compared to a figure
of USD 120mn in 2007,exceeding the export target of USD
220mn for 2008.
Bangladesh exports primarily jute and jute goods, leather

products and readymade garments to Turkey. It is believed
that rubber and pharmaceuticals have significant potential.
http://www.thedailystar.net/story.php?nid=52906
_______________________________________________________________________________________
Sector News
Agriculture although businesspeople had committed earlier that they
would keep the prices at tolerable level.
Bangladesh eyes doubling rubber output by 2020
The Daily Star, Wednesday, September 3, 2008 Market operators said the prices could not be contained due
to weak performance of some state-owned agencies that
Bangladesh is targeting doubling its natural rubber were meant to ensure fair prices of commodities.
production to 60,000 tons a year by 2020 to tap the growing
potential in its export market. http://www.thedailystar.net/story.php?nid=53039
http://www.newagebd.com/2008/sep/02/front.html#2
Around 25mmt rubber was produced throughout the world in
2007. Of which, around 42 percent was natural. The bulk of Aviation
the rubber produced is the synthetic variety, which is derived
from petroleum. Asia is the main source of natural rubber Best Air plans Dubai flight for Sept 8
today, accounting for around 94 percent of output in 2005. The Daily Star, Sunday September 7, 2008
The three largest producing countries are: Indonesia,
Malaysia and Thailand -- together account for around 72 Best Air, the country's third largest private airliner, is likely to
percent of all natural rubber production. start operating flights from Dhaka to Dubai from September
8.A Best Air spokesperson said that flights on the route
would be operated on Mondays, Wednesdays, Thursdays
Currently, the country has a capacity to produce about and Saturdays with a newly procured 162-seated MD-83
30,000 tons of rubber a year, butonly10,000 tons were aircraft. One-way tickets will cost USD 285, while the return
produced in 2007 because of the limited market demand. flights have been priced at USD 550, exclusive of taxes.
There are 1,300 rubber gardens across the country.
Bangladeshi rubber is less costly than the imported one. One http://www.thedailystar.net/story.php?nid=53623
kilogram of locally produced rubber costs BDT 110-120 (USD
1.60-1.75), while it is BDT 200 (USD 2.92) for the imported United Airways to operate international flights
The Daily Star, Friday September 5, 2008
rubber.
http://www.thedailystar.net/story.php?nid=53041 United Airways is scheduled to commence international

