Appendix 1:

a) Types of Bonds

Government Bonds:

In general, fixed income securities are classified according to the length of time before
maturity. These are the three main categories:

Bills - debt securities maturing in less than one year.

Notes - debt securities maturing in one to ten years.
Bonds - debt securities maturing in more than ten years.

Municipal Bonds:

Municipal bonds are the next progression in terms of risk. Cities don't go bankrupt that
often, but it can happen. The major advantage to "munis" is that the returns are free from
federal tax. Local governments also sometimes make its debt non-taxable for residents,
making some municipal bonds completely tax free. Because of the tax savings the yield is
usually lower than that of a taxable bond. Depending on your personal situation munis
can be a great investment on an after-tax basis.

Corporate Bonds

A company can issue bonds just like it can issue stock. Large corporations have a lot of
flexibility as to how much debt they can issue: the limit is whatever the market will bear.
Generally a short-term corporate bond is less than five years; intermediate is five to
twelve years, and long term is over twelve years.

Corporate bonds are characterized by higher yields because there is a higher risk of a
company defaulting than a government. The upside is they can also be the most
rewarding fixed-income investments because of the risk the investor must take on. The
company's credit quality is very important: the higher the quality, the lower the interest
rate the investor receives.

Other variations are convertible bonds, which the holder can convert into stock, and
callable bonds, which allow the company to redeem an issue prior to maturity.

Zero Coupon Bonds

This is a type of bond that makes no coupon payments but instead is issued at a
considerable discount to par value. For example, a zero coupon bond with a $1000 par
value and ten years to maturity might be trading at $600. So today the investor pays $600
for a bond that will be worth $1000 in ten years.

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b) Characteristics of Bonds

There are a number of characteristics of a bond that you need to be aware of. All of these
factors play a role in determining the value of a bond and the extent to which it fits in
portfolio.

Face Value/Par Value

The face value (also known as the par value or principal) is the amount of money a holder
will receive back once a bond matures. A newly issued bond usually sells at the par value.
Corporate bonds normally have a par value of $1,000, but this amount can be much
greater for government bonds. What confuses many is that the par value is NOT the price
of the bond. A bond's price fluctuates throughout its life in response to a number of
variables (more on this later). When a bond's price trades above the face value it is said to
be selling at a premium. When a bond sells below face value, it is said to be selling at a
discount.

Coupon (The Interest Rate)

The coupon is the amount the bondholder will receive as interest payments. It's called a
"coupon" because sometimes there are physical coupons on the bond that you tear off and
redeem for interest. This, however, was more common in the past. Nowadays records are
more likely to be kept electronically. As previously mentioned, most bonds pay interest
every six months, but it's possible for them to pay monthly, quarterly, or annually. The
coupon is expressed as a percentage of the par value. If a bond pays a coupon of 10% and
its par value is $1,000, then it'll pay $100 of interest a year. A rate that stays as a fixed
percentage of the par value like this is a fixed-rate bond. Another possibility is an
adjustable interest payment, known as a floating-rate bond. In this case the interest rate is
tied to market rates through an index such as the rate on Treasury bills. You might think
investors will pay more for a high coupon than for a low coupon.

Maturity

The maturity date is the future day on which the investor's principal will be repaid.
Maturities can range from as little as one day to as long as 30 years (though terms of 100
years have been issued!). A bond that matures in one year is much more predictable and
thus less risky than a bond that matures in 20 years. Therefore, in general, the longer the
time to maturity, the higher the interest rate. Also, all things being equal, a longer term
bond will fluctuate more than a shorter term bond.

Issuer

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The issuer is an extremely important factor as their stability is your main assurance of
getting paid back. For example, the U.S. Government is far more secure than any
corporation. Their default risk--the chance of the debt not being paid back—is extremely
small, so small that the U.S. government securities are known as risk free assets. The
reason behind this is that a government will always be able to bring in future revenue
through taxation. A company on the other hand must continue to make profits, which is
far from guaranteed. This means the corporations must offer a higher yield in order to
entice investors--this is the risk/return tradeoff in action.

