Md. Tarique Aziz

Strictly Private & Confidential Information Memorandum Sell of Common Shares of of Project Texas (“codename”) A LPG bottling, distribution and selling plant A sister concern of a renowned group of companies in Bangladesh Dhaka, Bangladesh July, 2020 Disclaimer This confidential Information Memorandum (“IM”) on Project Texas (“TEXAS”) in connection with the proposed sell of certain % Common Shares of Project Texas has been compiled by the Management of Project Texas, with a view to assisting the investors in assessing the merits of the offer. The information, opinions and projections contained in this Information Memorandum have been supplied by TEXAS. TEXAS, to the best of its knowledge and belief and except as otherwise provided in this Information Memorandum, such information is true and fair in all material respects as of July 2020, that all such opinions are honestly held by TEXAS, that all such projections are fairly made having regard to the circumstances and necessary assumptions and that the Information Memorandum does not consciously omit any information such that its omission would make this Information Memorandum or any information contained herein inaccurate, untrue or misleading in any material respect. No representation or warranty, expressed or implied, is given by the TEXAS as to the completeness or accuracy thereof or of any further information, opinions or projections that may be supplied in connection with the Offer. This IM is not, and should not be considered as, a recommendation by the TEXAS that any recipient of this IM participating in the Offer should make its own independent appraisal of, and investigation into the financial information, conditions, creditworthiness, affairs, status and nature of TEXAS as the basis of any investment decision. At the request of prospective investors, this Information Memorandum is being distributed to selected investors. The information in this Information Memorandum is strictly confidential and should not be reproduced or used in whole or in part for any purpose whatsoever other than for the purpose of determining whether to participate in the Offer, without the written permission of TEXAS. If at any time any such reproduction or use is made, and TEXAS suffers loss, damage or liability of any kind arising out of or in connection with any such reproduction or use, the recipient found to be involved in breaching the restrictions on reproduction or use of this IM shall indemnify the TEXAS from and against such loss, damage or liability. Table of Contents 1. EXECUTIVE SUMMARY .......................................................................................... 7 1.1. The Company: Project Texas ............................................................................. 7 1.2. The LPG Industry ................................................................................................ 8 1.3. Base Case Projections ....................................................................................... 9 1.4. Valuation Summary ............................................................................................ 9 1.5. Major Risks & Mitigations ................................................................................ 10 1.6. Key Investment Considerations....................................................................... 10 -. 2. Shareholding Structure .................................................................................................... 7 The LPG Project ............................................................................................................... 7 Implementation Schedule ................................................................................................ 8 COUNTRY BACKGROUND: PETEXASE’S REPUBLIC OF BANGLADESH ............. 11 2.1. General Background ........................................................................................ 11 2.2. Government Structure...................................................................................... 11 2.3. Legal Environment ........................................................................................... 11 2.4. Power, Energy & Mineral Resources ............................................................... 12 2.5. Communication ................................................................................................ 12 2.6. Economic Environment: Continued Growth and Resilience ........................... 13 2.4.1. 2.4.2. -. Power .............................................................................................................................. 12 Indigenous Energy Resources ....................................................................................... 12 Ports ............................................................................................................................... 12 Air Ports.......................................................................................................................... 12 Roads & Railway ............................................................................................................ 13 Telecommunication ....................................................................................................... 13 -. 3. 3.1. Private Sector ................................................................................................................ 13 Investment Environment and Foreign Investment ....................................................... 14 Support from Multilateral Development Partners......................................................... 14 Gross Domestic Product ................................................................................................ 14 Sector Contribution to GDP ........................................................................................... 15 Inflation .......................................................................................................................... 15 Balance of Payment – Current Account ........................................................................ 16 Export ............................................................................................................................. 16 Remittance ..................................................................................................................... 17 Sovereign Rating ............................................................................................................ 17 THE COMPANY: PROJECT TEXAS ....................................................................... 18 Shareholding Structure .................................................................................... 18 Page 2 of 37 3.2. -. 4. The LPG Project ............................................................................................... 18 Project Location ............................................................................................................. 18 TEXAS Products & Capacity breakdown ...................................................................... 18 Project Cost and Financing Plan ................................................................................... 19 Land Details ................................................................................................................... 20 Civil Construction .......................................................................................................... 20 Engineering, Procurement & Construction (EPC) ......................................................... 20 Implementation Schedule .............................................................................................. 23 THE LPG INDUSTRY ............................................................................................ 23 4.1. Historical Background ..................................................................................... 24 4.2. Present Market Situation ................................................................................. 25 4.3. Future Outlook of the Industry......................................................................... 27 4.4. Regional LPG Industry ..................................................................................... 28 4.2.1. 4.2.2. 5. Demand & Supply of LPG ............................................................................................... 25 Industry at a Glance ...................................................................................................... 26 FINANCIAL PROJECTIONS & VALUATION ......................................................... 29 5.1. BASE CASE ASSUMPTIONS ............................................................................. 29 5.2. Base case projections ..................................................................................... 32 5.3. Valuation summary .......................................................................................... 34 5.4. Key Investment Considerations....................................................................... 34 -. 6. Economic Assumptions ................................................................................................. 29 Project Implementation, Investment and Financing .................................................... 29 Production Assumptions ................................................................................................ 29 Revenue Assumptions ................................................................................................... 30 Cost Assumptions .......................................................................................................... 30 Fixed Assets ................................................................................................................... 31 Debt Assumptions .......................................................................................................... 31 Working Capital Assumptions ....................................................................................... 31 Tax Assumptions ........................................................................................................... 31 Dividend Assumptions ................................................................................................... 31 KEY RISKS & MITIGATIONS................................................................................ 35 6.1. Project Implementation Risk ........................................................................... 