flights from Dhaka to Kolkata on September 24, according to
Small-
Small-scale tea farming wins firm foothold in Panchagarh Chairman and Managing Director of United Airways. Flights
The Daily Star, Tuesday, September 2, 2008 on the route are to be operated seven days a week. The
return fare for the flight has been set at BDT 13,314 (USD
According to a survey, conducted by Bangladesh Tea Board 195), while one-way tickets have been priced at BDT 7,009
(BTB), there are 16,000 hectares of land suitable for tea (USD 102), inclusive of taxes. United Airways is presently
farming in Panchagarh and nearly 2,000 acres have been operating only domestic routes with flights to Chittagong,
brought under tea farming in the area since 2002. Sylhet, Jessore and Cox's Bazar from the capital.
Tea farming is expanding by the year in Panchagarh and its
adjoining areas thanks to growing interest among the small-
scale and marginal farmers.
Banking
The growing tea sector has raised hopes for enhancing the
standards of socio-economic life and women empowerment HC stays fine on One Bank
The Daily Star, Thursday, September 04, 2008
in Panchagarh and adjoining districts in future, industry
insiders said. Officials and experts have suggested further
The High Court has imposed a bar on a move by the
government assistance, setting up more tea processing
Securities and Exchange Commission (SEC) to realise BDT
plants, competitive markets for tea leaves and resolving the
1.2mn in fines from the directors of One Bank.
power crisis to accelerate further growth of the sector.
A bench of Justice Syed Mahmud Hossain and Justice Farid
Ahmed passed the stay order on August 28. The HC order
Over 8,000 skilled and unskilled workers, mostly women, came after a petition was filed against the SEC move that
have been working in 246 tea gardens, including 18 big fined 12 directors of One Bank BDT 0.1mn each for their
estates, 13 medium and 215 small gardens on about 2,000
alleged failure to submit an audited financial statement.
acres in Tetulia and its surrounding areas.
Mobile phones to turn money remitters soon
Price shock marks Ramadan The Financial Express, Tuesday, September 02, 2008
The Daily Star, Wednesday, September 3, 2008
New Age, Tuesday, September 2, 2008 The central bank is likely to allow transfer of cash through
themobile phone network. The maximum limit of each
Basic commodities were selling at higher prices in the city transaction will be BDT 5,000 and the rate of commission will
markets yesterday, on the onset of the month of Ramadan, range between BDT 10 and BDT 50 depending on the
_______________________________________________________________________________________
amount. "The proposed system is not mobile phone banking. PCBs decline to develop and run the payment gateway for
It's simply a mechanism to transfer money by using the Internet banking,” said Abul Kashem Mohammad Shirin,
mobile phone network across the country," a senior official of deputy managing director of Dutch-Bangla Bank Ltd, who is
the Bangladesh Bank (BB) told the FE Monday. also a taskforce member.
Clients will be able to send and receive the money from local http://www.thedailystar.net/story.php?nid=53362
bank branches, non-governmental organisations, post offices
and mobile phone outlets, the official added. He said the Infrastructure & Energy
main objective behind the introduction of the facility is
enabling a large number of small earners, who do not Cairn drops plan to explore gas in Magnama, Hatiya this
maintain accounts with banks to send and receive such winter
The Financial Express, Thursday September 4, 2008
funds without having to undertake complicated processes.
The UK-based Cairn Energy has dropped its planned
At present, around 13 per cent of the population have bank exploration in new offshore structures in Magnama and
accounts while 35 per cent are now using mobile phones, the
Hatiya after Petrobangla showed its apathy to increase gas
official said. The BB took the move to expedite domestic prices or approve the sale of gas to private users. Cairn last
money transfer with minimum charges particularly in the month sought either a higher price for its newly discovered
country's remote areas through mobile phone networks that gas in Magnama and Hatiya structures or a go-ahead signal
would simultaneously encourage the inflow of foreign
from the government to sell to private users. Under the
remittances.
existing production-sharing contract (PSC), any company
exploring gas in the country will have to sell its entire
bd.info/search_index.php?page=detail_news&news_id=44387 production to Petrobangla, which then sells the fuel to private
and state-owned users. Company officials said Cairn had
Central bank to bring NBFIs under system audit from asked Petrobangla to respond by August 31, as it needed
October enough time to conduct seismic surveys in the new
The Financial Express, Monday, September 01, 2008 structures by a France-based contractor Grant Geophysics.
Petrobangla chairman Jalal Ahmed said the government is
The central bank will introduce risk-based audit system, still examining Cairn's proposals, as "they are unique in
generally known as system audit, to replace the existing nature."
transactions based audit for the non-banking financial
institutions (NBFIs) from October next. The country now runs supply shortfalls of 200mn cubic feet
of gas a day --- around 12% of the total output --- which has
The Anti-Money Laundering Department of the Bangladesh resulted in shutdown of scores of industrial units and power
Bank (BB) has sought additional manpower from to conduct plants. Delay in gas extraction from the two Cairn operated
the new audit system along with the existing core risks fields would be a big setback for the country's future gas
management guidelines. The central bank earlier identified supply plan. Cairn now operates the country's only offshore
four core risk areas of the NBFIs - credit, asset and liability, gas field Sangu some 20km off the Chittagong seashore.
internal control and compliance and money laundering.
"We will start the system audit for the NBFIs after the Eid-ul-
Fitr festival," a BB senior official told the FE Sunday, adding
Governmen
Government
ernment sits on hike in PDB's purchase price of
that the central bank also plans to gradually bring other
Barapukuria Coal
financial institutions including insurance companies and
The Daily Star, Thursday September 4, 2008
money changers under the regime. The central bank will
prepare a list mentioning the ranking of the NBFIs on the The government is sitting on a recommendation to increase
basis of compliance status of the core risks management the Barapukuria coal price to USD 71 from existing USD 60
guidelines. for the Power Development Board (PDB), while coal prices
have hit USD 210 a tonne in the international market. The
"We earlier asked the NBFIs to comply with the core risks
PDB consumes 80% of Barapukuria's high-quality coal, the
management guidelines properly by 2007," another BB
production cost of which is around USD 90 per tonne. The
official said, adding that the guidelines are yet to be fully
mine was incurring heavy losses largley due to low
complied by the NBFIs.
production. But in the last year its production has increased
and the mining company now has a record inventory of
bd.info/search_index.php?page=detail_news&news_id=44230 0.15mn tonnes of coal. It is expected to achieve its target to
produce 0.85mn tonnes of coal this year.
Taskforce wants e-
e-banking gateway in six months
The Daily Star, Friday, September 5, 2008 A committee comprising PDB, Barapukuria Coal Mine
Company Ltd (BCMCL), Petrobangla and the energy ministry
A taskforce committee on Internet and online banking has on revising coal price in November 2007 recommended
recommended developing a payment gateway to render the increasing the coal tariff to USD 71 per tonne. The energy
services. The taskforce suggested, the gateway could be ministry then decided to forward the matter to Economic
built either by Bangladesh Bank (BB) or by a consortium of Committee for National Economic Council but the decision is
public-private commercial banks. While the private yet to be made.
commercial banks (PCBs) want the central bank to do it, the
BB remains unresponsive to the matter. “Both the BB and
_______________________________________________________________________________________
Govt approves petroleum import from Maldives Public hearing on gas prices hike proposal deferred
The Daily Star, Wednesday September 3, 2008 The Financial Express, Tuesday September 2, 2008
The Cabinet Committee on Public Purchases approved the The Bangladesh Energy Regulatory Commission (BERC)
import of 150,000 tonnes of petroleum fuel from a Maldives has set a new date for the public hearing of the Petrobangla
company at a cost of BDT 12.73bn (USD 183.44mn). The (Bangladesh Oil, Gas and Mineral Corporation) proposal, on
Maldives National Oil Company Ltd (MNOC) will supply the 24 September, seeking permission to increase gas prices by
bulk fuels from its Singapore-based refinery. The premium an average of 53.76%. The Commission will take the
for the import has been fixed at USD 5.19 per barrel for decision on price increase by mid October. Petrobangla on
diesel, USD 5.60 for jet fuel and USD 7.50 for octane. The June 23 applied to the BERC to allow the state-owned
government has chosen Maldives as an alternative country corporation to increase the price of natural gas BDT 142.75
for importing petroleum as they were concerned that the (USD 2.08) from the existing rate of BDT 92.84 (USD 1.36)
conventional exporting countries were exerting too much per thousand cubic feet. The state owned corporation buys
supplier power. gas from international oil companies (IOCs) at an average
rate of BDT 230 (USD 3.36) per one thousand cubic feet and
http://www.thedailystar.net/story.php?nid=53054 sells it to consumers for BDT 92.84 (USD 1.36).
Uncertainty over selection of bidder for Bibiyana power plant http://www.thefinancialexpress-