Appendix 2:

HSBC through different stages:

The HSBC Group evolved from The Hongkong and Shanghai Banking Corporation
Limited, which was founded in 1865 in Hong Kong with offices in Shanghai and London
and an agency in San Francisco. The group expanded primarily thought offices
established in the bank’s name until mid-1950s when it began to create or acquire
subsidiaries. The following are some key developments in the Group’s growth since 1959

1959 The Hongkong and Shanghai Banking Corporation acquires The British Bank
of Middle East (formerly the Imperial Bank of Persia, now called HSBC
Bank Middle East Limited).
1965 The Hongkong and Shanghai Banking Corporation acquire a majority
shareholding in Hang Seng Bank Limited, now the second-largest bank
incorporated in Hong Kong.
1971 The British Bank of the Middle East acquires a minority stake of 20% in The
Cyprus Popular Bank Limited (not trading as Laiki Group)
1972 Midland Bank acquires a shareholding in UBAF Bank Limited (now known
as British Arab Commercial Bank Limited).
1978 The Saudi British Bank is established under local control to take over The
British Bank of the Middle East’s branches in Saudi Arabia.
1980 The Hongkong and Shanghai Banking Corporation acquires 51% of New
York State’s Marine Midland Bank, N.A. (now called HSBC Bank USA).
Midland acquires a controlling interest in leading German private bank
Trinkaus & Burkhardt KGaA (now HSBC Trinkaus & Burkhardt KGaA).
1981 Hongkong Bank of Canada (now HSBC Bank Canada) is established in
Vancouver. The Group acquires a controlling interest in Equator Holdings
Limited, a merchant bank engaged in trade finance in sub-Saharan Africa.
1982 Egyptian British Bank S.A.E. is formed, with the Group holding a 40%
interest.
1983 Marine Midland Bank acquires Carroll McEntee & McGinley (now HSBC
Securities (USA) Inc.), a New York based primary dealer in US government
securities.
1986 The Hongkong and Shanghai Banking Corporation establishes Hongkong
Bank of Australia Limited (now HSBC Bank Australia Limited)

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1987 The Hongkong and Shanghai Banking Corporation acquires the remaining
shares of Marine Midland and a 14.9% equity interest in Midland Bank plc
(now HSBC Bank plc).
1991 HSBC Holdings is established; its shares are traded on the London and Hong
Kong stock exchanges.
1992 HSBC Holdings purchases the remaining equity in Midland Bank.
1993 The HSBC Group’s Head Office moves to London.
1994 Hongkong Bank Malaysia Berhad (now HSBC Bank Malaysia Berhad) is
formed.
1997 The group establishes a new subsidiary in Brazil, Banco HSBC Bamerindus
S.A. (now HSBC Bank Brasil S.A. – Banco Mǔltiplo), and acquires Roberts
S.A. de Inversiones in Argentina (now HSBC Argentina Holdings S.A.).
Shares in HSBC Holdings begin trading on a third stock exchange, New York.
HSBC acquires Republic New York Corporation (now integrated with HSBC
USA Inc.) and its sister company Safra Republic Holdings S.A. (now HSBC
Republic Holdings (Luxembourg) S.A.). Midland Bank acquires a 70.03%
interest in Mid-Med Bank PLC. (now HSBC Bank Malta p.l.c.), Malta’s
largest commercial bank.
2000 HSBC acquires CCF, one of France’s largest banks. Shares in HSBC
Holdings are listed on a fourth stock exchange, in Paris. The Group increases
its shareholding in Egyptian British Bank to over 90% and later renames it
HSBC Bank Egypt S.A.E.
2001 HSBC acquires Demirbank TAS, now HSBC Bank A.S., Turkey’s fifth largest
private bank; and signs an agreement to purchase an 8% stake in Bank of
Shanghai.
2002 Acquisitions include Group Financiero Bital, S.A. de C.V., one of Mexico’s
largest financial services groups; and a 10% interest in Ping An Insurance
Company of China Limited, the second largest life insurance operations in
China.
2003 HSBC acquires Household International Inc., a leading US consumer finance
company; and Lloyds TSB’s Brazilian assets including Losango Promortora
de Vendas Ltda, a major consumer credit institution. Four French private
banking subsidiaries combine to form HSBC Private Bank France. HSBC
Insurance Brokers Limited forms a joint venture, Beijing HSBC Insurance
Brokers Limited, in which it has a 24.9% stake.
Hang Seng Bank acquires 15.98% of Industrial Bank Co Ltd, a mainland
China commercial bank, and HSBC agrees to purchase 50% of Fujian Asia
bank Limited (no Ping An Bank Limited).
2004 HSBC acquires The Bank of Bermuda Limited, a leading provider of fund
administration, trust, custody, asset management and private banking
services; and shares in HSBC Holdings are listed on a fifth stock exchange, in
Bermuda.