35 6.2. Management Risk ............................................................................................. 35 6.3. Interest Rate Risk ............................................................................................ 35 6.4. Industry Risk .................................................................................................... 36 6.5. Social & Environmental Risk ........................................................................... 36 Page 3 of 37 List of Tables Table 1: A snapshot of Economy over the decade ................................................................................... 13 Table 2: Some statistics on Gross Domestic Product (GDP) ..................................................................... 15 Table 3: Present Shareholding Structure of TEXAS ................................. Error! Bookmark not defined.16 Table 4: Breakdown of Annual production capacity ................................................................................... 22 Table 5: Estimated Project Cost & Financing Plan .................................................................................. 193 Table 6: Land Details................................................................................................................................. 24 Table 7: Implementation Schedule of TEXAS Project ............................................................................... 27 Table 8: Estimated Cooking fuel consumption breakdown in Bangladesh ................................................ 28 Table 9: Production Mix ............................................................................................................................. 33 Table 10: Capacity Utilization Assumptions ............................................................................................... 33 Table 11: Assumptions on Annual Capacity (in MT) .................................................................................. 34 Table 12: Current Market Price.................................................................................................................. 34 Table 13: Cost Assumptions ...................................................................................................................... 34 Table 14: Depreciation Rate ...................................................................................................................... 35 Table 15: Working Capital Assumptions .................................................................................................... 35 Table 16: Summary of Projected Financials .............................................................................................. 36 Table 17: Summary of Projected Ratios .................................................................................................... 36 Table 18: Projected Income Statement ..................................................................................................... 37 Table 19: Projected Balance Sheet ........................................................................................................... 36 Table 20: Projected Cash Flow.................................................................................................................. 37 Table 21: Valuation Summary - DCF Method ............................................................................................ 38 List of Figures Figure 1: Project Location............................................................................. Error! Bookmark not defined. Figure 2: Land in Mongla .............................................................................. Error! Bookmark not defined. Page 4 of 37 List of Abbreviations Abbreviations Explanations AAS Atomic Absorption Spectrometry BB Bangladesh Bank BCF Billion Cubic Feet BDT Bangladeshi Taka STAR Star Union Ventures Limited BPC Bangladesh Petroleum Corporation CAGR Compound Annual Growth Rate CNG Compressed Natural Gas CRISL Credit Rating Information and Services Limited DSE Dhaka Stock Exchange EPC Engineering, Procurement & Construction ERD Economic Relations Division FTIR Fourier Transform Infrared GLC Germinischer Lloyd GPL Gas Propano Liquido ICP Initial Circulating Pressure ILB In-Line Blending System IM Information Memorandum IPO Initial Public Offering TEXAS A LPG bottling, distribution and selling company LC Letter of Credit LOBP Lube Oil Blending Plant LPG Liquefied Petroleum Gas LTI Lost Time Incident TEXAS Project Texas QA Quality Assurance QC Quality Control QIMS Quality Integrity Management System BSEC Bangladesh Securities & Exchange Commission S &P Standard & Poor’s USD United States Dollar VAT Value Added Tax Page 5 of 37 Contact List PROJECT TEXAS Corporate office: Dhaka, Bangladesh Plant: Mongla, Bagerhat, Bangladesh Page 6 of 37 1. EXECUTIVE SUMMARY 1.1. THE COMPANY: PROJECT TEXAS The Group has set up another milestone in its core business activities by establishing Project Texas (“TEXAS”). Strategic reasons behind this project are to meet the growing demand of Liquid Petroleum Gas (“LPG”) in Bangladesh, to establish world class manufacturing facilities in a state of the art factory and eventually capture the domestic market share by virtue of sustainable growth. The company has introduced state of the art mounted type LPG storage tanks of capacity around 1,800 MT (Metric Ton) for the very first time in Bangladesh, at the mother plant in Mongla, Bagerhat, Bangladesh. It has the most efficient German technology for bottling. TEXAS is going to establish 4 satellite bottling plants nationwide, along with 20 bobtail tanker to manage smooth and effective distribution network throughout the country for commercial, industrial and household consumption of LPG. The State-of-the-art LPG bottling plant of TEXAS is considered as one of the most technologically advanced in-line bottling facilities in Bangladesh. The plant is highly capital intensive and technology driven. The financial highlight of the company has been provided below: 1.1.1. Shareholding Structure At present, TEXAS is a 100.0% owned the common shareholders of the Group of entities that owned project TEXAS. It is planning to offload or sell up to a significant percentage of shares or sell off 100% of its common shares to strategic partners/ private equity investors. At present, TEXAS has paid up capital and shareholders’ equity of BDT 30,100,000. 1.1.2. The LPG Project A brief summary of the total estimated project cost is given below. This involves the land and civil construction costs, cost of importing machineries for the factory, and all other costs associated with the project. Particulars Existing project June, 2021 June, 2020 Land and Land Development Civil Construction Furniture & Fixtures BDT 23,685,458 278,652 41,700,000 490,588 226,325,807 2,662,657 174,779,041 2,056,224 401,104,848 4,718,881 950,000 11,176 595,220 7,003 10,817,326 Capital Machinery 745,545,266 8,771,121 18,568,188 8,455,126 99,472 17,935,945 21,048,221 247,626 1,021,152,961 12,013,564 LPG Bottles (416,591 Cylinders, 1,415,591 Cylinders) IDCP, licenses and pre-op expenses Total Project Cost USD 211,936 919,472,671 Vehicles including Prime Mover & Tanker BDT 18,014,542 Capital Work in Progress Electrical Equipment Total USD 1,545,220 18,179 919,472,671 10,817,326 218,449 764,113,454 8,989,570 211,011 26,391,071 310,483 49,500,000 582,353 70,548,221 829,979 2,500,000,000 29,411,765 3,521,152,961 41,425,329 - - 436,958,734 5,140,691 85,354,829 1,004,174 522,313,563 6,144,865 3,397,568,548 39,971,395 2,870,773,461 33,773,805 6,268,342,009 73,745,200 *USD/BDT Exchange Rate in 2020: USD 1.0 = BDT 85.0 June, 2020 Financing Plan Sponsors' Equity Paid up Capital Share Money Deposit BDT USD 487,694,000 5,737,576 1,000,000 11,765 June, 2021 % 15% 30,000,000 BDT USD 4,847,388 899,722,003 1,000,000 11,765 412,028,003 4,847,388 442,028,003 4,847,388 1,342,750,006 15,444,118 1,342,750,006 15,444,118 487,694,000 5,737,576 15% Related Party Loan 456,694,000 5,372,871 14.5% Total Equity 487,694,000 6,308,144 15.5% 2,371,281 Term Loan 201,558,906 2,659,817,392 31,291,969 Total Debt 2,659,817,392 33,663,251 84.5% 72% Total Financing 3,147,511,392 44,773,698 100.0% 2,870,773,461 84.5% BDT 412,028,003 Total Paid up Capital Security deposit from cylinders Total USD 14% 14.4% 10,584,965 400,000,000 4,705,882 601,558,906 7,077,164 2,058,745,458 24,220,535 4,718,562,850 55,512,504 71.7% 5,320,121,756 62,589,668 33,773,805 6,662,871,762 78,033,785 Debt: Equity (80:20) At present, TEXAS is a 100.0% owned the common shareholders of the Group of entities. It is planning to offload or sell up to a significant percentage of shares or sell off 100% of its common shares to strategic partners/ private equity investors. TEXAS is in a position to go for initial public offering (“IPO”) after certain years, as it started its commercial operation. The ultimate long term debt to equity ratio of the project would be around 80:20 after completion of expansion of TEXAS. The proposed long term debt will be obtained from both onshore and offshore sources. Page 7 of 37 1.1.3. Implementation Schedule Following is the implementation schedule of the expansion project: Activities/Milestones 1.2. Timeline Phase 1 (416,591 Cylinders, Phase -1) Commercial operation started in 2020 Phase 2 (another 1,000,000 cylinders) June, 2021 THE LPG INDUSTRY The concept of Liquefied petroleum gas (also called LPG, GPL, LP Gas, or liquid propane gas) is increasingly getting popular in Bangladesh due to supply constraint of natural gas for both household and industrial consumption. LPG is a flammable mixture of hydrocarbon gases used as a fuel in heating appliances and vehicles. It is also used globally as an aerosol propellant and a refrigerant, replacing chlorofluorocarbons in an effort to reduce damage to the ozone layer. When specifically used as a vehicle fuel, it is often referred to as autogas. LPG is considered to be a safe, eco-friendly and healthy cooking fuel. Along with domestic use, LPG is also used as an efficient source of energy in various industrial and commercial applications. However, it costs several times more than natural gas and around 20% more than kerosene. A snapshot of the existing major market players in Bangladesh has been provided below: Company Bashundhara Omera Jamuna BM Laugfs Totalgaz Other LPG Market Share (%) 24% 20% 17% 11% 7% 5% 16% Source: Internal Data Since the industry is largely import oriented (95% of the total LPG is imported), the import forecast gives us the idea about the growth of the market. The market is growing at a rapid pace and