persists bd.info/search_index.php?page=detail_news&news_id=44407
The Financial Express, Wednesday September 3, 2008
ADB is lead donor agency for Padma Bridge construction
The power ministry facing new problems over selecting the Financial Express, September 7, 2008
lone bidder, Powertek consortium, for setting up the Bibiyana
450MW power plant after demands for a higher tariff from the The Asian Development Bank (ADB) has been selected as
Powertek consortium. The ministryhas sought comments the lead donor agency for the construction of the Padma
from the ministries of law and finance and constituted a Multipurpose Bridge, announced ministry officials. The
committee to scrutinise the legal aspects of the company's Manila-based multilateral lending agency was selected last
conditional offer and the issue of higher tariffs. The Powertek week at a meeting between the Finance and Planning
consortium comprising Malaysian Powertek and Korean Adviser Mirza Azizul Islam and Communication Adviser
Kepco offered a tariff rate to sell electricity at 4.53 US cents Ghulam Quader. The World Bank, which was the lead donor
per kilowatt-hour (kWh) to the government. The tariff is agency for construction of the 4.8 km Jamuna Multi Purpose
higher than that of the independent power producer (IPP) Bridge which cost USD 962mn, also pitched for the Padma
AES Haripur 360MW power plant which charges a tariff of bridge. The 25-metre wide, four-lane Padma Bridge is
2.72 US cents per kWh for 22 years. Gas prices for the both expected to take six years to complete and contribute to the
power plants are same. national economy by boosting GDP by 1.2 per cent. The
government plans to raise some financing through the capital
http://www.thefinancialexpress- markets.
BB gives USD 65mn
65mn to SCB to settle fuel import bill bd.info/search_index.php?page=detail_news&news_id=44813
The Financial Express, Wednesday September 3, 2008
Draft coal policy likely to get final seal in October
The Bangladesh Bank (BB) has provided USD 65 Weekly Economic Times, Sunday September 7, 2008
mnoverdraft (OD) facilities to a state-owned commercial bank
(SCB) for settlement of its fuel oil, food grains and fertiliser The national coal policy is set to be approved in early
import bills. On August 27 this year, the central bank October 2008 as the energy ministry has planned to place
sanctioned OD facilities for USD 30mn to another SCB for the draft of the policy to the council of advisers again. The
settlement of its fuel oil import bills. The central bank will council of advisers last month sent back the draft coal policy
continue to provide foreign currency support to the to the energy ministry for further scrutiny of the issues related
commercial banks for making payments of fuel oil, fertiliser to royalty rate, mined land reclamation and environmental
and food grains purchase from overseas. issues. Investments worth several billion US dollars have
long been hanging over the draft national coal policy.
UK-based Asia Energy, South Korean Luxon Global and US-
AB Bank arranges term loan for Venture Energy Resources based Global Vulcan Energy are among the foreign
The New Age, Wednesday September 3, 2008 companies planning to initiate their project works of coalmine
development and setting up coal-fired power plants. Indian
business conglomerate Tata group, that had investment
AB Bank has arranged a syndicated term loan of BDT 920mn
proposals worth USD 3bn including development of a
(USD 13.44mn) for Venture Energy Resources Ltd to be
coalmine and setting up a coal-fired power plant, recently
used for setting up a power plant in Bhola. The other
participating banks and financial institutions are Bangladesh pulled back after waiting for over two years. In the draft
Commerce Bank, Mutual Trust Bank, National Bank, Pubali national coal policy it was recommended that foreign
companies would be allowed to develop coalmines under a
Bank, Saudi Bangladesh Industrial and Agricultural
joint venture with a local coalmining partner.
Investment Company and Uttara Bank.
http://www.weeklyeconomictimes.com/news-
http://www.newagebd.com/2008/sep/03/busi.html#16
details.php?recordID=1953
_______________________________________________________________________________________
Government revives plan to divide Titas into three separate http://www.thedailystar.net/story.php?nid=52910
companies
The Financial Express, Sunday September 7, 2008 Pharmaceuticals
The government has revived plan to dismantle the state-run Eskayef finds
finds road to EU market
Titas Gas into three separate companies based on their The Daily Star, Monday September 2, 2008
locations to increase efficiency in their marketing and
distribution systems. Titas with its extensive pipelines in the Eskayef Bangladesh Ltd, one of the country’s leading
eastern, central and northern parts of the country accounts manufacturers and exporters of pharmaceutical products,
for more than 70% of Bangladesh's total daily gas supply. In has won accreditation from the UK Medicines and Healthcare
2007, the company's revenue soared over USD 550mn due Products Regulatory Agency (MHRA) for its new plant in
to increased use of gas in factories and households. The Tongi. Eskayef is the third company to obtain the MHRA
company is often criticized for an inefficient distribution certificate after Square Pharma and Reneta.
system, which results in low gas pressure, inadequate supply
and system loss worth millions of dollars. AM Faruque, managing director of Eskayef Bangladesh said
that the MHRA approval is one of the toughest to win and it
In 2005, the then BNP- led coalition government announced will enable Eskayef to market and distribute its
a move to dismantle the company, but was forced to back pharmaceutical products in the UK and other EU countries.
down by the union leaders of Titas. Top Titas executives Eskayef currently exports pharmaceutical products to around
said they do not expect difficulties this time as most of the 15 countries across four continents. This approval will also
union leaders have been fighting corruption charges while help Eskayef in its effort to enter the highly regulated markets
emergency rules have banned union activities. As per the of Australia, South Africa and GCC countries..
BNP plan, Titas would be divided into -Brahmaputra Gas
Distribution Company Ltd (BGDCL) to look after gas Evaluation for MHRA accreditation is a complex process.
distribution in greater Mymensingh region, Titas Gas Inspectors from the UK agency inspected Eskayef's plant,
Distribution Company Ltd (TGDCL) for greater Dhaka and machinery and equipment, HVAC (heating, ventilation and
Shitalakkhya Gas Distribution Company Ltd (SGDCL) for air-conditioning) system, purified water system and effluent
Narayanganj. treatment system. The inspectors also audited the design of
the company's manufacturing plant and found Eskayef
http://www.thefinancialexpress- compliant.
Insurance
Renewable Energy
Life insurers post 34pc premium growth in '07
The Financial Express, Sunday 7 September, 2008 Renewable Energy Policy on Cards
The Daily Star, Sunday September 7, 2008
The country's life insurance companies posted an impressive
34% growth in premium income in 2007 over the previous The “Renewable Energy Policy of Bangladesh” draft policy is
year. Premium income of 17 private life insurers and the expected to receive the green light from the council of
state-run Jibon Bima Corporation (JBC) rose to nearly USD advisors within two months.
462mn in 2007 from USD 344.8mn in 2006. The state-owned
JBC currently holds around 10% of the total life insurance The draft policy recommends establishment of an institution
premium market while private insurersservice the rest of the named the Sustainable Energy Development Agency (SEDA)
market. Officials and market operators attributed growth in to ensure development of renewable energy sources. To
premium income to aggressive marketing drives by the encourage private sector investment, the draft policy
insurers coupled with people's increased awareness about favoured providing appropriate subsidies for the installation
life insurance policies. They added that they expect growth in of solar, wind and biomass utilities. Renewable energy
the overall premium market to continue in the years ahead. project sponsors, public or private, shall be exempted from
corporate income tax for a period of 15 years and will also be
http://www.thefinancialexpress- allowed to import equipment without payment of custom
bd.info/search_index.php?page=detail_news&news_id=44823 duties, VAT and any other surcharges and import permit
fees. It also said that a network of microcredit support
Leather systems will be established, especially in rural and remote
areas, to provide affordable financing for consumer
Bata eyes 30pc rise in sales purchases of renewable energy equipment.
The Daily Star, Tuesday, September 2, 2008
While the private entrepreneurs welcome the government
Bata, the country's leading shoemaker and retailer, plans to initiative to finalize the policy, they continue to demand that
increase its sales by 30% in 2008 which was around BDT there be an option to supply electricity to the national grid.
5bn (USD 73m) in 2007. Bata is planning to introduce new
machines and technologies at local factories by the end of http://www.thedailystar.net/story.php?nid=53364
this year to improve production capacity and quality. It is
launching 350 new designs for Eid.
The overall market size of footwear in the country is