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 2005 In 2005, HSBC marked 140 years in China by increasing its stake in the
country. In the Middle East, HSBC reopened its branch in Kuwait, while in
the USA, the integration of Household International with the Group’s North
American operations was completed, under the name ‘HSBC Finance
Corporation’.
HSBC Asset Management, HSBC Investment Management and HSBC
Multimanager become HSBC Investments. HSBC Halbis Partners, a
specialist fundamental active investment business is formed from part of
HSBC Asset Management and all of HSBC Alternative Investments
2006 HSBC acquires Bank of Panama for USD 1.77 billion to increase its presence
in South America. Currently the Group has presence in 76 Countries
worldwide.
2008 The internal label 'Group Investment Businesses (INV)' re-branded as
HSBC Global Asset Management.

Appendix 3: SEC Rules Regulatory Framework:

There is no specific Private Equity rule or regulation in Bangladesh. However, this
business will be affected by a few regulatory policies of the Central bank and different
regulatory authorities of the govt. As this business has a close relationship with Stock
market, this business will be largely governed by various SEC rules and regulation
(regarding stock issue, IPO, Listing, Delisting etc). The other regulations relevant are
BOI permission for Inward remittance in form of FDI and outward remittance in the form
of profit repatriation. Companies Act 1994 will come into action in case of registration of
a Private Equity company.

Securities and Exchange Commission Rules, 2006

The Securities and Exchange Commission (SEC) was established on 8th June, 1993
under the Securities and Exchange Commission Act, 1993. The Chairman and Members
of the Commission are appointed by the government and have overall responsibility to
administer securities legislation. The Commission, at present has three full time
members, excluding the Chairman. The Commission is a statutory body and attached to
the Ministry of Finance.

Listing Requirements:

The unlisted companies are required to complete certain procedures to get listing at DSE
( Exchange). The present process/way of listing, in short, may describe as follows:

5
 1. Every company intending to enlist its securities to DSE by issuing its securities
through IPO is required to appoint Issue Manager to proceed with the listing
process of the company in the Exchange;
2. The Issue Manager prepares the draft prospectus of the company as per Public
Issue Rules of SEC and submit the same to the SEC and the Exchange(s) for
necessary approval;
3. The Issuer is also required to make agreement with the Underwriter(s) and
Bankers to the Issue for IPO purpose;
4. After receiving the draft prospectus, the Exchange examine and evaluate overall
performance as well as financial features of the company which may have short
term and long term impact on the market;
5. The Exchange send its opinion to SEC within 15 days of receipt of draft
prospectus for SEC's consideration;
6. After proper scrutiny, SEC gives it consent for floating IPO as per Public Issue
Rule;
7. Having consent from SEC, the Issuer is required to file application to the
Exchange for listing its securities within 5 days of issuance of its prospectus;
8. On successful subscription, the company is required to complete distribution of
allotment/refund warrants within 42 days of closing of subscription;
9. After 100% distribution of shares/refund warrants and compliance of other
requirements, the application for listing of the Issuer is placed to the Exchange's
meeting for necessary decision of the Board of DSE;
10. The Board of DSE takes the decision regarding listing/non-listing of the company
which must be completed within 75 days from the closure of the subscription.

General requirements for filing application for consent to an issue of capital through
public offering.-

For obtaining consent to an issue of capital under these Rules, an issuer shall apply to
the Securities and Exchange Commission along with the following documents:-

(1) Ten copies of the prospectus, duly completed, together with all annexes thereto,
duly signed on each page, by the issuer’s chief executive officer/managing
director, chief financial officer and issue manager along with a declaration.

(2) Any amendment to the prospectus, signed by the said persons, shall also have
to be filed with the Commission, in accordance with sub-rule (1).

(3) All stock exchanges shall be supplied simultaneously by the issuer with one copy
each of the said prospectus, together with its annexes, and the amendments
thereto.

(4) The audited financial statements of the issuer must be submitted to the
Commission along with the prospectus and that the said statement shall not be
older than 120 days of the end of the period for which the said financial
statements is prepared.

6
Conditions to be fulfilled prior to making a repeat public offering. –

An issuer of a listed security may make repeat public offering, subject to compliance with
the
following:-

(1) Information concerning the repeat public offering shall be disseminated as a price
sensitive information immediately upon Board decision as well as upon approval
at the general meeting and approval of the Commission, in accordance with the
relevant notifications issued by the Commission.

(2) There should be an explicit announcement while disseminating the information

under sub-rule (1) that the repeat public offering shall be subject to approval of
the Commission.

(3) Such offering and price thereof have been approved by the Board, the
shareholders in a general meeting, and the consent to which is obtained from the
Commission.

(4) The proceed of either initial public offering or previous rights issue, as the case
may be, has been utilized fully and relevant reports were duly submitted to the
Commission.

(5) Annual general meeting has been held regularly.