the pace but the anticipated amount of import and production still will not be sufficient to meet the anticipated demand for LPG. As of January 2019, the country’s natural gas reserve stood at 11.47 trillion cubic feet (TCF) which can roughly meet the demand till 2025. With 23 operational gas fields, the country produces about 2,700 million cubic feet gas per day (mmcfd) against a steady demand of 3,700 mmcfd, leaving a shortage of 1,000 mmcfd as of 2018. This substantiates the fact that there would be a massive demand supply mismatch in the coming years. Year- Natural Gas Supply (in mmcfd) 2,547 1,741 1,671 2,104 1,999 Demand Scenario (in mmcfd) 2,497 3,081 3,810 4,981 5,837 Data Sources: Power Division of Government of Bangladesh, Japan International Cooperation Agency and Petrobangla The future outlook of LPG industry is quite bright, since there is not much indication of improvement and increase of gas supply, especially at domestic level. The demand already exists and is increasing significantly with the passage of time on the backdrop of the fast-expanding housing sector and rapid industrialization. The government is also encouraging consumption of LPG instead of piped natural gas to ease the mounting gas crisis across the country. The energy ministry asked the LPG firms to increase their import to meet the gross mismatch between the demand supply of piped gas, especially in households for cooking and light engineering workshops. Page 8 of 37 Under the current scenario, it is quite feasible to make LPG as the next alternative energy source as a substitute for the limited natural gas. As a clean and efficient fuel, LPG is appreciated. If the uninterrupted supply of LPG at an affordable price can be ensured, LPG will be the most demanding cooking fuel of the country. 1.3. BASE CASE PROJECTIONS A financial model has been developed to simulate the future business of TEXAS and to analyze the viability of the project. Following are the key outcomes of the projections: Particulars 2020 Total Sales BDT Sales Grow th 2021 1,088,858,747 3,166,245,456 % 190.79% 2022 4,294,261,832 2023 2024 4,478,884,313 35.63% 4,669,259,802 4.30% 2025 2026 4,858,551,179 4.25% 5,055,322,502 4.05% 2027 5,260,063,063 4.05% 2028 5,473,095,618 4.05% 4.05% Gross Profit BDT 172,650,533 478,236,539 611,536,685 569,513,505 523,300,899 497,098,403 435,274,909 397,250,961 318,435,559 Net Profit After Tax BDT 22,613,190 15,921,340 70,017,285 93,550,453 118,214,684 141,733,571 188,749,457 172,441,799 132,348,173 GP Margin % 15.86% 15.10% 14.24% 12.72% 11.21% 10.23% 8.61% 7.55% 5.82% NP Margin After Tax % 2.08% 0.50% 1.63% 2.09% 2.53% 2.92% 3.73% 3.28% 2.42% 4.92 4.13 2.91 1.95 361,514,590 445,144,037 Gearing Free Cash Flow To Equity - FCFE BDT 1.4. (8,779,619) 1.1 (595,550,394) 0.8 (394,867,131) (314,682,115) 0.6 0.4 0.2 213,721,075 271,212,284 253,641,791 VALUATION SUMMARY For valuation purpose, we have used Discounted Cash Flow (DCF) Method. We have used Free Cash Flow to Equity on projected financials. Our forecast are based on certain assumptions (Please refer section 6.3 for detail). We used discount rate of 15.00% based on long term investment rate, risk free rate and country risk premium and Terminal Growth rate of 4.00%. Under these assumptions, we conducted a discounted cash flow valuation using the free cash flow to equity method, summary of which have been provided below: 1 DCF Valuation ( 10 yrs projections) Year Operating Cashf low BDT Capital Expenditure BDT Equity Changes in Long term debt BDT Debt Repayment BDT Free Cash Flow To Equity - FCFE BDT Cum ulative Cash Flow BDT Discounted Cash Flow BDT 0 1 2 3 4 5 6 7 8 9 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 540,010,457 1,104,324,043 383,251,736 422,684,998 (3,389,708,642) (2,834,269,328) - 0 0 0 487,694,000 412,028,003 2,893,235,023 2,458,745,458 Internal Rate of Return Payback Period Discount Rate Term inal Grow th Rate - - - - (0) - (215,000,000) (659,180,006) (978,802,129) (8,779,619) 361,514,590 445,144,037 (595,550,394) (394,867,131) (8,779,619) 352,734,971 797,879,008 202,328,615 (192,538,517) (8,779,619) 319,924,416 348,613,076 (412,746,297) (242,179,407) (170,796,845) % (763,802,129) 471,659,477 (595,220) - 520,328,048 (0) - 502,757,556 464,540,870 0 0 - 8.50 % 13.00% (249,115,765) (249,115,765) (249,115,765) (314,682,115) 213,721,075 271,212,284 253,641,791 215,425,106 (507,220,632) (293,499,557) (22,287,273) 231,354,518 446,779,624 102,654,192 115,281,668 95,409,861 71,711,750 5.40% Term inal Value BDT Discounted Term inal Value BDT 880,113,938 Total Equity Value BDT 1,099,206,734 Num ber of Shares No. 48,769,400 Equity Value per Share BDT 22.54 - (257,343,182) 14.38% Years % (817,552,129) 449,120,014 2,987,606,073 Based on the valuation, the value per share derives at BDT 22.54, which shows a return of 125% over a 10 years horizon. Page 9 of 37 1.5. MAJOR RISKS & MITIGATIONS TEXAS would be subject to risks of a typical nature for similar LPG companies. The majority of these risks are commercial business risks that can be mitigated effectively. The major risk factors and its mitigations in terms of the project have been discussed in detail in chapter 7 of this IM. 1.6. KEY INVESTMENT CONSIDERATIONS  Sponsor’s experience and expertise in energy sector of Bangladesh: Project Texas, a sister concern of the Group, is one of the most reputed business houses in Bangladesh. TEXAS has a proven track record of blending and distributing of petroleum and energy related products since 2015. Hence, the sponsors will leverage their expertise, business knowledge and wide distribution network for establishing TEXAS- that will make this project more feasible compared to those of its competitors.  Highly experienced management team: The Group has a highly experienced management team, from which TEXAS will leverage the management skills. Notably, this team is already highly involved in planning and designing this LPG project.  Sponsor’s strong distribution network: TEXAS will utilize the countrywide business network of the Group, which puts the company in an advantageous position than the other new players in the market.  Plan for Initial Public Offering: TEXAS management has a solid plan to go for IPO within next three to five years, after compliance with the Securities & Exchange Commission (“SEC”) guidelines. Under existing regulatory guidelines, TEXAS need to be a listed within three years of commercial operation since the paid up capital of the company exceeds the limit prescribed by SEC. Considering the valuation of listed energy companies in Bangladesh, it is expected that the primary shares of TEXAS will be traded at a price higher than the current offer price.  Feasibility of the Project: The financial projections show that the project is very sound and viable. Considering the growing demand of LPG in the country, TEXAS has planned to cater around 10% of market demand, which is expected to generate sufficient revenue to justify the offer price. Strategic reasons behind setting up TEXAS are to meet the growing demand of LPG in Bangladesh, to establish world class manufacturing facilities in a state of the art factory and eventually capture the domestic market share by virtue of sustainable growth. Page 10 of 37 2. COUNTRY BACKGROUND: PETEXASE’S REPUBLIC OF BANGLADESH 2.1. GENERAL BACKGROUND Bangladesh has a land area of approximately 147,570 square kilometres and is bordered by the Bay of Bengal to the south, India to the north, east and west and Myanmar to the south-east. Bangladesh has 580 km of shoreline and borders 4,246 km with India and 4,053 km with Myanmar. The climate of Bangladesh is tropical with mild cool and dry winter from November to February, hot & humid summer from March to June and humid, warm monsoon from July to October. Bangladesh has a population of approximately 161.4 million (end of FY 2018), with an estimated growth rate of 1.3% p.a. It is one of the most densely populated countries in the world with approximately 1,007 persons per square kilometres. The adult literacy rate of the country is 64%. Bangladesh has successfully established itself as a moderate country having equitable treatment for all ethnicity with commendable women empowerment. The country is divided into 7 main divisions, i.e., Dhaka, Chittagong, Sylhet, Rajshahi, Khulna, Barisal and Rangpur and 64 districts which are further divided into 493 sub districts. 76% of the country’s population lives in 68,000 villages. Bangladesh gained independence in 1971 and is a member of the South Asian Association for Regional Co-operation (SAARC), the Commonwealth, the World Trade Organization (WTO) and the United Nations (UN). 2.2. GOVERNMENT STRUCTURE Bangladesh has a unicameral (single-chamber) National Parliament (or Jatiya Sangsad) of 300 seats elected by popular vote from single territorial constituencies. Parliament members serve for a five-year term. The Prime Minister has executive powers and governs through the Council of Ministers, selected by the Prime Minister. The President’s role becomes significant at a time when the Parliament is dissolved and a caretaker government is installed – as per the President’s instructions – to supervise the elections. The current governing political party is Bangladesh Awami League (AL) led by Mrs. Sheikh Hasina. The last election was held in December 2018. The 2018 Bangladeshi general election was marred by allegations of widespread vote rigging. The Awami League won 259 out of 300 seats and the main opposition alliance Jatiya Oikya Front secured only 8 seats, with Sheikh Hasina becoming the longest-serving prime minister in Bangladeshi history. The Jatiya Party became the main opposition party with only 20 seats. This was Awami League's record 4th victory in the general elections under Sheikh Hasina. Bangladesh Awami League leader Sheikh Hasina's new cabinet took oath on 3 January 2019. Bangladesh has earned a very good reputation as a progressing democracy and as a moderate country with notable success in various social parameters including population control, education, sanitation, infant mortality, women empowerment etc. 2.3. LEGAL ENVIRONMENT Bangladesh Law is based on the principles of English Common Law. Most of the major laws in Bangladesh were enacted during the British rule, subject to modification to reflect additional amendments in areas such as company law and bankruptcy. Islamic Law is not applicable in civil or criminal matters and is applied in Bangladesh only in respect of personal status and disputes, such as inheritance. There are essentially two tiers in Bangladesh to deal with civil justice. The lower tier consists of the subordinate courts whereas the higher tier is composed of the Supreme Court of Bangladesh (itself Page 11 of 37 consisting of two divisions, the High Court Division and the Appellate Division). The Chief Justice and the other Justices of the Supreme Court are appointed by the president. 