approximately BDT 17bn (USD 248.3mn) per annum.
_______________________________________________________________________________________
USAID suggested engagement of local body in Energy Garment owners
owners threaten shutdown
Generation from Renewable Sources. The Daily Star, Sunday, September 7, 2008
The Daily Star, Thursday September 4, 2008 Garment owners threatened to close their factories for an
indefinite period. They sent a memorandum signed by 91
In a conference, organized by the Research Triangle Institute Gazipur-based RMG owners to BGMEA’s President, stating
(RTI), a USAID funded organization, the USAID mission that if the government fails to provide security for the industry
director Denise Rollins said that local government bodies in by September 25, they would close their factories. This
the country should be entrusted with new tasks like power followed recent violence which lasted for last 15 days and
generation from renewable energy sources. Such initiates, cost the factories BDT 8bn in losses and the shifting of more
we believe, will help to increase access to electricity of than 50% of foreign orders to other countries. The owners
population and increase the share of renewable. are also pushing the government to meet their eight-point
charter of demands including demands for normal
http://www.thedailystar.net/story.php?nid=53120 environment in factories, custody of attackers, security to
investors, soft loans for rehabilitation and an increase in the
Telecoms number of police and fire-fighting stations in Gazipur.
Banglalink’s revenues surge 70% http://www.thedailystar.net/story.php?nid=53641

