Half the deal will be sold through an initial public offering on the Dhaka Stock Exchange and the Chittagong Stock Exchange, while the other half will be sold through a pre-IPO offering that is expected to go mostly to international investors. If the deal is completed, it will be a milestone for the Bangladeshi markets, which have never seen a listing even close to this size.
"Our sense is that it's quite a positive thing. That it is something the market has been waiting for a while because it's the sort of stock that global investors are going to be interested in," says Ifty Islam, managing partner of Asian Tiger Capital Partners (AT Capital Research). He also thinks the deal might encourage other telecom companies to come to market, which would help Bangladesh's stockmarket to reach critical mass.
With a market share of 46% of the countryÆs mobile phone users, Grameenphone has twice as many subscribers as its nearest rival, Banglalink.
Based on a valuation of $3 billion, the company will sell about 10% of its share capital. Norwegian communications company Telenor owns 62% of Grameenphone, while the rest is held by Grameen Telecom.
A report by AT Capital Research says that being part of Telenor's group of 12 international mobile operators has brought a number of advantages to the Bangladeshi operator, including the group's combined purchasing power, which has allowed Grameenphone to quickly upgrade and expand its network. Group cost savings have also allowed the company to offer lower tariffs, therefore making its services more accessible to low income customers.
This is not the first time this year that Bangladesh's mobile sector has attracted international attention. In June, Japan's NTT DoCoMo announced that it would buy a 30% stake in Dhaka-based mobile phone company, TM International (Bangladesh) (TMIB). DoCoMo paid $350 million for all of the TMIB stock held by AK Khan Co. What makes this deal significant is that the purchase price valued the target at a firm value to Ebitda multiple of 20.4 times (based on earnings for the previous 12 months). This is one of the highest multiples paid for a telecom company since 2004, and the highest for a non-controlling stake in the same period.
Citi advised AK Khan on the sale to NTT DoCoMo and will also act as the sole global coordinator and issue manager for GrameenphoneÆs IPO.
BangladeshÆs stockmarkets have been among the most successful in Asia. Starting from a small base, the Dhaka Stock Exchange General Index (DGEN) rose by 87% in 2007 and while it is down 5% so far this year, it is still faring much better than most other indices in the region, such as the neighbouring IndiaÆs Bombay Sensex index, which is down 30%, and the Pakistani KSE-100, which has lost 22%.
The strong performance of the DGEN is due more to structural factors than market fundamentals, however. The country has seen a period of relative political stability and in 2007 a corruption crackdown made it a requirement for property owners to be able to show where the money used to buy the property came from. This led to a massive withdrawal of money away from property and into the stockmarket, where similar disclosures arenÆt necessary.
Another reason why Bangladesh's markets have been able to buck global trends is the low level of international money in the system. Retail investment makes up almost the entire $12 billion market capitalisation û estimates put international participation at only around $100 million to $200 million. Although the DGEN has been quite stable in the course of this year, a high number of retail investors could create high levels of volatility if market conditions were to change, which could dissuade international investors from participating.
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