2.4. 2.4.1. POWER, ENERGY & MINERAL RESOURCES Power The major reforms in the power sector took place when the Power Sector Master Plan (PSMP) was prepared in 1995 with ADB’s support. This gave a long term detailed plan for the development of the electricity sector of the country. In 1996, the government issued the "Private Sector Power Generation Policy of Bangladesh" and began to solicit proposals from international companies for Independent Power Plants (IPPs). There have been a number of international companies that have invested as the IPPs in Bangladesh and have so far received excellent support from the government agencies. Key Multilateral Funding Agencies like the World Bank, Asian Development Bank, KfW, USAID etc. have been very supportive to the growth of the power sector of Bangladesh. About 49% of the population has access to electricity. Augment power generation capacity is a priority for the Government. To meet this goal, Government has adopted a combination of measures: large generation capacity addition through public sector entities and Independent Power Plants (IPPs), Rental Power Plant, Peaking Power Plant, and fast track rental Power Plant. With this plan and its rollout, Government is ensuring that the increasing supply shall cross the increasing demand by 2020. 2.4.2. Indigenous Energy Resources Bangladesh is blessed with substantial reserves of indigenous natural gas and coal. The conservative estimate of natural gas reserves (P1 and P2) is approximately 20.61 tcf1 till 2011. Renowned international companies like Chevron, Niko, Cairn, etc. are engaged in the extraction of gas in the country. Exploratory drilling and geophysics surveying have established an aggregate resource of 2.35 billion tonnes of coal in the large 5 coal fields, namely Barapukuria (Dinajpur), Khalashpeer (Rangpur), Phulbari (Dinajpur), Jamalganj (Jaipurhat) and Dighirpar (Dinajpur). The deposit, which still has potential for further exploration in the south, has extensive seams of High Volatile, Low Ash Bituminous coal. The Energy Policy of 1996 has put emphasis on the use of country’s indigenous energy sources. 2.5. COMMUNICATION 2.5.1. Ports Bangladesh has two major seaports situated in Chittagong and Mongla (Khulna), and several smaller ports. The waterways are an important mode of transportation, especially to some remote areas of the country, as no other mode of transportation is available during monsoon season. The total waterways extend to 8,370 kilometers (5,200 miles) of which 3,060 kilometers (1,901 miles) are used as main cargo routes. 2.5.2. Air Ports Bangladesh is putting considerable efforts into developing its aviation industry to serve growing tourism and business needs. The country has three international airports as follows: Hazrat Shahjalal International Airport (HSIA), (formerly Zia International Airport), Dhaka - This is the largest and the principal international airport of the country. It is situated at the capital city Dhaka. Almost all international passengers embark at and disembark from this airport. Shah Amanat International Airport, Chittagong – This airport is situated in the port city of Chittagong. It is the second largest airport in Bangladesh. Osmani International Airport, Sylhet – This airport is situated at the city of Sylhet, a district at the NorthEast corner of the country. It has been upgraded to an international airport in order to facilitate the peTEXASe of the district which is famous for a large number of residents of United Kingdom. The country has a total of 17 airports – 15 of them with paved runways. In addition to the three international airports mentioned above, Bangladesh also has five domestic airports in the following cities: Barisal, Cox’s Bazar, Jessore, Rajshahi and Saidpur. The Civil Aviation Authority is developing another domestic airport at Bagherhat. The country also has seven registered short take-off and landing (STOL) airports. 1 Source: Daily star Page 12 of 37 2.5.3. Roads & Railway Bangladesh is served by a network of 239,226 kilometers (148,648 miles) of primary and secondary roads. Around 10 percent of the roads, or 22,726 kilometers (14,121 miles) are paved. In June 1998, the huge USD 1 billion Jamuna Multipurpose Bridge was completed, becoming the 12th-longest bridge in the world. The bridge connected the northern part of the country with the rest of the country for the first time. The completion of this project made an important contribution to the development of the country's transportation network and significantly boosted the quality and speed of passenger and freight transportation. In line with these infrastructure development efforts, GOB is now starting work on Padma Multipurpose Bridge, which is scheduled to end by 2021. 2.5.4. Telecommunication Bangladesh has one of the lowest fixed and mobile phone penetration rates in the world. The teledensity is fairly low even compared to that of the neighboring developing countries. The telecom sector in the country started to flourish over the last few years mainly on the backdrop of the growth in mobile sector. Given the large population of the country and the low telecom penetration, the growth trend is expected to continue in the coming years. In May 2020, there were approximately 161.50 million mobile subscribers in the country. There are 6 mobile phone operators and 5 of whom are in the private sector with a subscriber base of approximately 85 million as at end of 2011. The growth rate for the mobile phone operators has been tremendous given the rapidly growing demand for the same. International mobile phone companies Telenor, Axiata, Orascom, Airtel have subsidiaries / investments in Bangladesh. Various development finance institutions, Export Credit Agencies and multinational commercial banks have supported the private sector mobile operators in Bangladesh with financing. 2.6. ECONOMIC ENVIRONMENT: CONTINUED GROWTH AND RESILIENCE Bangladesh has been gradually moving toward becoming a free market secular country with increasingly liberalized trade policies. Major policy steps taken over the last two decades has promoted more liberalized trade, encouraged foreign direct investment and private sector growth. The country continued to build on the drivers of its recent impressive growth performance while proactively meeting new policy challenges and laying the groundwork for the next stage of Bangladesh’s economic development. The last decade has witnessed strong growth, a doubling in per capita income, over 500% increase in FX reserves, steady expansion in lending to the private sector, massive consolidation of external government debt and a material decline in deficits. A snapshot has been provided below: Table 1: A snapshot of Economy over the decade         2.6.1. 8th largest Population in the world, with a population of 164mn; and a median age of 26.1 years 39th largest economy in the world in nominal terms with a GDP of USD 273 billion (29th largest by purchasing power parity) According to the WB, Bangladesh 2nd fastest growing economy in South Asia, with a rate of 7.2% 10 year CAGR of Real GDP growth 6.5% 9th largest remittance earner in the world with USD 15.9 billion earned in the FY2018 2nd largest RMG exporter in the world (85% of the export consists RMG products) USD $50.0 BN export target is set for 2021 ($34.02 BN exported in FY2016-17) Significant achievement in poverty headcount 49% in 2000 and 22.4% in 2016. Private Sector Unlike many developing nations, Bangladesh’s private sector is the overwhelming driver of growth. Private enterprises account for 90% of economic activities. Private sector development has been supported by numerous factors. In particular, stable macroeconomic environment and favourable government policy towards private sector-led growth from the early 1980s, supported by privatization of key manufacturing industries, gradual liberalization of the trade regime and financial markets, and withdrawal of government involvement in trade and distribution of agricultural inputs (seeds, fertilizers), have induced significant growth in private investment. Additionally, measures to promote competitive and market-determined exchange rates and more recently, with the floating of the exchange rate have enhanced the competitiveness of the Bangladesh economy. Page 13 of 37 2.6.2. Investment Environment and Foreign Investment The first major step toward promoting FDI in Bangladesh was made when the Private Foreign Investors’ Protection Act was introduced in 1980. This Act gives some crucial assurances to the foreign investors from the Government of Bangladesh including:  Full protection, security and equitable treatment to any local concerns.  No unilateral adverse change of the terms of sanction, permission or license granted by Government to an industrial undertaking having foreign private investment  No expropriation or nationalization of foreign investments except for a public purpose against adequate compensation which shall be paid expeditiously and be freely transferable and be equivalent to the market value of the investment prior to such expropriation / nationalization.  Guarantee on remittance of any capital, profit, dividend and money derived from liquidation by foreign investors.  If any difficulty arises in giving effect to any provision of this Act, the Government may make such order, not inconsistent with the provisions of this Act, as may appear to it to be necessary for the purpose of removing the difficulty Introduction of the Industrial Policy of 1982 and its revision in 1991 was another major step toward establishing a competitive market economy. The Industrial Policy was developed to ensure that both foreign and domestic investors receive equal treatment. To encourage inward investment, the GoB established the Board of Investment (BOI) as a central coordinating agency. The role of the BOI is to implement the salient aspects of the Industrial Policy, namely  To develop the industrial sector in order to increase its contribution to the gross domestic product, income, resources and employment;  To expand industrial development by increased emphasis on the private sector development;  To encourage domestic and foreign investment in industrial development; and  To stimulate development of industries based on indigenous raw materials. 