Credit Rating Report

Grameenphone Ltd.
[Surveillance]
Particulars Ratings Remarks
Grameenphone Ltd. AAA Entity

Telecommunication
BDT 20,570.00 million aggregate fund based limit ST-1 Please see Appendix-1 for
BDT 24,953.00 million aggregate non-fund based limit ST-1 details

Corporate
Rating outlook Stable _
ST-Short Term
Date of Rating: 30 January 2013
Validity: The entity rating is valid up to 30 December 2013 and loan ratings are valid up to limit expiry date of
respective credit facilities or 30 December 2013 whichever is earlier.
Rating based on: Unaudited Financial Statement as on 30 Sep 2012, Audited financial statement as on 31 Dec 2011,
Bank Liability position as on 31 December 2012 and other relevant quantitative as well as qualitative information up
to the date of rating declaration.
Methodology: CRAB‟s Corporate Rating Methodology (www.crab.com.bd)

Analysts:  RATIONALE be added later

Credit Rating Agency of Bangladesh Limited has affirmed
Mohammad Reeshad Rahman
AAA (Pronounced as Triple A) rating to Grameenphone
reeshad@crab.com.bd
Ltd. in the long term based on the recent performance of
Mavin Ahmed
the Company. CRAB has also affirmed ST-1 rating to BDT
mavin@crab.com.bd
20,570.00 million aggregate fund based limits and to
BDT 24,953.00 million aggregate non fund based limits
Credit Rating Agen in the short term.

The rating affirmation recognizes the revenue growth as

well as present subscriber base, the support of the
sponsor, Telenor– a leading telecommunications
company of Norway listed in the Oslo stock exchange
having operation in 11 markets and in additionally 18
markets through their ownership in VimpelCom Ltd. The
rating of GP is also further supported by the
strengthening governance structure of GP emanating
from oversight of its board and robust internal control
framework.

GP‟s rating has been affirmed due to its sustainable

financial position, proactive strategy to capitalize on
opportunity, continuing of its leadership position in the
Report

market share in telecom industry, listed company in the

Report

capital market, highly qualified management team,

governance structure as well as social responsibility it
Rating

undertakes in the business operation in Bangladesh.

Rating

 PROFILE
The telecom industry of Bangladesh has been
CRAB

Grameenphone Ltd. (hereinafter referred to as GP or

experiencing a growth trend during recent years. The
CRAB

the Company) is a GSM based mobile
telecommunication service provider in the country. The
Company started its operation on 26 March 1997. At
the end of November 2012, GP has a subscriber base
of 40.24 million ranking as the largest mobile operator
in the telecommunication industry of Bangladesh. The
Grameenphone network has covered almost the entire
population under its coverage in all 64 districts.
www.crabrating.com, www.crab.com.bd
industry had 97.48 million subscribers (which GP has
40.24 million, 41.3% of market share) in November
2012 indicating the market is going towards maturity
within few years in the voice call segment; however, data
and internet service is now at growth stage. Pricing
competition among the wireless operators has been
intense and pressured operating margins as the markets
are mostly maturing.
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 Grameenphone Ltd.

In addition, average revenue per user in most markets has continued to decline, especially in emerging markets, as
subscriber growth is coming from low-segment users. However, threats from the smaller operators are expected to
subside as their profitability and cash flows are vulnerable due to their low economics of scale and limited financial
flexibility to the current economic turmoil. As a result, while we expect further erosion of operating margins, it will
be at a moderate rate and major operators are likely to keep the margins at their previous level.

GP showed around 19.0% revenue growth in 2011 amounting BDT 89,006.70 million mainly supported by the
promotional campaigns/changed package structure, subscriber growth and increase in network coverage position
during the period. This led to higher subscriber acquisition although the ARPU has come down to BDT 214 in 2011
from BDT 231 in 2010. Stable revenue is observed in 2012 (up to 30 Sep 2012, revenue was recorded BDT
69,272.90 million). Net profit after tax margin increased to 19.1% in 2011 from 14.4% in 2010 due to increase in
revenue and lower depreciation expenses. GP improved its asset utilization in 2011 as Asset turnover ratio
increased from 68.25% to 81.96% and such growth indicated efficient use of its assets to some extent. In 2011,
capital expenditure was spent mainly in base station, transmission equipment and network modernization and this
may increase in maintenance expenses in next years.

Several factors impacted GP‟s liquidity position mainly for paying of final dividend for the year 2010, interim
dividend for 2011 and the first instalment of renewal fees for 2G license and spectrum. As for mainly paying
dividends, equity decreased by BDT 8,987.34 million which led to increase in borrowed fund to equity 0.41x in
2011 compared to 0.35x in 2010. GP has maintained positive cash flow for FFO and CFO, but due to higher capital
expenditure, its FCF was observed negative in 2011. Net Financial expenses increased as borrowed fund utilization
increased in the period of Jan 2012 to Sep 2012, value BDT 2,375.16 million due to financial expenses in relation
to acquire 2G telecom license 2011. This lead to higher leverage position to some extent as borrowed fund to
EBITDA increased to 0.88x on 30 Sep 2012 from 0.33x in 2011.

 BACKGROUND
Grameenphone Ltd. was the first company to introduce GSM technology in Bangladesh when it launched its services
on 26 March 1997. GP is market leader in the cellular telecommunication industry of Bangladesh with a market
share of ~41.3% (November 2012) obtained cellular license on November 28, 1996 in Bangladesh from the Ministry
of Posts and Telecommunications.

GP is a joint venture enterprise between Telenor Mobile Communication AS (55.8%), a telecommunications service
provider in Norway, and Grameen Telecom Corporation (34.2%), a non-profit sister concern of the internationally
acclaimed micro-credit pioneer Grameen Bank. The other 10% shares belong to general retail and institutional
investors.

The Grameenphone network has covered almost the entire population under its coverage in all 64 districts. The
entire GP network is EDGE/GPRS enabled that provides its subscribers access to Internet and data services from
anywhere within the coverage area.

