M/S Shaheen Traders

Credit Rating Report

Date of Declaration June 22, 2011 Valid Till June 21, 2012 Rating Action Initial Long Term Rating Short Term Rating ECRL-3 Outlook Stable

Proprietor Total Asset Bank Bank loan

: Moh. Shah Alam Hossain : BDT 110.95 million : Islami Bank Bangladesh Limited : Bai Murabaha Murabaha TR BDT 17.28 million (As at March 25, 2011) BDT 19.67 million (As at March 25, 2011) asultana@emergingrating.com tareq@emergingrating.com

Contact Analysts

: Sk. Arifa Sultana Mahadi Tareq

Credit Analysis

Corporate Debt Rating

Emerging Credit Rating Ltd

CREDIT ANALYSIS
Corporate Debt Rating

2011 Initial Review Shaheen Traders

Major Rating Factors Strengths
Diversified product line. Long term business relationship with other related business and merchant. Strong network for collecting trading goods. Changes in government policy and regulation regarding import. Price fluctuation of trading goods. Maintenance of increasing inventory. Emerging Credit Rating Limited (ECRL) has assigned ECRL-3 short term credit rating to Shaheen Traders for the working capital loan of BDT 36.95 million as at March 25, 2011 from Islami Bank Bangladesh Limited. The outlook on the rating is Stable. The assigned rating represents the strengths of the company which is backed by financial flexibility, profitability, and moderate liquidity. However, ECRL is concerned about weak financial reporting, inventory management, negative cash flow, unsatisfactory interest coverage and hence firms ability to serve debt obligation. Shaheen traders registered sales growth of 14% and 11.6% in 2010 and 2009 respectively due to increased customers and price hike of trading goods. Cost of sales was 96% of sales revenue in both 2010 and 2009. Operating income increased in line with increased revenue. The company is not known to be paying taxes. Financial costs increased by 56% in 2010 for increase in utilization of finance limit which was offset by increased operating revenue. Gross profit margin is only 3.99, deviated slightly from previous year (3.60:2009). Operating profit margin increased to 3.27 in 2010 from 2.98 in 2009 as efficient result of a more efficient management of costs. Net profit margin is stable for last four year. High demand and diversification of trading goods has been main reason behind secure earnings. Current ratio of Shaheen Traders shows increased current asset compared to current liability from 2008 to 2010 resulting from increased demand. Quick ratio is same as that of the previous year. Most of the payments transactions are done in cash and so days receivables and payables are much lower compared to industry average. However, large inventory contributes to increase inventory turnover to 38.08 days from 32.62 days. As a result, cash conversion cycle increased to 42.42 days from 40.29 days Returns on asset decreased in 2010 because of increased current assets. Current assets comprise of 79.57% of total asset. Return on equity decreased due to increased equity in 2010. Cash flow from operation has increased in recent years to BDT 7.51 millions in 2010 from BDT 6.73 million. However, interest coverage has decreased to 1.65 times (2010) from 2.30 times (2009) because of increase in finance cost.

Challenge/ Risks Rationale

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The company only took working capital loan. The company has a working capital loan limit of BDT 40 million which reflects that it left 7.625% unutilized On the other hand, this also reflects that they have very little flexibility. In last three years performance of repayment schedule shows that the firm had not missed any payment of installments yet.

Exhibit 1: Financial Highlights: Shaheen Traders FYE 31 December 2010

Revenue (BDT in Millions ) Revenue Growth (%) COGS (BDT in Millions) COGS Growth (%) Operating Income (BDT in Millions) Net Profit After Tax (BDT Millions) Gross Profit Margin (%) Operating Profit Margin (%) Net Profit Margin (%) Current Ratio (x) Cash Conversion Cycle (Days) Debt to Equity Ratio (x) CFO Interest Coverage (x) ROA (%) ROE (%) CFO
*Audited financial statements of 2008-2010