2.6.3. Support from Multilateral Development Partners Bangladesh has received strong support from the Multilateral Development Partners over the years. The World Bank, IMF and the ADB are amongst the major development partners of Bangladesh. The Multilaterals provide aid to a variety of development projects as follows:  Health quality development  Food & Nutrition  Education sector development  Financial sector reforms  SME development  Transportation & Communication 2.6.4. Gross Domestic Product  Bangladesh economy has been growing over 6.00%  Provisional GDP growth rate is estimated at 7.00% plus.  Bangladesh received stable sovereign ratings outlook for consecutively 6 years from internationally acclaimed raters- Moody’s, S&P, Fitch Page 14 of 37 Table 2: Some statistics on Gross Domestic Product (GDP) 8.0% 6.0% 4.0% 2.0% 0.0% 2014 World 2015 2016E Advanced Economics 2017P Bangladesh 2018P Emerging Market Source: Bangladesh Bank Bangladesh has achieved high growth without the boom-bust cyclicality or volatility of some of its peers. This provides greater macro-economic certainty, facilitates policy-making and reduces the potential for a disruption to Government finances 2.6.5. Sector Contribution to GDP Industry sector contribution to GDP grew from 25.7% to 30.4% over the last decade reflecting the industrial policy reforms taking effect. The share of GDP from the Services industry grew from 48.9% to 49.7% over the period. The agriculture sector contribution has been steadily declining as a percentage of GDP from 25.3% to 19.9% despite rising output. 2.6.6. Inflation In recent financial years, inflation has risen compared to earlier years. This is mainly driven by increasing price of essentials in the international market and neighbouring countries. Bangladesh inflation rate for 2019 was 5.59%, a 0.05% increase from 2018. Bangladesh inflation rate for 2018 was 5.54%, a 0.16% decline from 2017. Source: Bangladesh Bank Annual Report 2010 & Financial Express Page 15 of 37 2.6.7. Balance of Payment – Current Account Bangladesh had a long run of recording Balance of Payments surpluses due to steady growth of remittance and export. Even during the global financial crisis, remittance inflows increased as the NRBs sent money home in larger amounts. However, the headline number in- has been adversely affected due to various reasons. Source: Bangladesh Bank Annual Report 2.6.8. Export Export growth has suffered a shock in 2019-20 from global slowdown, although it remained positive unlike many peer countries. Figures for the FY2019-20 to-date indicate exports are experiencing some challenging period. RMG export growth decreased by 5.71% in past FY along with other sectors. But few sectors witnessed growth such as pharmaceuticals and Jute. Numerous initiatives to promote exports:    Incentives given to exporters who are increasing product and geographical diversification of exports Incentive package is performance-based hence promotes competitiveness of exports Support is provided to new emerging sectors like ship building to further augment future growth prospects Source: Bangladesh Bank Annual Report 2010-11 Page 16 of 37 2.6.9. Remittance Rapid growth in remittances has been boosting current account balance for Bangladesh over last few years. Bangladesh attracts remittances from a diversified profile of countries, limiting the contagion risk of a downturn in any one country or region. 2.6.10. Sovereign Rating S&P and Moody’s have maintained their longheld ratings of BB- and Ba3 respectively for Bangladesh– affirming a stable trajectory for Bangladesh as it moves into the future. Moody’s stable outlook position implies that a rating change is unlikely to happen in the near future. S&P believes Bangladesh’s strong economic growth impetus will persist, with its people continuing to experience rising incomes. Both agencies cite a strong external profile characterized by low external borrowings, a competitive apparel sector, and large migrant remittances as a cornerstone of this strong position. A track record of steady growth, macroeconomic and policy stability and the government's history of full and timely debt service to all its creditors have helped the country maintain the good rating despite being a narrow and supply-constrained economy. Bangladesh is rated on a par with the Philippines, Vietnam, Sri Lanka, Pakistan, Bolivia and Egypt, but lower than countries, such as Indonesia, India, Brazil and Turkey, with medium economic strength. Facts and figures provided in this section are sourced from Bangladesh Bureau of Statistics and Bangladesh Bank publications and websites Page 17 of 37 3. THE COMPANY: PROJECT TEXAS The Group has set up another milestone in its core business activities by establishing Project Texas (“TEXAS”). Strategic reasons behind this project are to meet the growing demand of Liquid Petroleum Gas (“LPG”) in Bangladesh, to establish world class manufacturing facilities in a state of the art factory and eventually capture the domestic market share by virtue of sustainable growth. The company has introduced state of the art mounded type LPG storage tanks of capacity around 1,800 MT (Metric Ton) for the very first time in Bangladesh, at the mother plant in Mongla, Bagerhat, Bangladesh. It has the most efficient German technology for bottling. TEXAS is going to establish 4 satellite bottling plants nationwide, along with 20 bobtail tanker to manage smooth and effective distribution network throughout the country for commercial, industrial and household consumption of LPG. The State-of-the-art lubricant oil blending plant of TEXAS is considered as one of the most technologically advanced in-line blending facilities in Bangladesh. 3.1. SHAREHOLDING STRUCTURE At present, TEXAS is a 100.0% owned the common shareholders of the Group of entities. It is planning to offload or sell up to a significant percentage of shares or sell off 100% of its common shares to strategic partners/ private equity investors. At present, TEXAS has paid up capital and shareholders’ equity of BDT 30,100,000. Shareholding structure of TEXAS has been provided below: 3.2. THE LPG PROJECT TEXAS is building a LPG plant to import, store, bottling and distribute LPG throughout the country by developing a strong marketing channel. The present storage capacity of TEXAS is 1800 MT at Mongla, Bangladesh. The number of cylinders of TEXAS at present is 416,591. TEXAS is planning to bring another 1,000,000 cylinders by June 2021 with two satellite unit in Bhaluka and Borga. 3.2.1. Project Location The company has introduced state of the art mounded type LPG storage tanks of capacity around 1,800 MT (Metric Ton) for the very first time in Bangladesh, at the mother plant in Mongla, Bagerhat. It has the most efficient German technology for bottling. TEXAS is going to establish 4 satellite bottling plants nationwide, along with 20 bobtail tanker to manage smooth and effective distribution network throughout the country for commercial, industrial and household consumption of LPG. Currently the satellite plants in Bhaluka, Bogura and Magura are under commissioning. Bhaluka satellite plant will be having a storage capacity of 120 MT. Whereas Bogura and Magura satellite plant has 60 MT storage capacity each. 3.2.2. TEXAS Products & Capacity breakdown Considering the demand of LPG in Bangladesh, Project Texas started its commercial operation in February 2019. To meet the demand company has the following product range LPG in 12 Kg. 33 Kg. and 45 Kg. cylinders. Cylinder Size Valve Size Color Purpose 12 kg 12 kg 33 kg 33 kg 45 kg 45 kg 22 mm 20 mm 22 mm 20 mm 22 mm 20 mm Red + Sky Blue Red + Purple Red + Purple Red + Purple Red + Sky Blue Red + Sky Blue Domestic + Commercial Domestic + Commercial Commercial + Industrial Commercial + Industrial Commercial + Industrial Commercial + Industrial Product Features: • • Every cylinder is manufactured following DOT standard Cylinder thickness is 2.5 mm Page 18 of 37 • Can resist high temperature • To ensure the safety, Thailand made European standard relief valves are used • Every cylinder is tested after import and before delivery for commercial use • Perfect weight to ensures optimum utilization of gas • Propane and Butane ratio is standardized for optimum performance Industrial and Commercial Solutions: To meet the energy challenges company is devoted to provide the most diversified and competitive energy solution. The Company has a dedicated corporate sales team to create viable and sustainable solutions for industries.  Bulk storage: EPC (Engineering Procurement and Commissioning) solution ensuring continual LPG supply. Bulk storage (Mounded, Semi Mounded and above ground) testing approvals and certifications.  Reticulated system: Extremely versatile and portable solution. Commercial LPG cylinders (45 kg, 33 kg and 12 kg) are manifold Annual production capacity of each category of cylinder under different locations has been provided below: Table 4: Breakdown of Annual production capacity Attainable Production Capacity 2020 2021 2022 2023 2024 2025 2026 2027 2028 12kg Cylinder MT 64,296 67,680 67,680 67,680 67,680 67,680 67,680 67,680 67,680 33kg Cylinder MT 2,052 2,160 2,160 2,160 2,160 2,160 2,160 2,160 2,160 45kg Cylinder MT 2,052 2,160 2,160 2,160 2,160 2,160 2,160 2,160 2,160 Total MT 68,400 72,000 72,000 72,000 79,200 79,200 79,200 79,200 79,200 3.2.3. Project Cost and Financing Plan A brief summary of the total estimated project cost is given below. This includes the land and civil construction costs, cost of importing machineries for the factory, and all other costs associated with the project Table 5: Estimated Project Cost & Financing Plan Particulars Existing project June, 2021 June, 2020 Land and Land Development Civil Construction Furniture & Fixtures BDT 23,685,458 278,652 41,700,000 490,588 226,325,807 2,662,657 174,779,041 2,056,224 401,104,848 4,718,881 950,000 11,176 595,220 7,003 10,817,326 Capital Machinery 745,545,266 8,771,121 18,568,188 8,455,126 99,472 17,935,945 21,048,221 247,626 1,021,152,961 12,013,564 LPG Bottles (416,591 Cylinders, 1,415,591 Cylinders) IDCP, licenses and pre-op expenses Total Project Cost USD 211,936 919,472,671 Vehicles including Prime Mover & Tanker BDT 18,014,542 Capital Work in Progress Electrical Equipment Total USD 1,545,220 18,179 919,472,671 10,817,326 218,449 764,113,454 8,989,570 211,011 26,391,071 310,483 49,500,000 582,353 70,548,221 829,979 