Telenor Mobile Communications (TMC)

TMC, a company organized under the laws of the kingdom of Norway, seeks to develop and invest in
telecommunications solutions through direct and indirect ownership of companies and to enter into national and
international alliances relating to telecommunications. It is a subsidiary of Telenor mobile holdings as and an
affiliate of Telenor. Telenor as is the leading integrated telecommunications provider in Norway listed in the Oslo
stock exchange. It delivers a full range of services and products, as well as a broad range of wholesale services. It
owns 55.80% shares of Grameenphone Ltd.

Telenor's strong international expansion in recent years has been based on leading-edge expertise, acquired in the
Norwegian and Nordic markets, which are among the most highly developed technology markets in the world. It
has substantial international operations in mobile telephony, satellite operations and pay television services. In
addition to Norway and Bangladesh, Telenor provides wireless services, reporting close to 150 million mobile
subscribers as of 30 September 2012 operating in 11 markets and additionally is operating in 18 markets through
their ownership in VimpelCom Ltd.

As part of the conversion of Grameenphone from a private limited to a public limited company, Telenor mobile
communications as transferred 10 shares each on may 31, 2007 to its three (3) affiliate organizations namely NYE

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Telenor Mobile communications II as, Norway; Telenor Asia Pte. Ltd., Singapore; and NYE Telenor Mobile
communications III as, Norway.

Grameen Telecom
Grameen Telecom, owns 34.20% of the shares of GP, is a nonprofit company in Bangladesh, working in close
collaboration with Grameen Bank, winner of the Nobel peace prize in 2006 along with its founder, Professor
Muhammad Yunus. The internationally reputed bank for the poor has the most extensive rural banking network and
expertise in microfinance.

Grameen Telecom‟s mandate is to provide easy access to GSM cellular services in rural Bangladesh and creating
new opportunities for income generation through self-employment by providing villagers, mostly to the poor rural
women with access to modern information and communication-based technologies.

As part of the conversion of Grameenphone from a private limited to a public limited company, Grameen Telecom
transferred one share each on 31 May 2007 to its two affiliate organizations namely Grameen Kalyan and Grameen
Shakti.

Figure 1
Subscriber Base of the operators (Jan, 2011 to Jun 2012)

 OPERATION, BUSINESS & FINANCIAL RISK PROFILE

Business Model
Grameenphone showed consistence revenue growth since its incorporation which
is mainly driven by traffic revenue; e.g.; increasing number of subscribers during
the period. At the end of 2011, total subscriber was 36.49 million which was
raised to 40.24 million in November 2012. GP has several different dimensions:
product lines, customer segments and geographic reach, all of which enable GP to
mitigate the effects of variation in demand or pricing in a given product or market.

GP‟s diversified business model is robust because technological changes continue

at a fast pace and an operator with strong wireless business is best positioned to
evolve with such changes. The diversified player has a sounder platform for
adopting a range of new products. It has the ability to strategically invest in
emerging technologies and raise investments, depending on market acceptance of
the new technologies, widening the opportunity for success.

In assessing the level of competitive challenges, CRAB looks at, among other
things, revenue trends, number of players, rate of access line change relative to
demand growth as well as gross additions, churn levels and ARPU trends, data and
internet service etc. GP is still a dominant provider of voice and data, with a heavy

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composition of enterprise customers and strong representation in the wireless

market.

Leadership Process
The Human Resources Division in GP is geared to meet human resource
development and training needs. In spite of its multinational characteristics, it
emphasizes more on building local expertise in the telecommunication sector.
Some of the leadership development plans include: training, coaching, new
tasks/project work, job rotation, and others. GP has agreements with the
Stockholm School of Economics in Sweden, the Singapore Institute of
Management, the Hyderabad-based Indian School of Business and the British
Council for providing “Management Development” training to GP employees. In
addition, GP provides educational grants every year to 100 employees
encouraging employees to go for higher education. For the current and upcoming
leaders of GP, “Telenor CORE Leadership Training” is offered every year. This
program is designed to help leaders fulfill GP leadership expectations by
increasing skills in practical leadership and their motivation to lead.

Management function involves planning, communicating, measuring, changing

and mentoring. It has clear standard benchmark through which performance is
measured and rewarded. Specific guidelines and standards are adopted as part of
its leadership process for holding managers accountable for quality, including
supervisors and others, which are designed for different levels and functions
within the company. Customer focus and continuous quality improvement process
are effectively communicated to all employees within the company. The Code of
Conduct it has adopted is followed and is applicable for all of its stakeholders,
which is also monitored. Senior management is very committed to all continuous
improvement efforts.

Strategic Planning
The effective and efficient management and defined strategy are the ingredients
for GP‟s present strong position in the market. Strategic Planning process is based
on at least next three years scenario analysis. Based on the midterm plan, it also
chalks out annual plan at the beginning of each year. Strategic planning is used
regularly to develop goals and objectives for improving quality. The organization
has established a complete strategic plan for addressing quality improvement,
including mission, vision, goals, specific tasks, targets and programs. All levels of
the company participate in some form of strategic planning.

The compensation packages include performance bonuses for every regular

employee. Performance bonus is fixed considering company‟s performance and
individual achievements. Company performance is measured through predefined
Revenue Target, Market share position as well as EBITA Margin. Individual
achievement measures through predefined goals set for each individual by the
management as well as performance of the team. The management at the
beginning of the year set departmental goals with high priority to low priority
level.

GP has a dedicated team named “Business Intelligence Team” which is responsible

for collecting and monitoring the business dynamics of the telecom market.
Strategic Planning process incorporates the behavior of its competitors and based
on it the brand and product design team offers competitive products and value
added services from time to time.

Strategic planning includes key performance indicators, surveys, benchmark data,

and other quality information to ensure that strategic planning is strong and

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viable for all parts of the Company. Operating plans are developed throughout the
entire company, linked to the company's overall strategy. Managers are held
accountable for meeting strategic goals.