2009
554.38 11.6 534.41 11.7 16.50 12.07 3.60 2.98 2.18 1.99 40.29 0.57 2.30 13.06 20.51 6.73

2008
496.86 478.60 15.30 10.75 3.68 3.08 2.16 2.72 20.27 0.48 15.56 22.97 -

631.91 14.0 606.68 13.5 20.68 13.62 3.99 3.27 2.16 2.30 42.42 0.46 1.65 12.84 18.79 7.51

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A. BUSINESS DESCRIPTION
A.1. Firm Background
M/S Shaheen Traders is retailer, wholesaler, trading agent and general merchant of commodity products which includes sugar, edible oil, coconut oil, lentils, rice, salt, mineral water, condensed milk, flour, wheat, maize etc. The concern is a dealer and agent of Jamuna Oil Co. Ltd., Urea Fertilizer and Meghna Group of Industries. The legal status of the concern is a proprietorship. The company was established in 1998 having its office at 54, Monohari patty road, Jhalakathi with total godown capacity of 1500 tons approximately. In addition to that the concern has a 300 ton vessel to carry its commodities. Its noted that the proprietor has extensive experience in retail and wholesale business of trading commodities. He has started his business back in 1983 in Chittagong and later on he has moved to Jhalakathi in 1998. Currently two siblings along with eight other are responsible for day to day operations. The concern has 6 permanent workers and has easy access to labor market to hire more workers if needed. All the trading commodities are purchased from all over the country especially from Kawran Bazar, Tongi Bazar, Chittagong and may others.. Some of the commodities like sugar and wheat are purchased directly from mills The trading goods are sold only in Barisal Division.

B. INDUSTRY ANALYSIS
B.1. Fertilizer Industry
In Bangladesh, Urea, TSP and SSP are produced in the local industries which meet a portion of the countrys total demand. Natural gas provides for urea production. Bangladesh Chemical Industries Corporation (BCIC) is responsible for the operation of all fertilizer factories in the country. The low production of urea was due to sudden closure of Ghorasal urea fertilizer factory. The difference of 1.35 million tons) is imported. The Ministry of Agriculture fixes up monthly as well as annual requirement of fertilizers. Besides demand requirement, the Ministry also supervise production, import and price fixation. The private importers import TSP, DAP and MOP from USA, Tunisia, Australia, Jordan, Morocco CIS and China according to the annual needs of the country.

B.2. Food industry

Bangladesh is a major importer of food.With a rising population the Disaster Management Bureau (2007) estimated that by 2015 Bangladesh will require 0.55 million metric ton of maize, 0.16 million metric tons of wheat and 21.95 million tons of rice. Currently Asia is experiencing inflation in food items. Most of the time, Bangladesh faces shortage of food grain in the local market over a significant time period. Bangladesh had produced about 29 million tons of coarse rice for its 160 million people and imported some 3 million tons in fiscal year 2008-09. According to the ADB, there is a global rise in the prices of food items as its global output had decreased owing to extreme weather conditions in major food producer countries.

C. BUSINESS RISK ANALYSIS

C.1. Price Hike:
Most of the products which Shaheen Traders trades on are necessary goods. As a result marginal rise in price can impact the sales. Increased price of goods may lead the whole seller to experience a decrease in margin to maintain good relationship with buyers.

C.2. Potential Changes in Global or National Policies:

Changes in national and global policies will affect the business of a wholesaler. Since Bangladesh is a major importer of food products, changes in policies of food by the government will affect the price of imported food products.

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C.3. Change in Demand:

One of the major risks which Shaheen Traders faces is change in demand of its products. Demand for products may change due to government purchases, new government regulation, changes in climate, and changes in demand of substitute goods.. However, the firm have an advantage over the trading as it only imports food grains and raw materials for cement. Both types of products have high demand in market.