2,500,000,000 29,411,765 3,521,152,961 41,425,329 - - 436,958,734 5,140,691 85,354,829 1,004,174 522,313,563 6,144,865 3,397,568,548 39,971,395 2,870,773,461 33,773,805 6,268,342,009 73,745,200 *USD/BDT Exchange Rate in 2012: USD 1.0 = BDT 85.0 TEXAS already invested BDT 3,397 million in phase 1 of the project and started its commercial operation in 2020. The above table shows the item wise cost breakdown. At present, 100% shares of TEXAS hold by the individual shareholders of the Group. The proposed long term debt to equity ratio of the project is around 79:2. The proposed long term debt will be obtained from both onshore and offshore sources. Cost detail of both phases have been given below. The expansion project would be for another 1,000,000 cylinders, with an estimated cost of BDT 2870.7 million in phase 2. The total cost of the project would be BDT 6,268 million after completion of phase 2 in June 2021. The expansion project is expected to be completed in June 2021. Page 19 of 37 June, 2020 Financing Plan BDT Sponsors' Equity 487,694,000 5,737,576 1,000,000 11,765 Paid up Capital Share Money Deposit June, 2021 USD % 15% 30,000,000 USD 899,722,003 1,000,000 11,765 412,028,003 4,847,388 442,028,003 4,847,388 1,342,750,006 15,444,118 1,342,750,006 15,444,118 487,694,000 5,737,576 15% 456,694,000 5,372,871 14.5% Total Equity 487,694,000 6,308,144 15.5% 201,558,906 2,659,817,392 2,371,281 31,291,969 Total Debt 2,659,817,392 33,663,251 84.5% 72% Total Financing 3,147,511,392 44,773,698 100.0% 2,870,773,461 84.5% BDT 4,847,388 Related Party Loan Term Loan USD 412,028,003 Total Paid up Capital Security deposit from cylinders Total BDT 14% 14.4% 10,584,965 400,000,000 4,705,882 601,558,906 7,077,164 2,058,745,458 24,220,535 4,718,562,850 55,512,504 71.7% 5,320,121,756 62,589,668 33,773,805 6,662,871,762 78,033,785 Debt: Equity (76:24) 3.2.4. Land Details The project lands are in 06 different locations – with the main LPG Terminal in Mongla (Bagerhat) and 05 satellite LPG bottling and distribution plants in Bogra, Magura, Mymensingh. The satellite plan of Mymensingh and Bogra is almost ready and will be launched in 2021. Total land and land development cost stands at around BDT 74.9 million. Details of land have been given below: Table 6: Land Details Location Bogra, Shripur Area 297.08 decimal Magura, Shreepur 238 decimal Mymensingh, Bhaluka 16 decimal Magura, Shreepur (registration in process) 136,00 decimal Bogra, Shibgonj (registration in process) 78.50 decimal Mongla (Lease land 30 years) 3.2.5. 240 decimal Civil Construction TEXAS has its main plant in Mongla and two more satellite units will be launched by June 2021. TEXAS started its commercial operation with Mongla plant (main plant) in 2020. The phase is scheduled to start operation in 2021. Summary of civil constructions have been given below: 3.2.6. Engineering, Procurement & Construction (EPC) EPC activities include – Procurement of all equipment , installation of LPG unloading system, Truck filling and Bottling Firefighting system, Weighing scale, Water treatment system, LPG automation and control system, all mechanical, electrical and erection works and LPG day tank and Satellite station bullets. Details of EPC have been given below: Page 20 of 37 Table 8: Engineering, Procurement & Construction Cost Summary (including all Tangible assets) SL No. Name of Items Unit/Pcs Remarks 1 100 MT Container 18 Completed 2 Gas Transfer 1 Completed 3 Safety system 1 Completed 4 Pneumatic system 1 Completed 5 Electrical system 1 Completed 6 Cathodic Protraction 9 Completed 7 Cathodic Protection for LPG 9 Completed 8 150 MM hose pipe with spannioc flamge 1 Completed 9 75 MM hose pipe with spannioc flamge 1 Completed 10 Remote testing facility for LPG 1 Completed 11 LPG Automation devices 1 Completed 12 Pipe line and accessories 1 Completed 13 Cylinder filling pump ( 1 Set ) 1 Completed Sub-Total 46 1 30 MT Container 4 WIP 2 Gas Transfer 1 WIP 3 Safety system 1 WIP 4 pneumatic system 1 WIP 5 Electrical system 1 WIP 6 Cylinder filling pump ( 1 Set ) 1 WIP Sub-Total 9 1 30 MT Container 2 WIP 2 Gas Transfer 1 WIP 3 Safety system 1 WIP 4 pneumatic system 1 WIP 5 Electrical system 1 WIP 6 Cylinder filling pump ( 1 Set ) 1 WIP Sub-Total 7 1 30 MT Container 2 WIP 2 Gas Transfer 1 WIP 3 Safety system 1 WIP Page 21 of 37 4 pneumatic system 1 WIP 5 Electrical system 1 WIP 6 Cylinder filling pump ( 1 Set ) 1 WIP Sub-Total 7 1 30 MT Container 2 WIP 2 Gas Transfer 1 WIP 3 Safety system 1 WIP 4 pneumatic system 1 WIP 5 Electrical system 1 WIP 6 Cylinder filling pump ( 1 Set ) 1 WIP Sub-Total 7 Road Tanker 20 Sub-Total 20 1 Electrical Equipment 1 Voltage Stabilizer 1 2 CCTV System 1 Completed 3 Diesel Generator 1 Completed 4 LED Fog Light 50 Completed 5 Lighting Protection 1 Completed 6 Sub Station 1 Completed 7 Refrigerator 1 Completed 8 Other Electrical Equip. - Completed Total Electrical Equipment Completed 56 LPG Vaporizer System 1 LPG Vaporizer System 2 Completed 2 POL Liquid Valve 300 Completed Total LPG Vaporizer System 302 Cylinders 1 12 KG 396,107 Completed 2 33 KG 10,692 Completed 3 45 KG 9,792 Completed Total Cylinder Qty 416,591 Land Project Texas Decimal 1 Bogra, Shripur 297.08 Completed 2 Magura, Shreepur 238.00 Completed Page 22 of 37 3 4 5 Mymensingh, Bhaluka 16.00 Completed Magura, Shreepur (Registration in Process) 136.00 WIP Bogra, Shibgonj (Registration in Process) 78.50 WIP Sub- Total 765.58 Oriental Betumin Industries Ltd 1 Mongla- Lease Land (30 Years) 240.00 Sub- Total 240.00 Total Land 3.2.7. 1005.58 1 LPG Shed-Ashulia RDC 1 Completed 2 Computer Equipment 18 Completed 3 Furniture & Fixture 21 Completed 4 Vehicle (including prime mover) 3 Completed Implementation Schedule The LPG project is implemented as per the schedule below: Table 7: Implementation Schedule of TEXAS Project Activities/Milestones Timeline Phase 1 (416,591 Cylinders, Phase -1) Commercial operation started in 2020 Phase 2 (another 1,000,000 cylinders) June, 2021 4. THE LPG INDUSTRY Bangladesh has witnessed a rapid growth of the consumption of Liquefied Petroleum Gas (LPG) over the last few years as households, commercial entities and vehicles being the major consumers. The consumption of LPG in 2015 was only 250,000 metric ton (MT) which reached at astounding 800,000 MT in 2019. Bangladesh’s current LPG demand is estimated at around 2 million MT per year, with half of it is currently being met by kerosene and wood due to insufficiency of LPG and natural gas. Since natural gas contributes a major portion of electricity generation and thus contributes 56 percent of domestic energy demand; a necessity for alternative resources have come up and as a result LPG and other energy sources have appeared in the scenario. Due to government’s suspension on piped natural gas connections to households and industries, the demand for LPG has gone up to meet the daily gas necessities. Because of the increase in households and industries, there is a shortage in the projected domestic supply for gas, even if a conservation policy is undertaken. LNG is considered to be the possible alternative for industries. For households, LPG is expected to become a substitute for household gas usage. The concept of Liquefied petroleum gas (also called LPG, GPL, LP Gas, or liquid propane gas) is increasingly getting popular in Bangladesh due to supply constraint of natural gas for both household and industrial consumption. LPG is a flammable mixture of hydrocarbon gases used as a fuel in heating appliances and vehicles. It is also used globally as an aerosol propellant and a refrigerant, replacing chlorofluorocarbons in an effort to reduce damage to the ozone layer. When specifically used as a vehicle fuel, it is often referred to as autogas. Page 23 of 37 LPG is a derivative of two large energy industries: natural gas processing and crude oil refining. When natural gas is extracted from the earth, it is a mixture of several gases and liquids. Methane, which is sold by gas utilities as “natural gas”, constitutes around 90% of this mixture. Of the remaining – 5% is propane and 5% is other gases such as butane and ethane. Before natural gas can be transported or used, the LP gases (which are slightly heavier than methane, the major component of natural gas) are separated out. Depending on the “wetness” of a producing gas field, gas liquids generally contain 1%-3% of the unprocessed gas stream. Some LP Gases are also trapped in crude oil. In order to stabilize the crude oil for pipeline or tanker distribution, these “associated” or “natural gases” are further processed into LP Gas. Worldwide, gas processing is a source of approximately 60% of LP Gas produced. LPG is considered to be a safe, eco-friendly and healthy cooking fuel. Along with domestic use, LPG is also used as an efficient source of energy in various industrial and commercial applications. However, it costs several times more than natural gas and around 20% more than kerosene. 4.1. HISTORICAL BACKGROUND Energy is amongst the most important ingredients required to alleviate poverty and realize socio economic and human development, which is directly interconnected to the prominence of life in rural areas. Cooking fuel accounts for around 90% of the energy consumed by households in the developing countries like Bangladesh. Biomass fuels such as firewood, charcoal, dung and agricultural residues are often the only energy sources available, especially for low income groups and in rural areas. Besides that - LPG and natural gas are quite commonly used in urban areas of developing countries; and are becoming increasingly common in rural areas. In Bangladesh, natural gas has been the popular source of energy for both household and industrial consumption. As the cooking fuel - biomass fuel is mostly used in rural areas, whereas LPG and natural gas are the preferred options in urban areas. An estimated cooking fuel consumption pattern in Bangladesh has been provided below: Table 8: Estimated Cooking fuel consumption breakdown in Bangladesh Demand for LPG started to flourish in recent years due to the gas crisis and the government’s support to setup more bottling plants. LPG marketing in Bangladesh was pioneered by state-owned Bangladesh Petroleum Corporation (“BPC”) in the late 1970s. However, with the increasing demand in the mid-1990s, the government allowed LPG imports and permitted private entrepreneurs to invest in LPG import, storage and bottling facilities. The industry consists of a number of players in the market among which only one is public company (state owned). Although the