Information and Analysis

Fully integrated and highly sophisticated MIS system ensures the high quality data
management system of GP. From its fully automated data management system it
generates Monthly Financial Report, Management Report, Executive Summary of
the business and operation, CAPEX Information, Divisional Profit and Loss
Account, Divisional MIS, Mid-Month Forecasted Financials, and Quarterly Group
Cash Flow. All reports are part of decision-making process. Reports incorporate
Actual position, Budget Provision and Variance Analysis.

The organization measures data through its MIS system related to customers,
products, supplier performance, financial performance, and employee
performance. GP tracks Market and Statistical Information and it analyses monthly
operator wise subscriber base and its market share position, market growth trend,
operator wise net adds, market share net adds, penetration rate, annualized
churn, gross add mixing, churn mixing, subscriber mixing, Minutes of usage,
AMPU, APPM services, APPM Airtime, SMS positions, SMS per subscriber etc. GP
uses external benchmarks and competitive data to drive improvements, operating
performances and planning. Competitive data is also found very extensive.
Through its Business Intelligence Team it collects key cost, financial, operating,
and other data and translating it into useful information for employees and
decision makers, which supports both operating and long-term planning
decisions.

Human Resources Capital and Process Management

Employee growth plans, including training programs, career development paths,
evaluation/self-awareness processes, compensation, empowerment, and
measurable results are fully implemented and integrated with strategic planning
process. Human Resource Division is part of the Management Team.

Process Management
Processes are well documented and controlled throughout the entire company.
Practices are in place to consistently evaluate and improve processes. Critical
processes are subject to rigid assessments on a regular basis. Analytical
techniques are in place to identify and solve process management issues.
Partnerships with suppliers and other stakeholders have been established to better
manage processes for the benefit of all players.

Design and Introduction of Products and Services: The organization systematically

gather customer needs and desires, and then translate these customer inputs into
revisions, modifications, and other standards for product and service bundling.
Retained highest market share over the last 11 years indicates of its success in
product innovation and engineering. In 2010 to 2011, GP restructured its product
offering through package variants to suit different customer needs, Xplore,
Shohoj, Aapon, Bondhu, Nishchinto, Amontron, Spondon, Smile, Myzone along
with Djuice for voice service. In addition to the voice call, other services such as
internet packages through EDGE/Data Services, Content Provider Services etc. are
also tailored considering the need of the customer.

New products are launched through market survey and competitors move. To
retain and grow its market share GP as its policy evaluate and tries to shorten
design processes for new products and services.

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Production and Delivery Processes: The organization has control over processes,
including control over variations and defects in processes that are used for
producing and delivering products and services. The organization uses systematic
and standard approach to evaluate processes for better quality, defects, and other
operating performance attributes.

Business and Support Service Processes: The organization manages quality control
relates to routine business processes and support services such as human
resources, finance, legal, payroll, public relations through pre defined goals and
goal achievement indicators as well as variance analysis.

Supplier Quality: GP maintains its code of conduct for all of its stakeholders. It
communicates quality standards and requirements to its suppliers and it has a
quality assurance process to ensure that suppliers are meeting quality
requirements. The Management Team evaluated the quality requirements of the
suppliers. The procurement policies are approved by the Board and the Board
delegates financial and investment authority to the management based on its
position. The organization has a cooperative relationship with its suppliers,
including reward programs, certification and other policies, which in turn assist to
build long-term relationships.

Quality Assurance: The organization has internal audit department, which reports
to the Board through CEO. The internal audit function encompasses on financial
auditing and control. Besides, product and services audit including systems and
processes are also under the purview of internal audit function. It is evident that
organization practices regular follow up with assessments and effectively corrects
the problem or resolves the issues that were identified. The process is also
documented.

Operating Results
Customer satisfaction and other measurements clearly show high levels of
customer satisfaction and loyalty. Overall trends are positive when it comes to
improving processes throughout the entire company, including processes that cut
across business functions and stakeholder groups. Any negative trend is acted
upon with a plan for turning the trend around. Supplier data also shows positive
trends in making improvements within the supply chain. Support services have
shown solid results in making processes very efficient and effective.

Franchise Value
Franchise Value is a critical element in our analysis. The solidity of GP‟s market
standing in telecom industry indicates its very high franchise value. The solid and
defensive franchise of GP underpins the ability of the institute to generate and
sustain recurring earnings, to create economic value and, thus, to preserve and
improve risk protection in its chosen market. As such, GP with strong franchise
value would be in a better position to withstand prolonged difficult market
conditions.

The Bangladesh telecom industry with its untapped growth potential in the rural
segment is currently facing challenges with respect to falling ARPUs and MoUs on
account of high competition, uncertainty on regulatory framework and absence of
3G services in private telecom companies (except Teletalk).

Regulatory Risk and Uncertainty looms Over Fees and 3G License

The telecom industry is likely to remain subject to a high degree of government
regulation and oversight because of the essential nature of the product, the
demands for high service levels and the high capital costs associated with its

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infrastructure. This regulation in Bangladesh is dictated through guidelines for

renewal of 2G licenses with new terms and conditions, revenue sharing and high
license fees. Additional licenses for 3G will be floated at high cost as it has been
the case with WIMAX operators as well as similar trends seen in neighbor India‟s
telecom market. Regulation further can take many forms and may include setting
or approving the rates charged for service, determining the barriers surrounding
the competitive environment, defining service territories, mandating
interconnection and unbundling terms, setting net neutrality principles and
enforcing various rules. From a credit standpoint, the regulators‟ ability to mold
the framework under which a telecommunications issuer operates is a major
influence on credit quality, as it ultimately forms the foundation for the operators
to generate returns on their investments.