(6) The issue has been fully underwritten on a firm commitment basis by the
underwriter.
(7) The financial statements of the issuer is prepared as per International Accounting
Standards (IAS) as applicable in Bangladesh, and audited as per International
Standards of Auditing (ISA) as applicable in Bangladesh;

(8) The issuer or any of its directors is not a bank defaulter.

Publication of prospectus and opening of subscription list.-

(1) Upon receiving the consent of the SEC to the issue of capital under this Rules, the
abridged version of the prospectus shall be published by the issuer in four national
daily newspapers (in two Bengali and two English), within the time specified in
the letter of consent issued by the Commission. The full prospectus shall,
however, be posted on website of the SEC, stock exchanges, issuer and the issue
manager.
(2) The subscription list shall be opened and the sale of securities commenced after
twenty five days of the publication of the abridged version of the prospectus and
shall remain so open for the period as specified by the Commission.

7
(3) The issuer shall inform the Commission and the stock exchanges, within five
working days of closure of such completion, in respect of the following matters,
namely:
(a) Total number of securities for which subscription has been received;
(b) Amount received from the subscription; and
(c) Amount of commission paid to the banker to the issue.

Prospectus delivery requirements. –

(1) Sufficient copies of prospectus shall be made available by the issuer so that any
person requesting a copy may receive one.

(2) The issuer shall post the prospectus vetted by the Securities and Exchange
Commission in the issuer’s websites and also put on the web sites of the
Commission, stock exchanges, and the issue manager within three working days
from the date of according consent and shall remain posted till the closure of the
subscription list. The issuer shall submit to SEC, stock exchanges and the issue
manager a diskette containing the text of the vetted Prospectus in “MS-Word”
format.

(3) A notice shall be placed on the front of the application form distributed in
connection with the offering informing interested persons that they are entitled to
a prospectus, if they so desire, and that copies of prospectus may be obtained from
the issuer and the issue manager.

(4) The subscription agreement shall indicate in bold type that no sale of securities
shall be made, nor shall any money be taken from any person, in connection with
such sale until twenty five days after the prospectus has been published.

Limitation on the use of the prospectus. –

(1) A prospectus may be used to offer the securities until any of the following events
occur, namely; -

a) There are material changes in any of the information included in the

prospectus; and

b) Any transaction or event which is material to affect or change the conditions

under which the public offering is being made as per the contents of the
prospectus and which should have otherwise been required to be reported to the
Commission.

(2) If any of the above events occur, the offering shall stand suspended until an
amendment duly signed by all the directors of the issuer, the chief executive
officers of both the issuer and the issue manager to the prospectus furnishing the

8
 appropriate information has been filed with and declared effective by the
Securities and Exchange Commission.

(3) The occurrence of any of the events mentioned in sub-rule (1) shall be notified
to the general public after such declaration has been made effective by the SEC in
four national daily newspapers in which the abridged version of the prospectus
was published prior to the date of the opening of the subscription: Provided that in
case of there is any necessity for amendment to the prospectus during the
subscription period in that case the subscription may be suspended by the
Commission and the subscriber who have already deposited money to the banker
to the issue may decide either to withdraw his application or continue with it.

(4) A declaration under sub-rule (3) shall state in detail the nature of change or event
which has occurred after the publication of the prospectus and shall be signed by
all the directors of the company and the manager to the issue and a copy of the
said declaration shall be submitted to the Commission.

Securities and Exchange Commission (Rights Issue) Rules, 2006

This rule comes into play when Public companies are being acquires.

1. Conditions to be fulfilled prior to making rights issue. – An issuer of a listed

security may make rights issue by issuing rights share offer document subject to
compliance with the following:
(a) such rights issue and price thereof have been approved by the shareholders in a
general meeting;
(b) the proceed of previous public offering, or rights issue has been utilized fully;
(c) annual general meeting has been held regularly;
(d) the rights issue has been fully underwritten on a firm commitment basis by the
underwriter;
(e) the financial statements of the company is prepared as per International Accounting
Standards (IAS) as applicable in Bangladesh, and audited as per International Standards
of Auditing (ISA) as applicable in Bangladesh;
(f) the issuer or any of its directors is not a bank-defaulter; and
(g) the issuer has been credit rated by a credit rating company, if the offer is at a
premium.

2. Pricing and ratio of rights share. –(1) The issuer of a listed security making rights
issue shall determine the price of its rights share in consultation with the issue manager.
(2) No issuer of a listed security shall price its rights share above par value; if it has not
been in commercial operation for immediate past three years having a track record of
profitability and net positive cash flows from its operating activities;
(3) The number of rights share proposed shall not exceed five for each existing share held
in the company.