industry is generally import based, there are a few companies that have their own production facility (e.g. Bashundhara and Kleanheat Gas), and each has production capacity of one lakh tonnes. More brands are expected to enter the market as the government has granted more than thirty more licenses to private operators. Page 24 of 37 As the market is getting lucrative a good number of new players have entered this sector in last couple of years. Currently, there are as many as 25 companies operating in the market. The notable market players are Bashundhara, Omera, Jamuna, BM, Laugfs, Total, Beximco, Navana, Sena, Petromax, Orion, JMI etc. Among these Bashundhara is in the leading position in terms of quantity sold. Omera is in the second leading position and Jamuna is in the third position. The LPG Market share is as under: Company Bashundhara Omera Jamuna BM Laugfs Totalgaz Other Data Sources: LightCastle Primary Research, 2019 4.2. LPG Market Share (%) 24% 20% 17% 11% 7% 5% 16% PRESENT MARKET SITUATION Demand for LPG worldwide has been growing for many years. It is not a renewable fuel like biomass energy, but it is clean burning and provides much greater efficiency than even the most improved biomass stoves. In Bangladesh - due to the severe ongoing supply constraint of natural gas, the government has restrained itself from providing new gas connections to the households and industries. At present, many companies are affected by the gas crisis and new ventures are not getting gas connections; hence, incurring huge losses and bearing the burden of bank interests. On this backdrop – the LPG is getting popular in Bangladesh over the last few years. The fast-expanding housing sector of the country is fueling the demand for LPG, which has encouraged many entrepreneurs to set up LPG plants and grab a share of the growing market. 2030 Natural Gas Supply (in mmcfd) 5,837 4,981 1,999 1,671 3,081 2025 2,104 2020 1,741 Since the industry is largely import oriented (95% of the total LPG is imported), the import forecast gives us the idea about the growth of the market. The market is growing at a rapid pace and the pace but the anticipated amount of import and production still will not be sufficient to meet the anticipated demand for LPG. 2,547 Demand & Supply of LPG 2,497 4.2.1. 3,810 Some 30 companies have already applied to the government, seeking permission to install LPG plants. Nearly a dozen companies have already established their plants that include four state-owned firms. In fact, a cut in Value Added Tax (VAT) and duty reduction for Projected Demad-Supply Mismatch imports have encouraged the entrepreneurs to land into the business. Importers can now easily import gas from Abu Dhabi, Singapore, Malaysia and Indonesia. 2035 2040 Demand Scenario (in mmcfd) As of January 2019, the country’s natural gas reserve stood at 11.47 trillion cubic feet (TCF) which can roughly meet the demand till 2025. With 23 operational gas fields, the country produces about 2,700 million cubic feet gas per day (mmcfd) against a steady demand of 3,700 mmcfd, leaving a shortage of 1,000 mmcfd as of 2018. This substantiates the fact that there would be a massive demand supply mismatch in the coming years. Page 25 of 37 Year Natural Gas Supply (in mmcfd) Demand Scenario (in mmcfd) 2020 2,547 2,497 2025 1,741 3,081 2030 1,671 3,810 2035 2,104 4,981 2040 1,999 5,837 Data Sources: Power Division of Government of Bangladesh, Japan International Cooperation Agency and Petrobangla 4.2.2. Industry at a Glance  LPG is proving to be an alternative fuel resource in the energy and petroleum industry of Bangladesh. The country has been facing severe gas crisis over last few years.  At present, the government is not encouraging fresh piped natural gas connections to households in a bid to promote LPG. A large number of flats/houses in different cities of the country have remained unsold or the buyers have been unable to reside in the flats/houses due to the unavailability of gas connections. Natural gas would be preferably supplied to industries and power sectors, when its production will rise. Hence, LPG sector is flourishing, with a number of private sector entrepreneurs are working to set up LPG plants. After meeting the household demands, LPG may gradually be used commercially throughout the country. National Energy policy of Bangladesh is supporting private investments and management in this sector. The government also eased restrictions in 2011 on setting up LPG bottling plants and running LPG businesses by private sector to meet the growing demand for the item in the country. The government took investor friendly approaches to facilitate the growth of the industry by approving “LPG production and distribution policy 2006”. This policy aims at increasing LPG supplies, streamlining its distribution at affordable prices, especially to LPG starved areas of the country and promoting healthy competition or growth of LPG market while ensuring minimum safety standards across the LPG supply chain. To achieve this goal, issues regarding LPG production, LPG licensing, safety standards, pricing, distribution in under developed areas and import of LPG have been addressed in this policy. Prior to the announcement of the above policy, there was a shortage of LPG particularly during winter - when most of the oil refineries shutdown their LPG production operations for annual maintenance. Most of the refineries had a practice to close LPG production at the same time which resulted in severe shortage leading to a consequential increase in price. In order to avoid such situations, now it is mandatory for the oil refineries to announce a schedule of maintenance ensuring a certain level of LPG supply to the market. Better infrastructure development and connectivity and economic zone led industrialization will drive the MAC population at least 300,000 each of 33 cities across the country by 2025. Majority of the cities would not avail piped natural gas supply and the only available cooking source would be LPG. Moreover, Govt. has decided not to give any new natural gas connection to any households and thereby the demand for LPG in newly constructed households and multistoried building is increasing. The Western region areas of Bangladesh such as Rajshahi, Khulna, Barisal and Rangpur have mostly remained outside the gas distribution network. As Padma Bridge becomes a reality, the economic activity in Khulna and Barisal region will increase manifold that will contribute higher demand for LPG. As manufacturing plants starts to flourish in those regions, industries also will have to use LPG due to the insufficiency of piped natural gas. The government has taken initiatives to gradually replace CNG with LPG (autogas) in the transportation sector to reduce dependence on natural gas. An autogas user can halve the fuel bills after paying for the cost of LPG conversion. At present there are around 10,000 autogas-run vehicles in the country and every month around 90-100 new vehicles are being converted to run on autogas. Choice of LPG or dependence on LPG is affected by the factors like       Household Income: It is expected that the dependence on LPG would increase with the income /expenditure level of the household, as income has been found to be an important variable in the choice of household items. Comparative Prices of Fuels: The use of each cooking fuel as with commodities is influenced by the prevailing prices. As such, wherever fuel can be freely collected, it is the preferred option. Hence, high Page 26 of 37 proportion of firewood is used in rural areas. Where firewood is not collectible, the next available option is used. Availability: The Availability of a particular type of fuel plays a major role on householder’s choice. Apart from the prices, the ease with which substitutes or competing fuels can be obtained would affect the amount of fuel consumed as well. LPG has lower average use in rural areas than urban areas. This could be the result of greater difficulty in obtaining refueling (cylinder replacements) as also the availability of biomass sources that could be used as a substitute to the supply of LPG. Demographic factors: The demand for LPG has historically been higher in the urban areas, probably because the higher costs of refills compared to other fuel and also because of the absence/shortage of biomass forces in urban areas. Social Factors: In addition to ability to pay, increasing incomes and education also lead to awareness of the adverse impacts of indoor pollution associated with each fuel evidenced in the quick switching from wood and twigs to kerosene as a family moves from slum to a tenement. Adoption of a better fuel has also been perceived as a status symbol. 4.3. FUTURE OUTLOOK OF THE INDUSTRY The future outlook of LPG industry is quite bright, since there is not much indication of improvement and increase of gas supply, especially at domestic level. The demand already exists and is increasing significantly with the passage of time on the backdrop of the fast-expanding housing sector and rapid industrialization. Bangladesh has enormous prospect in terms of gas consumption as only 6 percent of the entire population has access to natural gas and that mostly in urban areas. The gap between demand and supply of natural gas is widening day by day because of large scale conversion of fuel-run automobile engines to CNG and increased demand from the growing commercial ventures and households. Since natural gas contributes a major portion of electricity generation and thus contributes 56 percent of domestic energy demand; a necessity for alternative resources have come up and as a result LPG and other energy sources have appeared in the scenario. Due to government’s suspension on piped natural gas connections to households and industries, the demand for LPG has gone up to meet the daily gas necessities. Because of the increase in households and industries, there is a shortage in the projected domestic demand for gas, even if a conservation policy is undertaken. LNG is considered to be the possible alternative for industries. For households, LPG is expected to become a substitute for household gas usage. As the industry is largely import dominated and 98% of the bulk demand is imported, the import forecast can give some idea about the growth of the LPG market in the coming years. World LPG Association (WLPGA) sees Bangladesh as one of the fastest-growing LPG market across the world and predicted that demand for the fuel might reach up to 3.0 million MT by 2025. As the industry is largely import dominated and 98% of the bulk demand is imported, the import forecast can give some idea about the growth of the LPG market in the coming years. Year- Data Sources: https://databd.co/profiles/industries/profile-lp-gas Projected LPG import (in million MT- The government is also encouraging consumption of LPG instead of piped natural gas to ease the mounting gas crisis across the country. The energy ministry asked the LPG firms to increase their import to meet the gross mismatch between the demand supply of piped gas, especially in households for cooking and light engineering workshops. Under the current scenario, it is quite feasible to make LPG as the next alternative energy source as a substitute for the limited natural gas. As a clean and efficient fuel, LPG is appreciated. If the uninterrupted Page 27 of 37 supply of LPG at an affordable price can be ensured, LPG will be the most demanding cooking fuel of the country. 