The licenses of the four telecom operators, Grameenphone Ltd., Orascom Telecom
Bangladesh Ltd., Axiata Bangladesh Ltd. (ROBI), and Citycell are renewed on 7 Aug
2012. However, the licenses were supposed to be renewed in November last year
but the process was delayed due to a number of court battles between the telecom
regulator, carriers and the tax administrator. The largest carrier, Grameenphone
will pay BDT 32,410 million for its 14.6 Megahertz spectrum, Banglalink BDT
19,710 million for 12.4 Mhz, Robi BDT 19,000 million for 12.8 Mhz, and Citycell
will have to pay BDT 4,500 million for 10 Mhz excluding VAT. They will pay BDT
100 million each as license renewal fee. The carriers have already paid 49 percent
of their license renewal charges to the government, and will pay 29 percent of the
amount on August 31, and the rest at the yearend. The carriers now share 5.5
percent revenue with the government and 1 percent more for a social obligation
fund (SOF), meant for the development of the information and communication
technology sector. The 3G license guideline has not yet been finalized by BTRC,
which is also likely to cost a lot as it has been the case of WIMAX operators in
Bangladesh and 3G licensees in our neighboring country – India. As a result CRAB
perceives the regulatory risk of the telecom industry to be high which would affect
the creditworthiness of the players through debt led CAPEX. Nevertheless,
economic globalization and rapid technological advances are providing regulators
with an opportunity to review previous telecommunications mandates.

Competition Will Intensify

While Internet Protocol transmission standards present incumbent operators with
a tremendous opportunity to deploy new products and features, ongoing
technological advancements will create new competitors and embolden existing
competitors who lack the legacy cost structure (and in many cases, the service
obligations) of the incumbents. Currently, 62% of total population is in the
subscriber list of the telecoms. So further market creation will increase the
competition and voice service is going towards a maturity stage. This competition
for customers is expected to limit pricing flexibility, which in combination with the
incremental product development costs and higher marketing expenses, can lead
to margin pressure.

Capital Intensity Will Persist

The capital intensive nature of the industry instigates significant investment in
network infrastructure for maintenance and the introduction of new services to
replace declining legacy products which is likely to be a permanent characteristic
of the telecommunications industry. Despite the expanding use of
telecommunications networks to deliver a broader array of service offerings the
expanding capital spending to elevate the standards of emerging markets like
Bangladesh will hinder free cash flow growth. Spectrum license acquisitions tend
to be large, infrequent occurrences and are directly linked to the Company's long-
term business strategy. Fast moving technological trends resulting to reduced

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asset life cycles, especially for technical equipment and software. Similar to their
wire line brethren, wireless operators are facing a tremendous bandwidth surge,
as data and video applications migrate onto wireless networks. Capital
deployments in the wireless sector will generally be directed toward acquiring new
licenses and enhancing coverage and maintain Quality of Service. However, current
infrastructure sharing between the operators will lessen the CAPEX burden to
some extent in the next years.

Mergers and Acquisition Activity Expected To Remain High

Merger and acquisition activity in the telecommunications sector expected to
remain high globally. Based on the present penetration rate and high future
potentiality, global large operators will find Bangladesh telecommunication market
as an attractive investment place. To enter the market, they will find acquisition of
existing license more lucrative than acquiring new licenses.

In the long run it can be expected that merger and acquisition activity in the
telecommunications sector could trigger due to: The benefits of scale and
expansion into new markets (either geographically or product wise) will prompt
more companies to supplement internal growth and development with
acquisitions. The high fixed-cost nature of the industry offers tremendous
synergy opportunities for acquirers, while industry consolidation still has ample
capacity following a decade-long investment cycle and emergence of new
competitors. While M&A activity can lead to revenue diversity and improved
margins, debt-financed acquisition activity is a key credit risk that is likely to put
pressure on ratings.

Telekom Malaysia International (Bangladesh) which commenced operations in

Bangladesh in 1997 with the brand name AKTEL was taken over by joint venture
between Axiata Group Berhad, Malaysia and NTT DOCOMO INC, Japan. The service
name was rebranded as „Robi‟ and the Company came to be known as Robi Axiata
Limited on 28th March 2010.

In January 2010, Bharti Airtel Limited, Asia‟s leading integrated telecom services
provider, acquired 70% stake in Warid Telecom, Bangladesh, a subsidiary of the
UAE-based Abu Dhabi Group. While M&A activity can lead to revenue diversity and
improved margins, debt-financed acquisition activity is a key credit risk that is
likely to put pressure on future ratings.

Market Growth
The telephone market of Bangladesh is likely to remain highly profitable. Both wire
line and wireless market are growing and the growth is likely to continue at a
consistent rate for next few years. Industry growth rates, which are increasing,
evidence a sector, which is likely overall to qualify as investment grade when
considering this characteristic in isolation. Unlike the wireless segment, the
growth of wire line segment would not accelerate; however, it is expected that the
growth rate of wire line segment would be flat for next few years then it will be
declining.

The graph below depicts the total subscribers in million along with penetration
rate from 2002 to 2012 (up to July) where the Bangladeshi telecom market shows
tremendous potential for growth. Year-to-Year growth rate of subscribers from
2007 to 2011 stands at 65%, 54%, 20%, 31% and 24%, a declining growth rate
indicates to reach a maturity market in next few years.

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Figure 2
Mobile market growth

In considering market growth CRAB breaks down the telecommunications industry

into cellular, fixed line and integrated players. The regulator does not permit the
license holders to operate both in wire line and wireless segment except BTCL.
Fixed line growth rates are declining worldwide with many operators at best
experiencing flat revenue. Generally, a particular industry‟s own growth correlates
closely with economic growth. The telecom industry‟s growth is driven by
continued strong organic expansion in the industry itself.

CRAB views that growth rates are sustainable. While assessing sustainability of the
growth, assessment includes consideration on market demographics. Lower
cellular penetration rate is also a good indicator of likely good medium-term
growth prospects. Likewise, this situation represents a sound indicator that fixed
line operators are likely to experience significant medium term revenue pressure
as product substitution remains at an early stage.