9
3. Issue manager. –(1) The issuer of a listed security making rights issue shall appoint an
issue manager licensed under the Securities and Exchange Commission (Merchant
Banker and Portfolio Manager) Rules, 1996, to ensure compliance with these rules.
(2) The issue manager shall furnish a due diligence certificate as in Form-A which shall
be included in the rights share offer document.

4. Underwriter. –(1) The issuer of a listed security making rights issue shall appoint one
or more underwriters licensed under the Securities and Exchange Commission (Merchant
Banker and Portfolio Manager) Rules, 1996 to fully underwrite the rights issue on a firm
commitment basis.
(2) The issuer shall call upon the underwriter within ten days of closing of the
subscription lists for subscription of the under-subscribed shares, if any, by the
underwriter, and the underwriter shall subscribe to such under-subscribed shares within
fifteen days of calling thereof by the issuer.
(3) The underwriter shall furnish a due diligence certificate as in Form-B which shall be
included in the rights share offer document.

5. Filing of the application for rights share offer. - (1) An application for issuing rights
share along with offer document shall be furnished to the Commission for approval
within fifteen days of approval of such issue by the shareholders of the company in a
general meeting.
(2) Such document shall be submitted to the Commission alongwith- (a) the copies of
underwriting agreement, issue management agreement, agreement with the banker to the
issue; (b) original auditors’ report and certificate with the related financial statements;
(c) relevant extract of the minutes of the general meeting;
(d) undertakings for the company itself and directors in prescribed CIB form; and
(e) a bank pay order or demand draft issued in favor of the Securities and Exchange
Commission as payment of application fee for an amount of taka ten thousand only.
(3) The Chief executive officers of the issuer and the issue manager, by whatever name
called, shall jointly certify under their full signature and seal each page of the copy of
documents submitted to the Commission under these rules.
(4) The rights share offer document along with the audited financial statements must be
submitted to the Commission within 120 days of the end of the period for which the said
financial statements is prepared.

7. Public announcement for rights issue. – (1) The issuer of a listed security making
offer for rights issue shall:
(a) announce two separate date for record date, one for shareholders decision regarding
the proposed rights issue, and the other for determination of entitlement of rights issue
after the Commission accords approval;
(b) for the purpose of determination of entitlement of rights issue under these Rules, the
issuer shall, within three working days from the date the Commission accords approval to
the issuer under these Rules, announce the record date;
(c) disseminate the receipt of the Commission’s approval along with purpose of the rights
issue, amount of issue, price of rights share as a price sensitive information, as prescribed
by the Commission mentioning the record date for the determination of entitlement of

10
rights share, and subscriptin opening and closing dates will be disclosed within three
working days;
(d) commence record date not earlier than fourteen working days and not later than
twenty one working days from the date of approval by the Commission;
(e) deliver offer document approved by the Commission to the shareholders entitled to
have rights shares, stock exchange(s) and the Commission within 10 working days from
the record date as mentioned in (d) above.
(2) Once approval is obtained, no rights offer can be withdrawn or cancelled or postponed
or varied by the issuer without prior written consent from the Commission.

8. Approval and rejection. – (1) On receipt of an application for approval to the rights
share offering from an issuer, the Securities and Exchange Commission shall examine the
said application.
(2) In case the said application is incomplete, the Commission shall inform the applicant
in writing of the deficiencies generally within twenty eight days of receipt of the said
application, and the issuer shall correct the deficiencies within fifteen days of
communication thereof.
(3) On receipt of the complete application and satisfaction of the Commission, the
Securities and Exchange Commission shall accord its approval, subject to such conditions
as the Commission may deem fit.
(4) If the offer is not approved, the Commission shall issue a rejection order, stating the
reasons for such rejection, within sixty days of receipt of the complete application.

9. Approval fee on rights share. –The issuer of a listed security shall deposit approval
fee with the Commission for the rights issue at 0.15% of the total offered amount of
rights issue, including premium, if any, by a bank pay order or demand draft issued in
favor of the Securities and Exchange Commission within seven working days from the
date of according said approval.

10. Subscription. –(1) Subscription shall be received through the banker to the issue
during the subscription period of not less than fifteen days and not more than thirty days.
(2) Subscription opening date shall commence after fifteen days from the record
date as mentioned in rule 9 (d).

11. Information on raising of rights issue fund. –The issuer of rights share shall furnish
to the Commission;-
(a) statement of the subscription received against the offer for rights issue within ten days
of the closing of the subscription lists; and
(b) statement of the subscription received from the underwriter against the under
subscribed shares within seven days of the expiry of the subscription period allowed to
the underwriter under rule 6.