D. FINANCIAL RISK ANALYSIS

The rating process was based on qualitative aspects which are based on the firms policies in relation with the operating strategies, financial leverage, and ultimate financial goals of the company. For the purpose of an overall assessment of financial risk of the firm, ECRL divided the financial portion into five different criteria which are Profitability Analysis, Liquidity Analysis, Cash flow Analysis, Asset Management, Capital Structure, and overall Financial Flexibility. Detailed analysis is presented below:

D.1. Profitability Exhibit 2: Selected Indicators: Shaheen Traders

FYE 31 December Revenue (BDT in millions ) Revenue Growth (%) COGS (BDT in Millions) COGS Growth (%) Operating Income (BDT in millions) Net Profit After Tax (BDT millions) Gross Profit Margin (%) Operating Profit Margin (%) Net Profit Margin (%) ROA (%) ROE (%) 2010 631.91 14.0 606.68 13.5 20.68 13.62 3.99 3.27 2.16 12.84 18.79 2009 554.38 11.6 534.41 11.7 16.50 12.07 3.60 2.98 2.18 13.06 20.51 2008 496.86 478.60 15.30 10.75 3.68 3.08 2.16 15.56 22.97

Shaheen traders registered growth of 14% and 11.6% in 2010 and 2009 respectively due to increased customers and increase in the prices of trading goods. Cost of sales was same as previous year which was96% of sales revenue. Operating income increased in proportion to increase revenue. The company does not pay tax. Finance cost increased by 56% in which was offset by increased operating revenue. Gross profit margin is only 3.99, deviated slightly from previous year (3.60:2009). Operating profit margin increased to 3.27 in 2010 from 2.98 in 2009. Return on asset decreased in 2010 because of increased current asset. Current asset comprise of 79.57% of total asset and increased by 29.1% in 2010 from previous year. Return on equity decreased because of increased equity in 2010.

D.2. Liquidity Analysis: Exhibit 3: Selected Indicators: Shaheen Traders

FYE 31 December Current Ratio (x) Quick Assets Ratio (x) Days Receivables (days) Days Payable (days) Inventory Turnover (days) Cash Conversion Cycle (days) 2010 2.30 0.44 6.35 2.02 38.08 42.42 2009 1.99 0.43 8.59 0.92 32.62 40.29 2008 2.72 0.98 5.56 0.65 15.35 20.27

Current ratio of Shaheen Traders shows increased current asset compared to current liability from 2008 to 2010 resulting from increased demand. Quick ratio is same as previous year. Most of the

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transactions of payments are done in cash and so days receivables and days payables are very less compared to industry average. However, large inventory contributes to increased inventory turnover from 32.62 days to 38.08 days. As a result, cash conversion cycle increased to 42.42 days from 40.29 days.

D.3. Cash-flow Coverage Exhibit 3: Selected Indicators: Shaheen Traders

FYE 31 December CFO (BDT Million) CFO Interest Coverage (x) CFO Debt Coverage (x) CFO Short-Term Debt Coverage (x) 2010 7.51 1.65 0.09 0.09 2009 6.73 2.30 0.11 0.11

Cash flow from operation has increased in recent years to BDT 7.51 millions in 2010 from BDT 6.73 million. However, interest coverage has decreased to 1.65 times (2010) from 2.30 times (2009) because of increase in finance cost.

D.4. Leverage & Capital Structure Exhibit 4: Selected Indicators: Shaheen Traders
FYE 31 December Debt-to-Equity (x) Short Term Debt Ratio(x) Debt to OPBITDA (x) Total Liabilities to Total Assets (x) Net Asset Value (BDT in millions) 2010 0.46 0.46 1.62 0.35 72.49 2009 0.57 0.57 2.03 0.38 58.87 2008 0.48 0.48 1.45 0.33 46.79

Shaheen Traders does not have any long term loan. They have enhanced short term bank loan in 2010. However, Debt to Equity ratio of 2010 reduced to 0.46 times in 2010 from 0.57 times in 2009 as equity increased by 23.1%. Absence of drawing in 2010 from the fund is the main reason to increase equity. Total liability increased and fixed asset decreased in 2010. However these changes were offset in total liability to total asset as current asset increased by 25%. Increase in net asset value is another contribution of increased current asset.