Market Share

GP has been the market leader at a stretch for more than a decade. The mobile
telecommunication industry had 97.48 million subscribers in November 2012 of
which GP has 40.24 million (41.3%), Banglalink has 26.21 million subscriber
(26.9%) and ROBI‟s subscriber base stood at 21.12 million (21.7%). Other 10%
market share is held three operators Airtel (6.94 million), Citycell (1.60 million)
and Teletalk (1.37 million). Total addition from December 2011 to July 2012 is
around 9.26 million subscribers which indicate a rising trend in mobile
penetration. The relative position of GP among the operators is indicative of the
likely sustainability of its operating position and ability to exercise control over
the nature and pace of development. The present subscriber base and leading
position of GP in the market indicates that the customers perceived GP well and
shows its ability to develop/support revenue, and bring innovation in products
and services development.

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Shareholding position and Management

Table-1
Shareholding Position of GP as of 31 December 2011
Name of Shareholders Number of % of total
Shares held shareholding
Telenor Mobile Communications AS, Norway 753,407,724 55.80
Nye Telenor Mobile Communications II AS, 215 0.000016
Norway
Nye Telenor Mobile Communications III AS, 215 0.000016
Norway
Telenor Asia Pte Ltd., Singapore 215 0.000016
Grameen Telecom, Bangladesh 461,766,409 34.20
Grameen Kalyan, Bangladesh 22 0.000002
Grameen Shakti 22 0.000002
General Public, GP employees & institutions 135,125,200 10.00
Total 1,350,300,022 100.00

Board and Committees

The Directors of the Board are appointed by the Shareholders in the Annual
General Meeting (AGM) who are accountable to the Shareholders. The Board is
responsible for guiding the Company towards the goal set by the Shareholders.
The Board also ensures that Grameenphone Policies and Procedures and Codes of
Conduct are implemented and maintained; and the Company adheres to generally
accepted principles for the governance and effective control of Company activities.

In addition to the other legal guidelines, the Grameenphone Board has also
adopted “Governance Guidelines for the Board” for ensuring better governance in
the work and the administration of the Board. The Board of Directors in
Grameenphone is comprised of nine members including the Chairman who is
elected from amongst the members. In compliance with the Corporate Governance
Guidelines issued by the Securities and Exchange Commission (SEC) and as per the
provision of the Articles of Association (AoA) of the Company. The AoA requires
the Board to meet at least four times a year and otherwise when duly called for in
writing by a Board member or Shareholder. Dates for Board Meetings in the
ensuing year are decided in advance and the notice of each Board Meeting is
served in writing.

Audit Committee
The Grameenphone Audit Committee was established in late 2008 as a sub-
committee of the Board and has jurisdiction over Grameenphone and its
subsidiaries. The audit committee is comprised of three members of the Board
including an independent Director. The Chief Executive Officer, the Chief Financial
Officer, the Company Secretary and the Head of Internal Audit are permanent
invitees to the Audit Committee meetings.

The Audit Committee assists the Board in fulfilling its oversight responsibilities
with respect to internal control, financial reporting, risk management, auditing
matters and GP‟s processes of monitoring compliance with applicable legal and
regulatory requirements and the Code of Conduct. The Audit Committee Charter
as approved by the Board defines the purpose, authority, composition, meetings,
duties and responsibilities of the Audit Committee.

Treasury Committee
This committee consists of two representatives from shareholders and the CFO of
GP. All significant financial matters which concern the Board are discussed in this

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committee in detail. The issues are ultimately forwarded to the Board for their
final review and approval.

Human Resources Committee

This Committee consists of three members who are appointed by the GP Board .
The Committee supports the Board in fulfilling its oversight responsibilities with
respect to Human Resources policy, including employee performance, motivation,
retention, succession matters and Codes of Conduct.

Health, Safety, Security and Environment Committee

This Committee consists of three members who are appointed by the GP Board.
The Committee supports the Board in fulfilling its legal and other obligations with
respect to Health, Safety, Security and Environment (HSSE) issues. The Committee
also assists the Board in obtaining assurance that appropriate systems are in place
to mitigate HSSE risks in relation to the company, employees, vendors etc.

Management Team (MT)

The management team is the executive committee of Grameenphone managing
the affairs of the company. The Management team consists of the CEO and other
key leaders across the company. The CEO is the leader of the team. Management
team endeavors to achieve the strategic goals and mission of the company set by
the board of directors. The Management team meets on a weekly basis to monitor
the business performance of the company.

Global telecommunication industry has evolved significantly over the last decade;
spur on by regulatory liberalization, technological advancements and the
availability of capital. We expect that rapid technological changes will continue to
pressure the capital budgets of GP, which means increased risk of asset
impairment or obsolescence. The cost of adopting new technology is significant,
both in terms of capital required and the risk of failures, which constitutes a key
ratings consideration. Alternatively, the analyst observed that there might be a
business cost for failing to quickly adopt new technology before competition
erodes the incumbent‟s position. So the important features are the duration of
development and introduction cycles for major technologies, which is assessed for
its likely impact on product competitiveness.

GP improved its asset utilization in 2011 as Asset turnover ratio increased from
68.25% to 81.96% and such growth indicated efficient use of assets compared to
its peers.

CRAB assesses the Company‟s technological risk starts with an evaluation of the
lifetime service capabilities and scalability of the Company‟s existing network
architecture. Because the telecom industry is very capital intensive and faces rapid
technological innovation, the investment strategy is critical to its future prospects,
which is found commensurate in line with present market dynamics. Capital
expenditure as percentages of its revenue indicated that GP had spent more for on
its capital expenditure in 2011 as compared to its previous year. Capital
expenditure was BDT 63,080.93 million in 2011 which was BDT 17,909.32 million
in 2010. Last year in 2011, capital expenditure was spent mainly in base station,
transmission equipment and network modernization. However, GP being ahead of
network coverage as market leader has almost reached optimum level of CAPEX
involvement for last few years.