12. Lock-in on rights share. – The rights share of directors and other shareholders
holding 5% or more shares shall be subject to lock- in for a period of three years from the
date of closure of the rights share subscription. In the event of renunciation of rights share

11
by aforesaid persons, the renounced shares shall also be subject to lock-in for the same
period. The issuer shall ensure compliance of these rules.

13. Contravention.– Contravention of any of the provisions of these Rules will attract
relevant provisions of the Securities and Exchange Ordinance, 1969.

14. Repeal and Savings.—(1) The Rights Issue Rules, 1998 is hereby repealed.
(2) Notwithstanding the repeal of the said Right Issue Rules, 1998 any clearance given,
document or agreement made, fee received or paid, resolution passed, direction given,
proceeding taken, instrument executed or issued or things done under or in pursuance of
the said Rules shall, if in force at the commencement of these Rules, continue to be in
force and shall have effect as if made, directed, passed, given, taken,
executed, issued or done under or in pursuance of these Rules.

The BOI specified FDI rule- for private limited company and unlisted public limited
company:

1. Initial funding must be routed through proper Banking Channel. Investor can fund the
deal via Non-resident Foreign Currency Deposit (NFCD) Account or can make the
payment directly to the company. In the inbound remittance instruction, it is required to
explicitly mention that the fund brings into the country for equity investment.
2. Information on remittance needs to be reported to central bank via Form-C and an
encashment certificate will be issued therefore.
3. The encashment certificate requires to be submitted to the Register of Joint Stock
Company (RJSC) for registration and after the registration of shares with RJSC; the
shares will be issued to private equity investor.
4. All Foreign investment is required to be registered with Board of Investment (BoI)
The relevant rules are specified in details in the following sections:

Appendix 4:

Appendix 5:

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Appendix 6:Industry Life Cycle

A company experiences various stages of growth as it goes through its life cycle. Each
stage requires capital in varying amounts and from different sources. The stages of a
company's life can be plotted on a "risk continuum". The lifecycle of a company, in turn,
is heavily dependent on the particular industry within which it is operating. Companies in
a single industry are forever bound by the type of product or service that they provide,
and they are constantly competing with one another for market share, consumer
acceptance, as well as technological leadership in their particular sub-sector. These
competitive and consumer forces shape an industry's corporations and determine the
status of the industry as a whole. These forces have followed roughly the same patterns
over time, providing a very clean model for the industry, the various stages of growth
(and decline) experienced by its companies. Here we take a look at these stages and how
they determine what kind of investments these companies are.

Initial Growth / Emerging Industries

All companies have to start their business somewhere, and it takes only a single company
or small group of companies to jumpstart an entire industry. Looking back in time, we see
that it was not even a company but an individual by the name of Alexander Graham Bell
who, with the invention of the telephone, started the entire industry of
telecommunications. More recently, companies like Texas Instruments and Fairchild
Semiconductor Corporation pioneered the semiconductor industry with the invention of
the microchip, the central component of all computers and most high-tech electronics
gear.

Companies involved in establishing emerging industries are generally participating in

perilous business, as their primary concerns are raising sufficient funds to engage in
early-stage research and development. In their developmental stages, which may last
months or even years, these companies are likely operating on a shoestring budget, while

13
at the same time presenting to the world a product or service that is yet to be accepted.
These pioneering companies might face bankruptcy, development failure and poor
consumer acceptance.

Companies in emerging industries are typically recommended to investors with a very

high risk tolerance. An adage often used in relation to an initial growth investment is "If
you cannot afford to lose your investment in this company, do not make the investment in
the first place!"

Individual investors are likely to have access to initial growth companies through private
investments, sometimes called "friends-and-family capital". At such an early stage,
investors often know the company founders personally. And they can only hope to make
a profit on their investment in the distant future, when the company offers its shares on a
secondary trading market, or when the investor can find somebody else to purchase his or
her ownership at a premium (which would take place, for example, if another company
were to purchase all of the outstanding shares of the company).

Companies in emerging industries are occasionally quoted on major stock exchanges or

traded over the counter, and should always be considered in terms of the significant risk
they pose. These companies will often be unprofitable, and the large initial start-up costs
may result in ongoing negative cash flows. As such, traditional fundamental analysis is
often not applicable in emerging industries, and investors must be sophisticated enough to
learn or even develop entirely different means of analyzing these stocks. Investing in
emerging industries is not for the faint of heart.

