Transcript Interesting Statistics

The Future of Bangladesh Capital Markets
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Executive Summary
Global Outlook
 Recovery reflected in increasingly positive economic data
- Jobless claims at 10 month low, homebuilding and factory output on the rise in the United States
- Growing exports, increasing manufacturing orders and retail sales in Europe
- Slowing contraction and relatively low unemployment in Japan
 Regional outlook is positive based on strong exports, domestic demand
- 7.9% growth in China in Q2 2009. Industrial production up 12% YoY as of August’09
- 6.1% growth in India in Q2 2009. Industrial production up 6.8% as of July’09
Bangladesh Outlook
 Bangladesh economy has been mostly resilient to global turmoil
- GDP growth forecast to be 5.88% in 2009, comparatively strong in the face of global contraction
- Low cost exports continue to be in demand
- Strong remittance inflow from Bangladeshis abroad
Bangladesh Capital Markets
 Capital markets continue strong performance
- Subprime crisis has left little impact on Bangladesh markets
- Market capitalization is above US$20bn in 2009 from US$10bn in 2007
- Average daily turnover is approximately US$75mm in 2009 from US$24mm in 2007
Opportunities and Challenges
 Key opportunities for future growth
- Institutionalization of market brings greater liquidity and lower volatility
- Attracting large corporates for listing provides investors with viable investment options
 Challenges ahead
- Retail dominated market resulting in higher volatility from speculation
- Large, well reputed companies prefer to source funds from traditional bank finance against capital markets
Global Markets and Economic Outlook
Global Economic Outlook
The global economy is in the process of recovery with most major markets expected to grow in Q3 2009
United States
 Increasingly positive economic data indicates the US economy is beginning to grow
- Jobless claims are on the decline, falling to 10 month lows. Unemployment remains high at 9.8%
- Factory output and homebuilding are on the rise, wealth losses have declined
- The S&P 500 has gained 57% since touching a 12 year low in March
- Consumer spending is expected to remain slow, growing 1% in Q3 after gaining 2.4% in the previous quarter
Europe
 Mixed activity data in the European economies outweighed by stronger exports, rising sentiment indicators
- Rising incoming orders signal manufacturing recovery in industrial powerhouse Germany
- France is expected to extend growth into Q3, despite rising unemployment (9.1% in Q2)
- Rising exports, housing, retail sales and business surveys indicate returning growth in the UK economy
Japan
 Election of new government in September 2008 expected to slow recovery as new policies are implemented
- Real GDP declined 8.4% (YoY) in Q1 2009, 7.2% (YoY) in Q2 2009
- Contraction is expected at a slowing rate till Q1 2010
 Core CPI remained stagnant in Q1 2009, falling 1.0% in Q2 2009
 Unemployment rate rose from 4.4% in Q1 2009 to 5.2% in Q2 2009
Source: Citigroup Research, Bloomberg
Bloomberg data as reported in October 2009
Regional Economic Outlook
Export driven growth and recovery momentum in US and Europe signal V shaped recovery in Asia Pacific
China
Shanghai Composite Index
 Recovery continues at fast pace, driven by rising exports
and strong domestic demand
- Real GDP grew 6.1% in Q1 2009, 7.9% in Q2 2009
 Industrial production rose 12.3% YoY as of August’09
- Expected to grow 16% by the end of the year
 Minor increase in unemployment rate
- Urban unemployment grew from 4.3% in Q1 to 4.5%
in Q2 2009
India
 GDP grew 6.1% in Q2 2009, following 5.8% growth in Q1
 Rainfall shortage expected to hit agricultural production
 Industrial production saw robust growth of 8.2% and 6.8% in
June and July 2009 respectively
 15% rise in food prices resulted in CPI growing 11.9% YoY
 Exports declined 27.7% YoY till July 2009
- Exports contracted 10 months in a row
Source: Citigroup Research, Yahoo Finance
Index graphs as of October 9,,2009
BSE Sensex
Bangladesh Economic Outlook
GDP Growth (YoY%)
 Remittance inflow has been resilient to global turmoil
- Bangladeshis abroad sent home US$887.9mm in
September’09
 Inflation continues to decline
- Fell to 6.04% in July’09, from 6.66% in June’09 and
8.90% in December’08
 GDP growth forecast has been revised downwards to
5.88%, compared to 6.19% in the previous fiscal year
 Exports have been relatively sheltered due to low cost
nature of Bangladeshi products
- Recovery in the US and Europe, the major buyers,
expected to boost export earnings
Inflation (YoY %)
Export as a % of GDP
Remittance by Region
Source: Citigroup Research, Bangladesh Bank
Bangladesh Capital Markets
Bangladesh Capital Markets Performance
Performance of Local Indices (2009YTD)
120%
DS-GEN
DSE-20
IPO and Direct Listing Issuance (YTD)
DSI
Rebased to 100%
116%
112%
108%
104%
100%
96%
92%
88%
84%
80%
76%
1/1/2009
3/12/2009
5/22/2009
8/1/2009
Daily Trading Volume Graph
10/11/2009
Key Commentary