Several factors impacted GP‟s liquidity position mainly for paying of final dividend
for the year 2010, interim dividend for 2011 and the first instalment of renewal
fees for 2G license and spectrum. Moreover, as on 30 Sep 2012, GP paid BDT

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CRAB I CRAB Ratings on Corporate Credit Digest I 2012
 Grameenphone Ltd.

8,058.54 million as payment for renewal of 2G licence and other intangible assets.

Since the inception of GP, increasing revenue growth is observed till 2011
(revenue amount BDT 89,006.70 million) which is supported by its planned and
comprehensive CAPEX. The revenue was also supported by the changed package
structure, which led to higher subscriber acquisition although the ARPU has come
down to BDT 214 in 2011 from BDT 231 in 2010. After that, stable revenue is
observed in 2012 (up to 30 Sep 2012, revenue was recorded BDT 69,272.90
million). Mainly, Traffic revenue from Subscription growth ~21.63% in 2011 (36.49
million at the end of 2011) resulted 19.1% revenue growth in 2011 from 2010.
Revenue growth in prepaid, post paid and Internet and data were 18.61% , 2.69%
and 30.04% respectively in 2011 compared to the previous year. Net profit after
tax margin increased to 19.1% in 2011 from 14.4% in 2010 due to increase in
revenue and lower depreciation expenses compared to the previous year.
However, higher income taxes and losses on foreign exchange (BDT 651.42
million) during 2011 partially offset that net profit but GP could manage efficiently
its operating expenses which was remain same in 2011. Depreciation expenses
will be higher in next year/s because of Capex in 2011 which will put effect to
profit margin to some extent.

As perceived by CRAB from the financial indicators of GP, historically the Company
had a steady and sustaining business growth compared to other players in the
industry. Although GP‟s market share has been taken up by other operators due to
tariff sensitive customer base, still GP dominates the market share with premium
price packages.

Borrowed fund decreased by BDT 885.89 million in 2011 and decreased in equity
by BDT 8,987.34 million for paying final dividend of 2010 and interim dividend of
2011. For this, increased in borrowed fund to equity observed 0.41x in 2011
which was 0.35x in 2010. GP has maintained positive cash flow for FFO and CFO,
but due to higher capital expenditure, its FCF was observed negative in 2011. Net
Financial expenses increased as borrowed fund utilization increased in the period
of Jan 2012 to Sep 2012, value BDT 2,375.16 million due to interest charged in
relation to the periodic unwinding of liability to acquire 2G telecom license 2011.
This lead to higher leverage position to some extent as Borrowed fund to EBITDA
increased to 0.88x on 30 Sep 2012 from 0.33x in 2011.

Grameenphone Ltd. has banking relationship with Standard Chartered Bank, HSBC,
Commercial Bank of Ceylon, Citibank NA, Eastern Bank Limited, Pubali Bank Ltd.,
Woori Bank, Southeast Bank Ltd., The City Bank Ltd., Trust Bank Ltd., Mutual Trust
Bank Ltd., UCBL, Premier Bank Ltd., BRAC Bank Ltd., IFIC Bank, Bank Alfalah, Dhaka
Bank, Mercantile Bank. Besides, The Company has non funded credit facilities with
CBCL, Prime Bank, Jamuna Bank, One Bank, DBBL, Shahjalal Islami Bank Ltd. The
details of credit facilities are provided in the Appendix-1.

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CRAB I CRAB Ratings on Corporate Credit Digest I 2012
 Grameenphone Ltd.

APPENDIX – 1: Details of Bank Loan Liability Status (Mil. BDT)

TOTAL FACILITY ACTUAL UTILIZATION

NON- NON-
NAME OF THE BANK TOTAL FUNDED FUNDED Expiry
FUNDED FUNDED
FACILITY FACILITY FACILITY
FACILITY FACILITY
Standard Chartered Bank 3000 1200 1800 683 1000 Jun-13
Citibank N.A. 3280 3280 1312 500 1295 Jun-13
HSBC 1900 1500 1900 343 1000 Jan-13
Eastern Bank Ltd 3100 3000 1500 628 1500 Jun-13
Commercial Bank of Ceylon 400 0 400 0 400 Nov-13
Pubali Bank Ltd. 2500 1000 1500 0 0 Jul-13
Woori Bank 1145 857 288 174 0 Mar-13
Southeast Bank Ltd. 3400 1400 2000 441 2000 Dec-12
The City Bank Ltd. 3500 1500 2000 468 0 Dec-13
Trust Bank Ltd. 1900 1200 700 17 0 May-13
MTBL 1500 1000 500 363 0 Nov-12
UCBL 3000 3000 2500 4 0 Aug-13
Premier 2000 2000 420 471 404 Apr-13
BRAC Bank Ltd. 1300 1300 900 22 0 Aug-13
IFIC Bank Ltd. 1000 500 500 0 0 Apr-13
IDLC 500 0 50 0 0 Jul-13
Bank Alfalah 525 525 300 458 239 Jul-13
Dhaka Bank Ltd. 1500 500 1000 0 1000 Feb-13
Mercantile Bank Ltd. 2000 1000 1000 0 0 Aug-13
24,762
Others* 191
Total 37,450 24,953 20,570 4,572 8,838

Liability Position 31 December 2012 (Fig in Million BDT)

*Besides the above GP has Non Funded Business with the following Banks:
1.BDT 13 Mn with CBCL, 2.BDT 36 Mn with Prime Bank Ltd.,3.BDT 5 Mn with Jamuna Bank Ltd.,4. BDT 96 Mn with
One Bank Ltd., 5. BDT 37 Mn with DBBL, 6. BDT 4 Mn with Shahjalal Islami Bank Ltd.

Note: Outstanding as on 31 December 2012 and these information are provided by the management of
Grameenphone Ltd.

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CRAB I CRAB Ratings on Corporate Credit Digest I 30 January 2013
 Grameenphone Ltd.

APPENDIX – 2: Previous Ratings of Grameenphone Ltd.