The New Nation, Thursday September 4, 2008
RMG's duty-
duty-free access to US faces setback:
Banglalink has announced its financial results for the second African countries stand in the way
quarter of 2008. Banglalink's revenue during the first half of The Daily Star, Sunday, September 7, 2008
2008 was over BDT 9.15bn (USD 134mn), a70% increase
from the same period in 2007. Network quality improvement Bangladeshi readymade garments sector may be obstructed
continued to be one the highest priorities for Banglalink -it in obtaining duty- and quota-free access to US market as US
invested over BDT 7830mn (USD 114mn) during the quarter, authorities have responded positively to the appeal of few
bringing its total infrastructure investment during 2008 YTD African countries, Ghana and Mali, to exclude Bangladesh's
to over BTD 1,424(USD 207mn). RMG from the New Partnership Act (NPDA) 2007 which was
designed to eliminate all tariffs on such products originating
Banglalink maintained its high growth momentum during Q2 from LDCs. TheAfrican Countries have requested Jim
2008, and ended the quarter (as of June 2008) with almost McDermott, chairman of the Ways and Means Sub-
9.5mn subscribers, a 83 percent increase in its subscriber committee of the US House of Representative, to exclude
base compared to June 2007. Banglalink added over 1.1mn five categories of Bangladeshi textile and apparel products
subscribers during Q2, bringing its total subscriber additions from facilities under NPDA. In response, Jim McDermott
for the first half of 2008 to almost 2.4mn, which is a 26 proposed the exclusion of three categories of Bangladeshi
percent increase, compared to the first half of last year. textile and apparel products. In response, the Bangladesh
Banglalink extended its lead as the second largest player in Chief Adviser plans to meet a number of African Leaders at
the market with a 21.6 percent market share - an increase of the upcoming UN General Assembly to argue that
almost 4 percentage points compared to the previous year. Bangladesh is not their real threat in terms of apparel exports
to US market - rather African LDCs will face real challenges
http://nation.ittefaq.com/issues/2008/09/04/news0617.htm in the textile and apparel sector from China once the US
withdraws its safeguard measures in January 2009.
Textiles Meanwhile, a taskforce has been formed with technical help
of Centre for Policy Dialogue to assist the government on this
Global cotton production may fall by 6% issue.
The New Age, Friday, September 5, 2008
World cotton production is likely to fall by 6% to 24.7mn
tonnes in 2008-09 following increased competition from
alternative crops according to International Cotton Advisory
Committee (ICAC). The projected decrease in world
production in 2008-09 can be attributed to an expected fall of
1.2mn tonnes in the US. The total world production of cotton
during 2007-08 is stands at 26.24 million tons. ICAC said
cotton consumption is also expected to dip marginally by 1%
to 26.2 million tonnes due to slower global economic growth
and higher prices of cotton compared to polyester. The
cotton usage may fall in the US, China, Russia, EU, Brazil,
Turkey, Mexico, Thailand and the Republic of Korea.
http://www.newagebd.com/2008/sep/05/busi.html
_______________________________________________________________________________________
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
Md. Ziaush Shams Senior Research Associate (880-2)-8155144, ext. 120 zia.shams@at-capital.com
Syeda Tasnuva Akhter Research Associate (880-2)-8155144, ext. 127 syeda.tasnuva@at-capital.com