Leveraged Buyouts

An LBO is one of the most common types of private equity financing. In an LBO
transaction, a company receives a loan from a private equity firm to fund the acquisition
of a division or another company. The loan is usually secured by the cash flows or the
assets of the company being acquired. After a company is acquired in an LBO, it is
sometimes broken up and sold in pieces, and the cash generated is used to pay down the
high leverage of the transaction. This breakup strategy was much more popular during the
1980s than it is in the new millennium. Because companies now are more expensive,
most LBO deals focus more on buying companies and creating value-added from their
assets, rather than busting up the companies to sell off their parts.

Mezzanine Financing

Mezzanine debt is a private loan, usually provided by a commercial bank or a mezzanine

venture capital firm. Mezzanine transactions often involve a mix of debt and equity in the
form of a subordinated loan or warrants, common stock or preferred stock. By not taking
a 100% equity position, a mezzanine debt firm can reduce its risk thanks to the capital
preservation and current income features of debt.

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Rapid Growth Industries

Companies in industries that are benefiting from rapid growth have sales and earnings
that are expanding at a faster rate than firms in other industries. As such, these companies
should display an above average rate of earnings on invested capital for an extended
period of time, probably years. Prospects for rapid growth companies should also appear
bright for continued sales and earnings growth in ensuing years.

During this period of rapid growth, companies will eventually begin to lower prices in
response to competitive pressures and the decline of costs of production, which is often
referred to as economies of scale. But costs decrease at a higher rate than prices, so
companies entrenched in growth industries often experience growth in profits as their
product or service becomes fully accepted in the marketplace. The consumer electronics
industry, for example, is characterized by much research and development, followed by
significant economies of scale in production. Prices in home electronics inevitably fall,
but the costs of production fall faster, thereby ensuring increasing profitability.

Publicly traded companies involved in rapid growth industries, often referred to as

growth stocks, are some of the most potentially lucrative investments due to their ability
to sustain growth in revenues and profits over long periods of time. Microsoft is an
excellent example of a company that became very large in a growth industry (software)
over a period of years, increasing its earnings all the while and, most importantly,
maintaining its expectations for continued future growth. For a PE company, the high
growth segment of the market is lucrative for venture capital funds and hedge funds.

Mature Industries

Once an industry has exhausted its period of rapid growth in revenues and earnings, it
moves into maturity. Growth in the companies in mature industries closely resembles the
overall rate of growth of the economy (the GDP). Earnings and cash flow are still likely
positive for these companies, but their products and services have become less
distinguishable from those of their competitors. Price competition becomes more vicious,
taking profit margins along with it, and companies begin to explore other areas for
products or services with potentially higher margins. Many of our economy’s most
closely watched industries, such as airlines, insurance and utilities can be categorized as
mature industries.

Despite their rather staid position in mature industries, investments in these companies'
stock can remain very attractive for many years. Share prices within mature industries
tend to grow at a relatively stable rate that can often be predicted with some degree of
accuracy based on sustainable growth prospects from historical trends. Perhaps even
more importantly, companies in mature industries are able to withstand economic
downturns and recessions better than growth companies, thanks to their strong financial
resources. In troubled times, mature companies can draw from retained earnings for
sustenance, and even concentrate on product development in order to capitalize on the

15
economy’s eventual return to growth. Investors in mature industries are those who want
to enjoy the potential for growth but also avoid extreme highs and lows. As companies at
this phase generate high free cash flows taking leveraged position through Leveraged
Buyout or reshaping the management through Management buyout, both these risks can
be sustained over. Therefore, by evidence, LBOs and MBOs have been successful in the
mature segment of the market with

Declining Industries

Industries that are unable to match even the basic barometer of economic growth are in a
stage of decline. Some factors that could contribute to a declining industry are consumers
decreasing their demand for the industry’s product or service, technology that supplants
legacy products with new and better ones, or companies in the industry failing to be
competitive in pricing.
An industry that exemplifies all the tendencies of a declining market is the railroad
industry, which has experienced decreased demand - largely due to newer and faster
means of transporting goods (primarily air transport) - and has failed to remain
competitive in pricing, at least in relation to the benefits of faster and more efficient
transportation provided by airlines and trucking services.

We should note that declining industries may experience periods of stable or even
increasing growth from time to time, even if their overall prospects are on the way down.
For example, railroad transport is still very much an active industry sector, as the non-
competitive firms have been weeded out.

Appendix 8: Notes
1.
Pricing Assumptions
Composition Price/Kg
Yarn 96.00% 252.0
Waste 4.00% -
Sales 100% 242
Raw Cotton 98.00% 98
Additive and Consumables 0.50% 62
Packaging 1.00% 0
Raw Material 100% 96
Price Escalation Factor 5%

2.