D.5. Bank Facilities & Credit History Exhibit 5: Bank Loan: Shaheen Traders As at March 25, 2011 Bank Mode Existing outstanding
IBBL Bai Murabaha Murabaha TR Total (BDT in Millions) 17.28 19.67 36.95

Total limit
40 40

Total principal outstanding liability of Shaheen Traders with IBBL was BDT 36.95 million as on March 25, 2011. The company only took working capital loan. The company has a working capital loan limit of BDT 40 million which reflects that it left 7.625% unutilized. This indicates Shaheen Traders has used the limit largely. On the other hand, this also reflects that they have very little flexibility. In last three years performance of repayment schedule shows the firm had not missed any installment payment date yet.

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D.6. Collateral
The proprietor kept land as collateral against bank loan from Islamic Bank Bangladesh Limited. The market value of collateralized assets is BDT 32.77 million.

Registered List of collateral for the Term loan: (BDT in millions) Particulars Market Value (BDT in Millions) 14.20 decimal of residential land owned by the client and 8.52 his brother 5.05 decimal of Commercial land with two storied building 10.60 owned by the owner and his brothers and sisters 11.05 decimal of commercial land with semi-pucca houses 9.50 (total 4,550 sft) owned by the client and his brother 236.70 decimal of high land with brick construction two 4.15 storied building (1450 sft) land owned by the client Total 267 decimal land 32.77

Forced Sale Value (BDT in Millions) 7.10 8.40 7.40 2.10 25

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BUSINESS INFORMATION
Proprietor
Moh. Shah Alam Hossain

Office
Address : 54, Monohari patty Road, Jhalokathi Phone : 01711417265

Auditors
Ahmed Zaker & Co 40, Shahid Nazrul Islam Road, Bijaynagar, (Kakrail) Dhaka-1000 Phone: 02-9362787,02-9362847

List of Abbreviations
CCC CFO COGS ECRL IBBL ROA ROE Cash Conversion Cycle Cash Flow from Operation Cost of Goods Sold Emerging Credit Rating Company Islami Bank Bangladesh Limited Return on Asset Return on Equity

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Shaheen Traders Balance Sheet

Financial Year Ending : December Amount in BDT NON-CURRENT ASSETS Fixed And Operating Assets CURRENT ASSETS Inventories Trade Receivables Cash And Bank Balances CURRENT LIABILITIES Borrowings Trade Payables NET CURRENT ASSETS/(LIABILITIES) FINANCED BY : PROPRIETORS' EQUITY Retained Profits/(Losses) 2010 Amount in BDT 2009 2008

22,664,593 22,664,593 71,344,150 11,050,853 5,891,467 88,286,470 33,603,884 4,850,342 38,454,226 49,832,244 72,496,837

23,767,162 23,767,162 55,255,850 10,952,895 4,355,475 70,564,220 33,603,884 1,852,347 35,456,231 35,107,989 58,875,151

6,969,141 6,969,141 40,255,900 15,145,726 7,582,335 62,983,961 22,310,174 845,975 23,156,149 39,827,812 46,796,953

72,496,837 72,496,837 72,496,837 0 72,496,837

58,875,151 58,875,151 58,875,151 0 58,875,151

46,796,953 46,796,953 46,796,953 0 46,796,953

NON-CURRENT LIABILITIES Borrowings

*all the data are taken from Audited financial documents of the respective firm.

