Credit Rating Report

Alliance Holdings Limited

Particulars Alliance Holdings Limited BDT 100.39 million long term outstanding BDT 62.5 million Short Term Fund Based Limit Rating Outlook Lr-Loan Rating; ST-Short Term Date of Rating: 26 April 2012 Validity: The Entity rating is valid up to 25 April 2013 and the Loan ratings are valid up to limit expiry date of respective credit facilities or 25 April 2013 whichever is earlier. Rating Based on: Audited financial statements up to 31 December 2011, Bank Liability position as on 31 December 2011 and other relevant quantitative as well as qualitative information up to the date of rating declaration. Auditor: Masih Muhith Haque & Co. Methodology: CRABs Corporate Rating Methodology (www.crab.com.bd) Analyst Contact: Mavin Ahmed mavin@crab.com.bd Md. Hussainul Islam Sajib sajib@crab.com.bd Azhar Uddin azhar@crab.com.bd Mohammad Reeshad Rahman reeshad@crab.com.bd The rating of AHL has taken consideration of long track record and experience of the management, weighted average performance of its subsidiaries and associates compared to its investment; but however, the rating is constrained to some extent by high sectoral concentration, dependency over dividend and income from subsidiary as well as capital gain arisen from disinvestment. CRAB has also considered that the sustainability of the holding company would depend on devising appropriate investment policies, asset allocation supporting controls to ensure consistency with the objectives. Alliance derives its revenue mainly from dividend and capital gains from its investment, which has an integrated presence in the Container Yard, Carbonated Beverage, Textiles, Financial Institutions, strategy, risk management procedures and Ratings A3 A3 (Lr) ST-3 Stable Remarks Entity for details Please see Appendix-1

RATIONALE

Credit Rating Agency of Bangladesh Limited (CRAB) has reaffirmed A 3 (Pronounced as Single A Three) rating in the long-term to Alliance Holding Limited. CRAB has also assigned A 3 (Lr) rating to BDT 100.39 million long term loan outstanding of the Company as well as rated ST-3 to BDT 62.5 million fund based limit.

PROFILE

Real Estate Development, IT and Dairy Segments. The portfolio investment of BDT 910.15 million on 31 Dec 2011 by the investment in 20 holding Company consists companies consisting of 5

Alliance Holdings Limited (herein after referred as AHL or the holding Company) was incorporated in 1998 as a private limited company in nature of a portfolio manager engaged in buying, underwriting, investing, acquiring and holding financial instruments, ownership stake in other companies along with subsidiaries and associates. In 2010, it was converted into public limited company.
CRAB I CRAB Ratings on Corporate Credit Digest I 26 April 2012

subsidiaries, 10 associates, 5 affiliate companies, against which Value stood at BDT 2314.97 million, around 2.54x higher than the investment. However, AHLs investment is concentrated (88%) in Off Dock and Warehousing Service sector with two companies
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CRAB Rating Report