Local market has been relatively sheltered from the recent
global meltdown in 2008
-
Market was volatile in early 2009 but has stabilized with high
turnover and market capitalization
-
FII interest to explore new front
Impressive growth in liquidity in recent years
-
Average Daily Turnover increased from US$24mm in 2007
to US$ 75mm in 2009
-
Highest recorded liquidity of US$166mm on July 2, 2009
Bangladesh Relative Liquidity
Source: Dhaka Stock Exchange website as of October 2009

Market Capitalization of DSE in 2009 has been around US$20
bn, up from about US$10 bn in 2007

15 new issues in 2008 with 3 direct listings
-
7 new issues completed in 2009
-
Recently completed largest IPO in Bangladesh history
Recent Bangladesh Issue Performance
There have been strong deal issuances in 2008 and 2009 despite weak global market conditions. Most of
these have seen strong price performance since listing.
Price Perf.
(+1 Week
from Offer)
Issuer
Oct 2009
Grameenphone
IPO
70
N/A
N/A
N/A
N/A
Aug 2009
Marico Bangladesh Limited
IPO
3.9
47.7
13x
291%
355%
Jun 2009
EBL First Mutual Fund
IPO
2.9
50.7
18x
251%
NA
May 2009
Rupali Life Insurance Co. Ltd
IPO
0.7
58.3
89x
NA
NA
Apr 2009
Asia Insurance Ltd.
IPO
1.3
47.5
36x
NA
NA
Jan 2009
Bay Leasing
IPO
3.6
87.0
24x
214%
206%
Jan 2009
Prime Finance 1stM.F.
IPO
1.4
41.4
28.6x
616%
515%
Nov 2008
BSRM Steel
IPO
2.9
72.5
19.6x
430%
400%
Oct 2008
Shinepukur Ceramics
Direct Listing
5.0
NA
NA
13%
(26)%
Oct 2008
ACI Formulations
Direct Listing
1.3
NA
NA
10%
(24)%
Oct 2008
Republic Insurance
IPO
2.2
52.8
24.0x
185%
170%
Oct 2008
Maksons Spinning Mills
IPO
1.2
27.6
23.0x
320%
440%
Oct 2008
National Housing and Finance
IPO
0.7
54.6
78.0x
830%
740%
Sep 2008
Standard Insurance
IPO
1.3
27
20.55x
150%
130%
Sep 2008
Northern General Insurance
IPO
1.3
27
20.62x
162%
38%
Aug 2008
Takaful Islami Insurance
IPO
1.3
30
23.22x
237%
316%
Aug 2008
Summit Alliance Port
IPO
1.5
36
25x
779.3%
985%
July 2008
First Security Bank
IPO
16.6
72
4.3x
92%
197%
July 2008
Titas Gas
Direct Listing
31.0
NA
NA
50%
39%
June 2008
Grameen One Scheme—2
IPO
2.2
39
17.5x
330%
400%
June 2008
ICB NRB Mutual Fund—2
IPO
14.5
58
4x
47%
172%
Mar 2008
Delta BRAC Housing
IPO
1.5
75
50x
1,450%
1,260%
340%
351%
Source: Dhaka Stock Exchange. As of October 2009
Note: In case of direct listing, refer to as offer price.
4.7
Over—
Subscription
Price Perf.
(First Day Closing
Price
from Offer)
Subscription
Date
Average
Type of
Transaction Size (US$mm)
Total
Subscription
(US$mm)
Bangladesh Issuance Overview
Several private and public sector issuances are expected in 2009.
Visible Transaction Pipeline
Private Sector (IPOs)
Public Sector (Direct Listings)
Issuer
Sector
Expected Size
(US$mm)
2.43
Jamuna Bridge
Service
71.4
Insurance
1.30
BSRS
Financial
2.9
Rupali Insurance
Insurance
NA
Liquid Petroleum Gas
Oil and Gas
NA
Keya Cotton Mills
Industrial
NA
Bakhrabad Gas
Oil and Gas
NA
Malek Spinning
Textiles
NA
Gas Transmission Company
Oil and Gas
NA
RAK Ceramics
Ceramics
NA
Pashchimanchal Gas Company
Oil and Gas
NA
Vantage Electronics
Manufacturing
NA
Rupantarita Prakritik Gas Company
Oil and Gas
NA
IDFC Ltd.
Financial Institutions
1.01
Sylhet Gas Company
Oil and Gas
NA
Fareast Finance & Investment
Financial Institutions
1.03
Bangladesh Gas Fields Company
Oil and Gas
NA
GSP Finance Company
Financial Institutions
2.17
Bangladesh Petroleum Corporation
Oil and Gas
NA
Labaid Cardiac Hospital
Healthcare
2.54
BAPEX
Oil and Gas
NA
Oman Bangladesh
Financial Institutions
1.85
Rural Power Company
Fuel and Power
NA
BTCL
Telecom
NA
Teletalk
Telecom
NA
Biman Bangladesh Airlines
Airlines
NA
Company
Dacca Dyeing
Sector
Industrial
Asia Insurance
Expected Size
(US$mm)
Capital Markets – Opportunities and Challenges
Bangladesh Capital Markets – The Future
Institutionalization of the Market