Particulars Ratings Remarks

Grameenphone Limited AAA Entity
BDT 13,905.00 million aggregate Fund based limit ST-1 -
BDT 22,668.00 million aggregate non-fund based limit ST-1 -
ST-Short Term
Date of Rating: 05 January 2012

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CRAB I CRAB Ratings on Corporate Credit Digest I 30 January 2013
 Grameenphone Ltd.

APPENDIX – 2: Key Financial Indicators of Grameenphone Ltd.

Key Financial Indicators

Year Ended December 31 ~Year Ended 31 Dec~
Months (09) (12) (12) (12) (12)
2012 2011 2010 2009 2008
Revenue 69,272.90 89,006.70 74,724.50 65,299.5 61,358.98
Revenue Growth (%) -22.2% 19.1% 14.4% 7
6.4% -
Borrowed Fund Outstanding 29,829.10 15,973.60 16,859.49 21,236.4 42,203.14
Earning, Growth & Stability

Growth rate of Borrowed Fund (%) 86.7% -5.3% -20.6% 4

-49.7% 0.0%
Cost of Network Operation as % of
42.5% 42.8% 48.6% 50.7% 53.3%
Revenue
EBITDA 33,740.39 47,888.22 37,214.63 6,097.51 27,751.54
EBITDA Margin (%) 48.7% 53.8% 49.8% 55.3% 45.2%
Financial Expenses 2,375.16 968.62 855.36 1,920.44 1,805.25
Net Profit After Tax 12,881.71 19,052.70 10,579.18 4,968.17 2,983.87
Net Profit Margin (%) 18.6% 21.4% 14.2% 22.9% 4.9%
Return on Avg. Assets (%) 11.3% 17.5% 9.7% 13.8% 2.8%
Return of Avg. Equity (%) 36.9% 43.9% 21.6% 38.5% 10.8%
Current ratio (x) 0.19 0.60 0.69 0.57 0.29
Liquidity & Asset Utilization

Quick Ratio (x) 0.18 0.60 0.67 0.56 0.28

Liquidity Index (days) 33 25 24 23 23
NWC/OI (x) (2.38) (0.65) (0.69) (0.82) (2.34)
Avg. Collection Period (days) 35 27 26 25
Avg. Payment Period (days) 263 174 171 25
183 190
Avg. Inventory Processing Period (days) 6 6 6 5
Cash Conversion Cycle (days) (222) (142) (139) 5
(154) (161)
Avg. FA turnover (x) 0.99 1.27 0.99 0.79 0.72
Avg. TA turnover (x) 0.61 0.82 0.68 0.60 0.57
Times Interest Earned 10.52 35.24 25.30 10.68 7.41
Coverage

(EBITDA-CAPEX)/Interest Expense 0.29 0.69 0.94 1.06 0.68

Asset Coverage Ratio 4.34 (15.68) 22.57 6.85 (5.80)
Cash Flow Coverage 9.11 33.87 30.58 15.91 9.61
Total Shareholder Equity 30,834.95 38,918.31 47,905.65 50,154.3 27,588.16
Total Asset 119,534.8 108,598.71 109,429.7 3
109,162. 108,194.4
Total Liabilities 5
88,699.90 69,680.40 9
61,524.14 49
59,008.1 5
80,606.30
Capital Structure, Leverage & Cash Flow

Cash & Equivalents as % of Current 7

5.0% 14.2% 41.8% 37.5% 14.0%
Liabilities
Capital Expenditure 23,441.64 63,080.93 17,909.32 22,948.3 38,216.19
CapEx/Revenue (%) 33.8% 70.9% 24.0% 9
35.1% 62.3%
Fund Flow from Operation 21,629.74 32,807.36 26,152.60 30,549.2 17,351.31
Cash Flow from Operation 42,523.73 18,279.67 25,802.96 8
29,711.8 -
5
Free Cash Flow 19,082.09 (44,801.26) 7,893.64 6,763.46 -

Total Debt/Total Assets (x) 0.74 0.64 0.56 0.54 0.75

Borrowed Fund/Shareholders' equity (x) 0.97 0.41 0.35 0.42 1.53
Borrowed Fund/Total Assets (x) 0.25 0.15 0.15 0.19 0.39
Borrowed Fund/EBITDA (x) 0.88 0.33 0.45 0.59 1.52
FFO/Debt (x) 0.73 2.05 1.55 1.44 -
CFO/Debt (x) 1.43 1.14 1.53 1.40 -
Figure in BDT Million other than percentage (%) and times (x)

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CRAB I CRAB Ratings on Corporate Credit Digest I 30 January 2013
 Grameenphone Ltd.

CRAB RATING SCALES AND DEFINITIONS –Long Term (Corporate)

Long Term Rating Definition
AAA Companies rated in this category have extremely strong capacity to meet financial commitments. These companies are judged to be of the highest
Triple A quality, with minimal credit risk.
AA1, AA2, AA3* Companies rated in this category have very strong capacity to meet financial commitments. These companies are judged to be of very high quality,
Double A subject to very low credit risk.

A1 , A2 , A3 Companies rated in this category have strong capacity to meet financial commitments, but are susceptible to the adverse effects of changes in
Single A circumstances and economic conditions. These companies are judged to be of high quality, subject to low credit risk.

BBB1, BBB2, BBB3 Companies rated in this category have adequate capacity to meet financial commitments but more susceptible to adverse economic conditions or
Triple B changing circumstances. These companies are subject to moderate credit risk. Such companies possess certain speculative characteristics.