Holding Company

Alliance Holdings Limited

Summit Alliance Port Limited (SAPL), which is listed with DSE and CSE and Ispahani Summit Alliance Terminal Limited (ISATL). The Companys income consists of dividend earnings from its investments and capital gains from its assets as well as from subsidiaries sales revenue. The quality of investment shows a mixed trend. Though financial profiles of few companies were weak, however 96% of its investment was in 6 companies, where 3 are subsidiaries (Global Beverage Company Limited, Nekan Alliance PEB Limited, Alliance Properties Limited) and 3 are associates (SAPL-28.9% in 2011, ISATL-59.3% in 2011 and PEB Steel Alliance Limited). Our previous rating report in 2010 incorporated AHLs performance on stand-alone basis; however, current analysis accompanies consolidated performance of the Holding Company. AHL also has restated its financial statements in 2008 and 2009 and consolidated overall financial position where subsidiary sales are treated as its sales revenue and associates net profits (proportionate to AHLs shareholding in that associate company) are recognized as share of profit from associates. Based on Consolidated Statement, the revenue of AHL increased sharply to BDT 948.37 million in 2009 from BDT 160.5 million in 2008, largely from capital gain from selling shares of Ocean Containers Limited and dividend income from SAPL. But in 2010 and 2011, its revenue showed decreasing trend due to decrease in capital gain and slowdown of dividend income in 2011. However, sales revenue from subsidiaries showed growth and stood BDT 329.05 million in 2011 from BDT 220.51 in 2009. Furthermore, shares of profit of associates offset the slowdown in dividend income in 2010 and 2011. Apart from the consolidation, if stand alone performance is analyzed, AHL earns from dividend income from invested portfolio, capital gain (only if there is disinvested of existing portfolio) and other revenue i.e. management fees, property sale and interest on savings etc. It is observed that, AHLs stand alone revenue from dividend, capital gain and other sales showed decreasing phenomenon during 2009-2011. Liquidity position of AHL needs attention (especially in case of GBCL and APL), which resulting in a current ratio of 1.47x in 2011 (2010: 2.09x). Current assets consist of investment available for sale (mostly Khulna Power Company Limited: 92% and Popular Life First Mutual Fund: 8%) and loans and advances to its associates. However, cash flow position of AHL was observed at satisfactory level as it generated FFO of BDT 439.97 million and CFO of BDT 292.2 million in 2011 and CFO/Debt ratio was 0.27x and 0.72x respectively in 2011 and 2010. The holding company also enjoys financial flexibly to some extent due to moderate debt level as expressed in Borrowed fund/Equity ratio of 0.72x in 2011 (2010: 0.5x) and Borrowed Fund/Total Assets ratio of 0.21x in 2011 (2010: 0.15x). The holding company also generated adequate coverage position in 2011 as expressed in EBIT/Interest ratio of 12.77x though decreased significantly from previous years (2010: 85.54x). Furthermore, at the time of analyzing the subsidiaries and associate company's revenue, it is found some extra ordinary items such as sale of property and capital gain etc. In order to reveal the actual trend and position, CRAB adjusted AHLs subsidiaries and associated concerns Net Profit After Tax with extra ordinary sources of revenue i.e. non operating income, gain from sale of investment or an asset. Due to nonrecurring nature of these nonoperating income items, ROE significantly impacted. The weighted average Return on Equity (ROE) of Alliance Holdings Limited prior to adjusting the above mentioned items varied between 5.74% and 24.25% with an average of 13.10%. However, after the adjustments have been made, the weighted average ROE varied between 2.33% and 2.99% with an average of 2.65%. As part of holding company policy, AHL extended intercompany loans to few loss making companies in order to support the operation and it is likely to extend further loans, where repayment of loan may defer. AHL has plans to expand its business horizon into power sector, IT and resort project through issuing IPO and the expansion is likely to be funded secondarily out of internal accruals and debt funding. The expected rating of the holding company addresses the likelihood that the company will receive divided, interest, and capital gain from divesting the investment. The holding company is structured as an actively managed fund holding a portfolio of investment/securities, management control of subsidiaries, and associated companies according the ownership stake. The holding company fund would finance the purchase and/or investment in portfolio. With the current investment scenario and upcoming capital infusion plan, AHLs near future financial profile seems to be stable with limited growth from dividend from existing associates and capital gain from disinvestment of current holding of securities/investments. However, further increase or decrease in existing portfolio composition

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Alliance Holdings Limited

along with implementation of future projects and further rise and repayment in debt level may be taken into future rating consideration. Bank facilities and credit history AHL has banking relationship with BIFC, IDLC, IFIC Bank, International Leasing and Financial Services Limited, and National Housing Finance and Investments Ltd. . Details of Bank Facilities are mentioned in Appendix-1.

APPENDIX 1: DETAILS OF CREDIT FACILITIES OF AHL

Loan Type Long Term Funded Bank/NBFI BIFC IDLC IFIC Bank ILFSL NHFIL Nature of Facility Term Loan Term Loan Term Loan Term Loan Term Loan Sub Total Short Term Funded IFIC BIFC Overdraft Overdraft Sub Total limits and outstanding were not received yet. Limit 50.0 50.0 4.7 8.0 2.5 115.0 2.5 60.0 62.5 Outstanding 40.9 47.3 4.4 7.8 100.4 2.1 60.0 62.1 n.a. n.a. Limit Expiry n.a. n.a. n.a. n.a. n.a.

Note: Bank loan details are provided by the management of AHL. Subsidiaries and Associated companies loan