We expect to see more institutional investors bringing long term commitment and liquidity to the market
- Longer investment horizons reduce market volatility
- Institutional investment strategies are fundamental focused rather than speculative
Listing fundamentally sound, well-reputed companies

With the improvement of corporate governance, we can attract sound corporates to come to capital markets
- Quality scrips provide liquidity and motivation for educated investors to participate in capital markets
- Listing of large, reputable corporates attracts foreign investments, increases liquidity
- Introduction of new scrips in different sectors provides investors with broader options
- Recent addition of telecom sector likely to generate interest among other large cap companies to list
- Inclusion of well reputed, large cap companies will reduce ability of select “investor syndicates” to manipulate prices
Flotation of Mutual Funds

Strong pipeline for listing of mutual funds (US$300mm in mutual funds expected to enter the market by mid 2010)
- Provide retail investors with safer, indirect market access, preventing wealth & capital losses
- Reduces dependency on retail investors, allowing institutions to bring commitment and stability to the market
- Bring much needed market stability that only institutional investors can provide
Facilitation of Private Equity Investments

Recent introduction of certain foreign private equity investors in Bangladesh
- Provide stable flow of capital given mid to long term investment horizon of PE investments
- High risk hurdles and selective investments direct PE funding to quality local corporates
Inclusion in Global Indices

Bangladeshi companies are now included in global indices
- The Dow Jones SAFE Index already includes 5 Bangladeshi banks and a power company
- Inclusion of high quality scrips in the index can result in inclusion of our index in global indices such as MSCI
Emerging Markets, etc
Recent Regulations and Opportunity Space
Strengthening of Surveillance

Following the stock market crash of 1996, measures have been taken to prevent future incidents of the sort
- Constant market surveillance by the SEC
- Increasing standards of corporate governance
- Demat Trading
- Focus on investor education – establishment of Capital Markets Institute
Introduction of BASEL II Guidelines

Introduction of BASEL II guidelines by Bangladesh Bank likely to encourage banks to raise capital through debt
instruments in 2010
-
Issuance of debt and equity by banks through capital markets likely to generate increasing liquidity
Introduction of Book building / Price Discovery

Introduction of book building is a big step towards developing Bangladesh capital markets
- Book building reduces risk of undervaluation for issuers
- Ensures fair pricing by factoring in demand, likely to encourage listing of large, well-reputed companies
- SEC qualifying conditions for book-building set certain criteria for companies to be eligible
Infrastructure Development through Capital Markets

Focus on infrastructure development may see Government of Bangladesh (GoB) seek capital markets as an avenue for
financing
- GoB plans to issue BDT 5.0 bn (US$72mm) in securitized bonds to fund Bangabandhu Bridge
- Cabinet approval for the issue of BDT 42 bn (US$650mm) in bonds to fund Padma Bridge likely
- Plans to construct second bridge over Padma at a cost of US$1.89bn signals potential financing needs
- Further GoB funding requirements arise from needed development in the power sector and development
- of roads and highways
Challenges Ahead
Information Asymmetry
 Access to credible information is restricted
- Retail investors lack dedicated investment process infrastructure
- Forced to look to brokers for advice that may consist of market rumors
- Syndicate of large investors manipulate the market through price inflation, pump and dump strategies
Supply Side Constraints
 Lack of fundamentally sound scrips as companies prefer traditional bank finance to capital markets
- Need to encourage listing of good scrips in the market
- Reducing supply side constraints generates liquidity, reducing scope for price manipulation
Lack of Professional Portfolio Management
 Ratio of institutional-to-retail investors remains low
- Institutional investors bring stability through non speculative long term investments
- Listing of more mutual funds can be a starting point to increasing institutional activity
Valuation Disparity
 Value of scrips is subject to speculative trading rather than sound fundamentals, resulting in market volatility
- Education of investors, overall development of capital markets through time can address this issue
Lack of a Formal Debt Market
 Bangladesh does not have established secondary debt market
- Markets are unable to provide short term financing solutions to corporations, i.e., commercial paper
- Listing of debt instruments from quality issuers and institutional trading can increase activity
- Introduction of BASEL II guidelines by Bangladesh Bank likely to encourage banks to raise capital through debt
instruments in 2010
Quality Research and Analysis
 Development of quality equity research in the country is yet to match the growth of local capital markets
- Quality research increases investor awareness, reducing speculative trading and market volatility
Central Co-ordination of Regulators
 Top down co-ordination between Bangladesh Bank, SEC and related bodies would:
- Streamline regulatory processes
- Reduce time required for quality issuers and new capital markets products to reach market