S Adeeb Shams Research Associate (880-2)-8155144, ext. 128 adeeb.shams@at-capital.com
A. M. A. Bari Nahid Research Associate (880-2)-8155144, ext. 130 nahid.bari@at-capital.com
Mohammad Emran Hasan Research Associate (880-2)-8155144, ext. 131 emran.hasan@at-capital.com
Sohana Alam Seraj Office Manager (880-2)-8155144, ext. 132 sohana.alamseraj@at-capital.com
Ahmad Sajid Research Associate (880-2)-8155144, ext. 135 ahmad.sajid@at-capital.com
S.M. Rashedul Hasan Research Associate (880-2)-8155144, ext. 137 rashed.hasan@at-capital.com
Tami Zakaria Research Analyst (880-2)-8155144, ext. 125 tami.zakaria@at-capital.com
Abdullah-Al-Farooq Research Analyst (880-2)-8155144, ext. 133 abdullah.farooq@at-capital.com
Sanwar Ahmed Research Analyst (880-2)-8155144, ext. 139 sanwar.ahmed@at-capital.com
M. Emrul Hasan Research Analyst (880-2)-8155144, ext. 138 emrul.hasan@at-capital.com
Md. Zahidur Rahman IT Analyst (880-2)-8155144, ext. 140 zahidur.rahman@at-capital.com
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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08 September 2008 AT CAPITAL RESEARCH