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Assumption: Cost of Goods Sold

USD-BDT exchange rate 70

Plant Capacity 350 Kg/Day
Plant Availability 95.0%
Plant Load Factor 75.0%
Electricity 0.29 KwH/ Kg
Gas 0.25 SM3/KwH
Electricity Price 1.00 BDT / KwH
Gas Price 0.75 BDT / SM3
Spares 0.00 BDT/Kg
Fixed O&M Rate 100 BDT k/ Month
Variable O&M Rate 0.00 BDT/ Kg

6& 7.

Working Capital

Stocks 30 Days
Receivables 90 Days
Payables 0 Days
WC Days 120 Days

8.
Land and Land Development
Land Acquisition & Registration 216,000 Sft 0.14
Land Registration 216,000 Sft 180.62
Land Development 1,080,000 Cft 885.42
Approach Road, Internal Roads & Pavements 1,000 Sft 5.07
Sub Total Land and Land Development 1,071.26

Building and Civil Works

Factory Shed 105,000 Sft 23.30081967
Supply duct 10,000 Rft 30
Filter room (Blow room) 3,600 Sft 6.6
Filter room (Carding) 3,600 Sft 4.935
A/C Ring (2 units) 3,600 Sft 2.3
A/C Preparatory & Finishing 3,600 Sft 15
Compressor civil wrok 500 Sft 25
SAM & Master control room 300 Sft 70
Utility Building 8,000 Sft 36
Raw cotton store 25,000 Sft 46
Finished yarn store 10,000 Sft 36
General store 6,000 Sft 96
Workers Amenities 5,000 Sft 36
Factory main office 6,000 Sft 48
Rest house 4,000 Sft 46
Executives canteen 2,000 Sft 36
Boundary Wall 1,860 Rft 28
Production Office /Ware House 2,000 Sft 30
97.14

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Imported Machinery and Equipment Unit Price Units Price USD 000 Price BDT 000

Spindles 35 600 21 1,470

UNImix, B70 12 2 23 1,610
UNIflex, B 60 43 2 86 6,020
Vision Shield, VS 11 1 11 770
Condenser, A21 23 2 46 3,220
Various accessories for B/R machines 22 1 22 1,540
Card, C60 13 11 138 9,625
Feed chute to Card 14 11 149 10,395
Can coiler, CBA 1 11 14 1,001
Various accessories for cards C 60 95 1 95 6,650
Pneumatic fibre conveyance system 9 1 9 595
UNIcontrol 93 1 93 6,510
Rieter SB D-40 (Breaker) 15 4 60 4,200
Rieter RSB D-40 (Finisher) 58 4 232 16,240
Various accessories for drawframes 75 1 75 5,250
UNIlap E 32 13 1 13 875
Comber E 65 14 5 68 4,725
Various accessories for combing 15 1 15 1,050
Simplex, FL-100 55 5 275 19,250
Standard Spare parts 58 1 58 4,060
Tools and gauges 13 1 13 875
Ring Frames Overhead (Electroject) 23 10 230 16,100
Schlafhorst Autoconer (Including overheads) 8 8 64 4,480
XORELLA Yarn Cond. & Steaming System 8 1 8 560
Vacuum Cleaner 58 3 174 12,180
Uster Tester 5-S400 Semi Automatic 75 1 75 5,250
Uster AFIS PRO 87 1 87 6,090
Wrap reel (automatic) 58 1 58 4,060
Block reel 13 1 13 875
Electric balance (1500 gm) 8 1 8 560
Luwa Humidification Plant 5 1 5 350
Compressor (Keiser) 15 3 45 3,150
Catter Piller Fork lift 5 1 5 350
Deep tube well 12 1 12 840
Sub Total - 160,776

Local Machinery Unit Price Units Price USD 000 Price BDT 000
Tube light, shed (2 tube) & electrical switch 78 20 2
Card can 12 90 1
Simplex Can 356 85 30
Breaker D/F Can 69 72 5
Simplex Bobbin 36 5,000 180
Ring Bobbin 39 12,500 488
Maintenance Accessories 16 85 1
Skids, Assmbly & Safety Tools 80 45 4
Local Fabrication 50 232 12
Cables,Ducting,Piping etc. 150 12 2
Fire Fighting Equipment 13 52 1
Weighing scale 10 53 1
Trolley (for production floor) 10 15 0
Rack (for production floor) 69 150 10
Plastic basket (for production floor) 49 360 18
Electrical toolbox 45 420 19
Mechanical toolbox 50 135 7
Sub Total 779

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