BB1, BB2, BB3 Companies rated in this category have inadequate capacity to meet financial commitments. Have major ongoing uncertainties and exposure to
Double B adverse business, financial, or economic conditions. These companies have speculative elements, subject to substantial credit risk.
B1, B2, B3 Companies rated in this category have weak capacity to meet financial commitments. These companies have speculative elements, subject to high
Single B credit risk.
CCC1, CCC2, CCC3 Companies rated in this category have very weak capacity to meet financial obligations. These companies have very weak standing and are subject
Triple C to very high credit risk.
CC Companies rated in this category have extremely weak capacity to meet financial obligations. These companies are highly speculative and are likely
Double C in, or very near, default, with some prospect of recovery of principal and interest.
Companies rated in this category are highly vulnerable to non-payment, have payment arrearages allowed by the terms of the documents, or
C
subject of bankruptcy petition, but have not experienced a payment default. Payments may have been suspended in accordance with the
Single C
instrument's terms. These companies are typically in default, with little prospect for recovery of principal or interest.
D
D rating will also be used upon the filing of a bankruptcy petition or similar action if payments on an obligation are jeopardized.
(Default)
*Note: CRAB appends numerical modifiers 1, 2, and 3 to each generic rating classification from AA through CCC. The modifier 1 indicates that the obligation ranks in the higher end of
its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the lower end of that generic rating category.

LONG-TERM RATING: LOANS/FACILITIES FROM BANKS/FIS

(All loans/facilities with original maturity exceeding one year)
RATINGS DEFINITION
AAA (Lr)
Loans/facilities rated AAA (Lr) are judged to offer the highest degree of safety, with regard to timely payment of financial obligations. Any adverse
(Triple A)
changes in circumstances are unlikely to affect the payments on the loan facility.
Highest Safety
AA (Lr)*
Loans/facilities rated AA (Lr) are judged to offer a high degree of safety, with regard to timely payment of financial obligations. They differ only
(Double A)
marginally in safety from AAA (Lr) rated facilities.
High Safety
A (Lr) Loan/facilities rated A (Lr) are judged to offer an adequate degree of safety, with regard to timely payment of financial obligations. However, changes
Adequate Safety in circumstances can adversely affect such issues more than those in the higher rating categories.
BBB (Lr)
Loans/facilities rated BBB (Lr) are judged to offer moderate safety, with regard to timely payment of financial obligations for the present; however,
(Triple B)
changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal than for issues in higher rating categories.
Moderate Safety
Loans/facilities rated BB (Lr) are judged to carry inadequate safety, with regard to timely payment of financial obligations; they are less likely to
BB (Lr)
default in the immediate future than instruments in lower rating categories, but an adverse change in circumstances could lead to inadequate
(Double B) Inadequate Safety
capacity to make payment on financial obligations.
B (Lr) Loans/facilities rated B (Lr) are judged to have high risk of default; while currently financial obligations are met, adverse business or economic
High Risk conditions would lead to lack of ability or willingness to pay interest or principal.
CCC (Lr) Loans/facilities rated CCC (Lr) are judged to have factors present that make them very highly vulnerable to default; timely payment of financial
Very High Risk obligations is possible only if favorable circumstances continue.
CC (Lr) Loans/facilities rated CC (Lr) are judged to be extremely vulnerable to default; timely payment of financial obligations is possible only through
Extremely High Risk external support.
Loans/facilities rated C (Lr) are currently highly vulnerable to non-payment, having obligations with payment arrearages allowed by the terms of the
C (Lr)
documents, or obligations that are subject of a bankruptcy petition or similar action but have not experienced a payment default. C is typically in
Near to Default
default, with little prospect for recovery of principal or interest. C (Lr) are typically in default, with little prospect for recovery of principal or interest.
D (Lr)
Loans/facilities rated D (Lr) are in default or are expected to default on scheduled payment dates.
Default
*Note: CRAB appends numerical modifiers 1, 2, and 3 to each generic rating classification from AA through CCC. The modifier 1 indicates that the obligation ranks in the higher end of
its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the lower end of that generic rating category.

SHORT-TERM CREDIT RATING: LOANS/FACILITIES OF BANKS/FIS

(All loans/facilities with original maturity within one year)

DEFINITION

ST-1
This rating indicates that the degree of safety regarding timely payment on the loans/facilities is very strong.
Highest Grade
ST-2 This rating indicates that the degree of safety regarding timely payment on the loans/facilities is strong; however, the relative degree of safety is lower
High Grade than that for issues rated higher.
ST-3 This rating indicates that the degree of safety regarding timely payment on the loans/facilities is adequate; however, the issues are more vulnerable to
Adequate Grade the adverse effects of changing circumstances than issues rated in the two higher categories.
ST-4 This rating indicates that the degree of safety regarding timely payment on the loans/facilities is marginal; and the issues are quite vulnerable to the
Marginal adverse effects of changing circumstances.

ST-5 This rating indicates that the degree of safety regarding timely payment on the loans/facilities is minimal, and it is likely to be adversely affected by
Inadequate Grade short-term adversity or less favorable conditions.
ST-6
This rating indicates that the loans/facilities are expected to be in default on maturity or is in default.
Lowest Grade

© Copyright 2012, CREDIT RATING AGENCY OF BANGLADESH LIMITED ("CRAB"). All rights reserved. ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY COPYRIGHT LAW AND NONE OF SUCH INFORMATION MAY BE COPIED OR
OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER
OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT CRAB‟S PRIOR WRITTEN CONSENT. All information contained herein is obtained by CRAB from sources believed by it to be accurate and reliable. Because of the possibility of
human or mechanical error as well as other factors, however, such information is provided “as is” without warranty of any kind and CRAB, in particular, makes no representation or warranty, express or implied, as to the accuracy,
timeliness, completeness, merchantability or fitness for any particular purpose of any such information. Under no circumstances shall CRAB have any liability to any person or entity for (a) any loss or damage in whole or in part caused by,
resulting from, or relating to, any error (negligent or otherwise) or other circumstance or contingency within or outside the control of CRAB or any of its directors, officers, employees or agents in connection with the procurement,
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MANNER WHATSOEVER. Each rating or other opinion must be weighed solely as one factor in any investment decision made by or on behalf of any user of the information contained herein, and each such user must accordingly make its
own study and evaluation of each security and of each issuer and guarantor of, and each provider of credit support for, each security that it may consider purchasing, holding or selling.

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CRAB I CRAB Ratings on Corporate Credit Digest I 30 January 2013