Shaheen Traders Profit and Loss Account

Financial Year Ending : December Revenue Less : Cost Of Sales/Services Gross Profit Less : Operating Cost Profit/(Loss) From Operations Net Finance Costs Profit/(Loss) Before Tax Tax Expense Profit/(Loss) After Tax Profit/(Loss) After Tax And Before Extraordinary Item Attributable To Shareholders Restated Retained Profit/(Loss) Brought Forward Profit/(Loss) Available For Appropriation Unappropriated Profit/(Loss) Carried Forward 2010 631,914,650 (606,686,416) 25,228,234 (4,545,510) 20,682,724 (4,561,038) 16,121,686 0 16,121,686 16,121,686 58,875,151 74,996,837 72,496,837 Amount in BDT 2009 2008 554,381,450 496,868,322 (534,414,518) (478,603,571) 19,966,932 18,264,751 (3,462,847) (2,961,305) 16,504,085 15,303,446 (2,925,887) (4,051,891) 13,578,198 0 13,578,198 13,578,198 46,796,953 60,375,151 58,875,151 11,251,555 0 11,251,555 11,251,555 36,045,398 47,296,953 46,796,953

*all the data are taken from Audited financial documents of the respective firm.

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CORPORATE DEBT RATING SYMBOL

LONG-TERM RATINGS ECRLs Long-Term Ratings are assigned to debt with maturities of more than one year. These debt ratings specifically assess the likelihood of timely repayment of principal and payment of interest over the term to maturity of such debts. INVESTMENT GRADE AAA

Indicates that the ability to repay principal and pay interest on a timely basis is extremely high. Indicates a very strong ability to repay principal and pay interest on a timely basis, with limited increment risk compared to issues rated in the highest category. Indicates the ability to repay principal and pay interest is strong. These issues could be more vulnerable to adverse developments, both internal and external, than obligations with higher ratings. The lowest investment grade category; indicates an adequate capacity to repay principal and pay interest. More vulnerable to adverse developments, both internal and external, than obligations with higher ratings. While not investment grade, this rating suggests that likelihood of default is considerably less than for lower-rated issues. However, there are significant uncertainties that could affect the ability to adequately service debt obligations. Indicates a higher degree of uncertainty, and therefore, greater likelihood of default. Adverse developments could negatively affect repayment of principal and payment of interest on a timely basis. High likelihood of default, with little capacity to address further adverse changes in financial circumstances. Payment in default.

AA

BBB

BB

Notes: Long-Term Ratings from AA to B may be modified by the addition of a plus (+) or minus (-) suffix to show relative standing within the major rating categories. Bank-guaranteed issues will carry a suffix (bg), corporateguaranteed issues, a (cg), issues guaranteed by a financial guarantee insurer (FGI), an (fg), and all other supports, an (s) when such guarantees or supports give favorable effect to the assigned rating. SHORT-TERM RATINGS ECRLs Short-Term Ratings are assigned to specific debt instruments with original maturities of one year or less, and are intended to assess the likelihood of timely repayment of principal and payment of interest. INVESTMENT GRADE ECRL - 1

The highest category; indicates a very high likelihood that principal and interest will be paid on a timely basis. While the degree of safety regarding timely repayment of principal and payment of interest is strong, the relative degree of safety is not as high as issues rated ECRL-1. The lowest investment grade category; indicates that while the obligation is more susceptible to adverse developments, both internal and external, the capacity to service principal and interest on a timely basis is considered adequate.

ECRL - 2

ECRL - 3

Notes: Short-Term Ratings will also carry a suffix (bg) for bank-guaranteed issues, (cg) for corporate-guaranteed issues, (fg) for FGI-guaranteed issues, and (s) for all other supports when such guarantees or supports give favorable effect to the assigned rating. Rating Outlook ECRLs Rating Outlook assesses the potential direction of the Corporate Debt Rating over the intermediate term (typically over a one to two-year period). The Rating Outlook may either be : POSITIVE which indicates that a rating may be raised; NEGATIVE STABLE DEVELOPING which indicates that a rating may be lowered; which indicates that a rating is likely to remain unchanged; or which indicates that a rating may be raised, lowered or remain unchanged.

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