AT Capital Weekly Update

Key themes in this issue are:

that will undoubtedly give many foreign investors significant concerns.

1996 to transfer its majority holding to his Grameen Telecom by 2002

• US August unemployment rate spikes

Professor Jahangir Sultan

UTC Building, Level 16

Overview – Global Markets

Stock Market Weekly 12

Grameenphone shareholder debate

As we have highlighted in previous issues of the ATC

1) Greater Supply: The GP IPO will likely encourage other

2) More Overseas Demand: It is also potentially a catalyst for

The professor was particularly scathing about Telenor's way

1) Prospective threat from WiMAX companies as they

As more foreign investors buy into the Bangladesh stock

We would argue that it is in the interest of both Telenor and

• 28 November, 1996: Received License to operate

The move is also likely to nudge down mortgage interest

The new overseers will also eliminate dividends on billions of

The Treasury's move doesn't answer what could be the USD

Manufacturing companies shed the most jobs last month,

Bill Gross of PIMCO highlighted need for new balance sheet

Bill Gross is the Co-Chief Investment Officer of PIMCO which

This rarely observed systematic debt liquidation is what

But it is important to keep the fall in perspective. If oil stays

I did some very ballpark math to calculate the annual

Incidentally, the oil exporters probably now need an oil price

• Grameenphone IPO unlikely by December

• Dr. Mirza Azizul Islam suggests suspension of Z

• Ananda Shipyard to go public by year-end to finance its

• Body formed to reduce IPO processing time

• International Leasing's brokerage house begins journey

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

Market summary Valuation snapshot

The stock market debut of Grameenphone is unlikely this

Following this statement a Telenor spokesperson was quoted

However, the SEC Chairman has not completely ruled out

Expressing dissatisfaction about entrepreneurs' reluctance http://www.thedailystar.net/story.php?nid=52625

Ananda Shipyard to go public by year-

Bangladesh's pioneer shipbuilder Ananda Shipyard and

"We are deluged with orders from European countries. But

The company, which has export orders for 22 ocean-going

"By going public, we will also be able to cut operational costs

Turnover leaders Best performers* Worst performers*

Professor Jahangir Sultan

Rashed Hasan Syed Najibullah

Annual and monthly trends in remittances (USD mn) Market news

Dhaka targets USD 1bn exports to Turkey in few years

Commerce Adviser Dr. Hossain Zillur Rahman expects

Bangladesh exports primarily jute and jute goods, leather

http://www.thedailystar.net/story.php?nid=53041 United Airways is scheduled to commence international

Uncertainty over selection of bidder for Bibiyana power plant http://www.thefinancialexpress-

The overall market size of footwear in the country is

Banglalink’s revenues surge 70% http://www.thedailystar.net/story.php?nid=53641

AT Capital Team – Dhaka

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

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

AT Capital Team – North America

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