CRAB I CRAB Ratings on Corporate Credit Digest I 26 April 2012

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Alliance Holdings Limited

CRAB RATING SCALES AND DEFINITIONS Long Term (Corporate) Long Term Rating AAA Triple A AA1, AA 2, AA3* Double A Definition Companies rated in this category have extremely strong capacity to meet financial commitments. These companies are judged to be of the highest quality, with minimal credit risk. Companies rated in this category have very strong capacity to meet financial commitments. These companies are judged to be of very high quality, subject to very low credit risk. Companies rated in this category have strong capacity to meet financial commitments, but are susceptible to the adverse effects of changes in circumstances and economic conditions. These companies are judged to be of high quality, subject to low credit risk. Companies rated in this category have adequate capacity to meet financial commitments BBB1, BBB 2, BBB3 Triple B but more susceptible to adverse economic conditions or changing circumstances. These companies are subject to moderate credit risk. Such companies possess certain speculative characteristics. Companies BB 1, BB2, BB3 Double B rated in this category have inadequate capacity to meet financial commitments. Have major ongoing uncertainties and exposure to adverse business, financial, or economic conditions. These companies have speculative elements, subject to substantial credit risk. B1, B2, B3 Single B CCC1, CCC2, CCC3 Triple C CC Double C Companies rated in this category have weak capacity to meet financial commitments. These companies have speculative elements, subject to high credit risk. Companies rated in this category have very weak capacity to meet financial obligations. These companies have very weak standing and are subject to very high credit risk. Companies rated in this category have extremely weak capacity to meet financial obligations. These companies are highly speculative and are likely 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 C Single C arrearages allowed by the terms of the documents, or subject of bankruptcy petition, but have not experienced a payment default. Payments may have been suspended in accordance with the instrument's terms. These companies are typically in default, with little prospect for recovery of principal or interest. D (Default) D rating will also be used upon the filing of a bankruptcy petition or similar action if payments on an obligation are jeopardized.

A1, A 2, A3 Single A

*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.

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Alliance Holdings Limited

LONG-TERM RATING: LOANS/FACILITIES FROM BANKS/FIS (All loans/facilities with original maturity exceeding one year)
RATINGS AAA (Lr) (Triple A) Highest Safety AA (Lr)* (Double A) High Safety A (Lr) Adequate Safety BBB (Lr) (Triple B) Moderate Safety BB (Lr) (Double B) Inadequate Safety B (Lr) High Risk CCC (Lr) Very High Risk CC (Lr) Extremely High Risk C (Lr) Near to Default D (Lr) Default DEFINITION Loans/facilities rated AAA (Lr) are judged to offer the highest degree of safety, with regard to timely payment of financial obligations. Any adverse changes in circumstances are unlikely to affect the payments on the loan facility. 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 marginally in safety from AAA (Lr) rated facilities. Loan/facilities rated A (Lr) are judged to offer an adequate degree of safety, with regard to timely payment of financial obligations. However, changes in circumstances can adversely affect such issues more than those in the higher rating categories. Loans/facilities rated BBB (Lr) are judged to offer moderate safety, with regard to timely payment of financial obligations for the present; however, changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal than for issues in higher rating categories. Loans/facilities rated BB (Lr) are judged to carry inadequate safety, with regard to timely payment of financial obligations; they are less likely to default in the immediate future than instruments in lower rating categories, but an adverse change in circumstances could lead to inadequate capacity to make payment on financial obligations. Loans/facilities rated B (Lr) are judged to have high risk of default; while currently financial obligations are met, adverse business or economic conditions would lead to lack of ability or willingness to pay interest or principal. Loans/facilities rated CCC (Lr) are judged to have factors present that make them very highly vulnerable to default; timely payment of financial obligations is possible only if favorable circumstances continue. Loans/facilities rated CC (Lr) are judged to be extremely vulnerable to default; timely payment of financial obligations is possible only through 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 documents, or obligations that are subject of a bankruptcy petition or similar action but have not experienced a payment default. C is typically in 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. Loans/facilities rated D (Lr) are in default or are expected to default on scheduled payment dates.

*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 Highest Grade ST-2 High Grade ST-3 Adequate Grade ST-4 Marginal ST-5 Inadequate Grade ST-6 Lowest Grade This rating indicates that the degree of safety regarding timely payment on the loans/facilities is very strong. 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 than that for issues rated higher. This rating indicates that the degree of safety regarding timely payment on the loans/facilities is adequate; however, the issues are more vulnerable to the adverse effects of changing circumstances than issues rated in the two higher categories. 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 adverse effects of changing circumstances. 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 short-term adversity or less favorable conditions. This rating indicates that the loans/facilities are expected to be in default on maturity or is in default.

Copyright 2008, 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 CRABS 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, collection, compilation, analysis, interpretation, communication, publication or delivery of any such information, or (b) any direct, indirect, special, consequential, compensatory or incidental damages whatsoever (including without limitation, lost profits), even if CRAB is advised in advance of the possibility of such damages, resulting from the use of or inability to use, any such information. The credit ratings and financial reporting analysis observations, if any, constituting part of the information contained herein are, and must be construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any securities. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY CRAB IN ANY FORM OR 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.

CRAB I CRAB Ratings on Corporate Credit Digest I 26 April 2012

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