Euromoney, September 2008

IPOs are scarce enough as it is in this gruesome global market. But the largest ever IPO from one of the world’s poorest countries, whose previous record deal was in 1994? That’s rarer still.

When Grameenphone lists in Bangladesh later this year, it will be something of a landmark. According to a statement released after its July 21 board meeting, the telco will raise $300 million, half of it in a pre-public offer private placement, and half in the float itself, on the Dhaka and Chittagong Stock Exchanges. Since Dealogic lists the previous record as a $28.9 million listing for Monno Fabrics in December 1994, that’s quite an increase.

Citigroup Global Markets Bangladesh is the global coordinator, issue manager and lead underwriter on the deal. Mamun Rashid, managing director and country officer for Bangladesh, reckons there’s real opportunity in Bangladesh’s markets. “Our capital market is coming up,” he says. “In 2006 the market cap was $5 billion, in 2007 it was $10 billion, and as of June 30 it has become $13 billion.” By that stage, it had come to represent 18.7% of GDP. So there’s appetite, but not a lot to buy. “There is tremendous demand for blue chip shares,” he says. “There are only about 200 companies listed but the daily turnover has already exceeded Vietnam and is near to the Philippines.”

A growing interest in the idea of frontier markets has started to direct some attention towards Bangladesh. When Merrill Lynch launched its Frontier Index in February, it included Bangladesh alongside more established markets such as Kuwait, Pakistan, Vietnam, Nigeria and the UAE. Merrill says that long-only emerging market funds have very low exposure to frontier markets – about 1.2% of total assets under management – but that the figure is rising, and has more than doubled as a proportion since mid-2006.

Grameenphone is also interesting in illustrating a rare example of foreign ownership in Bangladeshi companies. It is controlled by Telenor of Norway, and in fact telecommunications is the only area in Bangladesh where foreign control is commonplace. NTT DoCoMo in the process of buying a 30% stake in TM International Bangladesh, known locally as Aktel; the TM of TM International stands for Telekom Malaysia, which owns 70%. Still another is the Egyptian group Orascom, which bought Sheba Telecom in 2004, rebranding it as Banglalink. Citi is advising on the NTT deal too. “Bringing in an investor like DoCoMo means something to Bangladesh,” Rashid says.

But this is all acquisition or sale in private companies; where’s privatisation here? This is the key difference between markets like Pakistan and those in Bangladesh – a lack of foreign participation in the sale of state-owned assets. Bangladesh’s financial advisor (the term used for finance minister in Bangladesh’s interim government), Mirza Azizul Islam, says: “At the moment there is no bar to foreign participation in the privatisation process, but somehow we have not seen a lot of interest.” (See separate feature for a full interview with Mr Mirza.)

It has been tried before. In 2006, under a previous administration (the one ousted by the military government’s coup last year), the country’s Privatisation Commission took to the road to sell Rupali Bank, the only state-owned bank listed in Dhaka and Chittagong. They attracted reported interest from groups including Malaysia’s Alliance Bank and India’s ICICI, and eventually awarded the sale to Prince Bandar of Saudi Arabia, who offered $330 million for 67.26% of the shares and was later awarded the remaining 26% government stake for $128 million in February 2007. But the deal was never completed, and was formally abandoned in March.

Mirza’s previous job was chairman of Bangladesh’s Securities and Exchange Commission, and in his various roles he has been instrumental in trying to get more companies on to the market. He has succeeded in getting some stock of a handful of government companies onto the exchanges, notably the oil groups Jamuna and Meghna Oil, and the shares of Titas Gas Transmission and Distribution are in the process of divestment, but none involves foreign participation. Mirza says “there is a lot of interest from foreign investors in the greenfield industries,” but not so much in state floats. He would certainly like to see more active capital markets, and thinks Grameenphone is “path breaking.” Today, he says, the markets are dominated by financials and some manufacturing companies – “some have been done well, but there are quite a few that are really bad eggs.”

Mirza’s most recent budget speech announced plans to divest shares of nine state owned enterprises in the power sector, 10 industrials and two telcos. Since the same budget also announced a reduction in corporate tax for listed companies, and a new book building system is being introduced, perhaps this is the start of a more active period on Bangladesh’s markets. But to get foreign interest, there will need to be greater political stability, and for that, December’s elections – which should return power to a democratically elected party – are vital.

Rashid believes a privatisation process is inevitable in time. “It is coming” he says. “It is one way traffic. You have to follow Vietnam if you want to exceed Vietnam. You have to follow Indonesia if you want to pose any competition to Indonesia. The government has corporatized some of its companies, so it has started. The next step would be going public.”