4.4. REGIONAL LPG INDUSTRY Residential demand of LPG expanded rapidly in developing Asian countries over the last decade. Industry highlights of few countries have been provided below: India: Indian LPG imports have been registering some remarkable trends in the last 10 years. The growth trends over the last 10 years, 5 years and 1 year are: 17% CAGR (FY07 to FY17), 14% CAGR (FY12 to FY17) and 23%. At nearly 11 million tonnes in FY17, India surpassed Japan’s imports at 10.6 million tonnes. The government has gone full throttle in promoting LPG as a reliable fuel through schemes such as Pahal, Ujjwala, Direct Benefit Transfer and 'Give it Up' which led to increased adoption of LPG in residential segment. While 'Pahal' got enlisted under Guinness Book of World Record for its largest cash transfer at a whopping USD 6.5 billion. All the same, under the Ujjwala scheme free LPG connections provided to 50 million poor households by 2019. A rapid increase in urban population combined with increasing LPG penetration in rural areas has resulted in a 10% growth in LPG consumption, making India the second largest LPG consumer in the World at 19 million tonne per year. Based on Government's continued efforts to promote clean fuel and increased adoption by consumers, LPG consumption is expected to see a sustained double-digit growth in the years to come. While over 90% of demand for LPG comes from residential consumers, a consistent hike in the excise duty for automotive fuels such as diesel and petrol has made commercial LPG a favorable option for AutoLPG segment. Owing to a significant drop in the crude oil prices and favorable economics vis a vis petrol and diesel, AutoLPG sales registered a growth of 4.9% during FY17. According to SIAM, the domestic passenger vehicle sales is likely to reach 7%-9% growth in FY18.The ongoing upsurge in LPG consumption as well as penetration in rural segment is driven by LPG’s practical advantage and an enhanced positive perception as an agent for women empowerment and social change. With new geographical shifts & expansions in demand base, there is a significant potential for LPG infrastructure addition and geographical diversification. Pakistan: LPG was originally introduced in Pakistan in 1966. Initially, the Pakistan LPG market was a fully regulated one, where supply was restricted to only indigenously produced LPG and where the Government of Pakistan used to control the pricing. The change occurred in-, when imports were allowed, leading to complete industry deregulation by April 2001. Although LPG’s share in the country’s energy requirements has been nominal to date; over the past decade, growth by volume has been at a rate of around 14% per annum. As Pakistan’s total energy requirements are expected to grow substantially during the next decade, recourse to import of LPG and LNG is critical to bridge the gap between demand and supply and ease pressure on local gas production. China: China’s demand for LPG amounts to 30 million tonnes annually, out of global consumption of over 240 million tonnes. Half of the urban residents in China are LPG users, with sales in south and east China accounting for more than 50% of total national sales. The recent drop in imports does not impact the supply of LPG in the domestic market, as around 90% of the LPG used in China is produced by its three big domestic refineries. Thailand: Thailand’s demand for natural gas and LPG has been growing at 3.6 per cent and 4.1 per cent respectively while simultaneously, production has been falling by 2.7 per cent. In 2017, Thailand imported over 13.4 million cubic meters of natural gas and that figure is forecast to increase by 10 per cent annually. Imports will cover 71 per cent of Thailand’s natural gas demand and 19.5 per cent of LPG demand by 2036. This would require increasing LNG and LPG trading to meet the country’s energy needs. Thailand’s 4.0 energy outlook and policies will take center-stage as the Kingdom angles to become a regional energy hub. Thailand, as an early adopter of gas for transportation will also set the example for neighboring countries as a leader in LPG utilization, sharing its knowledge and experience with Myanmar, Vietnam and Cambodia. Page 28 of 37 5. FINANCIAL PROJECTIONS & VALUATION 5.1. BASE CASE ASSUMPTIONS A financial model has been presented to analyze the overall feasibility and profitability of the project, with the following assumptions: 5.1.1.  5.1.2. Project Implementation, Investment and Financing Project Commissioning: First phase of the project has been commissioned in 2020 and it has been assumed that the phase 2 of the project will go into commercial operation from beginning of Q3, 2021. Investment Plan: Has been assumed as par with the one explained in Chapter 4.   5.1.3.  Economic Assumptions Projection Period: Projection has been made for 9 years from year 2020 to 2028 USD BDT Exchange Rate: BDT has been expected to get depreciated against USD by around 2.00% for the whole projection period, which is in line with the historical trend. The Base Exchange rate is assumed at 85.00 BDT per USD in 2020. BDT Inflation: BDT inflation during the project life has been assumed to be 5.4% p.a.   Production Assumptions The 3 categories of LPG products under the project will be packaged at the plant operated by TEXAS. The cylinders with the 03 capacities of LP gas are: - 12 kilograms: to cater domestic demand - 33 kilograms: to cater industrial demand - 45 kilograms: to cater domestic/other demand Table 9: Production Mix Products (Cylinder capacity) Production Mix (%) 12 kilograms 90% 33 kilograms 5% 45 kilograms 5% Total 100%  TEXAS will have an initial annual capacity of 5,700 MT LPG. The plant has been designed to attain annual capacity of 72,000 MT (including satellite plant).  Capacity Utilization for all the products has been assumed at a very conservative level. Table 10: Capacity Utilization Assumptions Products 2020 2021 2022 12.0 kilograms 22% 58% 75% 75% 75% 75% 75% 75% 75% 35.0 kilograms 22% 58% 75% 75% 75% 75% 75% 75% 75% 45.0 kilograms 22% 58% 75% 75% 75% 75% 75% 75% 75% (Cylinder capacity) 2023 2024 2025 2026 2027 2028 Page 29 of 37 Table 11: Assumptions on Annual Capacity (in MT) Products 2020 2021 2022 2023 2024 2025 2026 2027 2028 12.0 kilograms 64,296 67,680 67,680 74,448 74,448 74,448 74,448 74,448 74,448 33.0 kilograms 2,052 2,160 2,160 2,376 2,376 2,376 2,376 2,376 2,376 45.0 kilograms 2,052 2,160 2,160 2,376 2,376 2,376 2,376 2,376 2,376 68,400 72,000 72,000 72,000 72,000 72,000 72,000 72,000 72,000 15,048 42,984 54,000 75,240 75,240 75,240 75,240 75,240 75,240 (Cylinder capacity) Total Annual Production in MT Total Attainable Capacity in MT 5.1.4.  Revenue Assumptions Average price per product category has been assumed at current market price level of the LPG products. The price of these products has been estimated to increase in line with at a certain percentage of local inflation. Table 122: Current Market Price Products (Cylinder capacity) Price/Cylinder* in BDT 12.0 kilograms 825.0 33.0 kilograms 2,197.0 45.0 kilograms 2,974.0 * As on May 2020 5.1.5.    Cost Assumptions It has been assumed that the cost of production (factory, marketing, administration and distribution) will grow annually at a certain percentage of sales. Sales have been assumed to grow in line with at a certain percentage of local inflation. LPG import cost has been assumed at current international price level (which is USD 466/ MT as on May 2020). This cost is estimated to increase in line with market. Other expenses have been assumed to be as the percentage of sales. The following table shows different expenses as percentage of sales: Table 13: Cost Assumptions Factory Overhead % of Sales Selling, Administrative & Marketing Expenses 11.5% Distribution Expenses 7.0% Page 30 of 37 5.1.6. Fixed Assets The fixed assets to be acquired for the project will be depreciated in a straight line basis based on the estimated useful life of the assets, with the following applicable depreciation rates: Table 14: Depreciation Rate Fixed Asset Schedule Depreciation Rate Civil Construction 5.0% Furniture & Fixtures 20.0% Jetty 5.0% EPC 5.0% Vehicle 20.0% LPG Trailer 5.0% LPG Bottle 5.0% Interest During Construction Period 5.1.7.    5.1.8.  7.5.0% Debt Assumptions The existing debt amount of TEXAS is BDT 1,992.9 million in phase 1. The loan tenure is 10 years with grace period of 3 years (principal) and interest rate of 12.00% p.a. The Short term loan pricing is assumed at 12.00% p.a. for interest expense and LC commission expenses are assumed to be 0.30% per quarter. The loan amount of expansion project is BDT 2,058.7 million, loan tenure is 60 months with 12 months principal grace period. Interest rate assumed 5% of this loan. Working Capital Assumptions The working capital tied up period is assumed to remain constant throughout the projection period. These periods (days) are in line with the TEXAS’s working capital management strategy. Table 15: Working Capital Assumptions Item Tied up Period (days) 5.1.9.  2020 & onwards LPG Number of Days in Inventory 7 Finished Goods (Cylinders) Number of Days in Inventory 7 Account Receivables Turnover in Number of Days 15 Accounts Payable Turnover in Number of Days 30 Tax Assumptions The income tax assumptions are in line with current tax structure of Bangladesh 5.1.10. Dividend Assumptions  The dividend will be paid from third year of operation at the rate of 20% on net profit after tax or according to the dividend policy of the company. Page 31 of 37 5.2. BASE CASE PROJECTIONS The financials, thus projected are presented as follows: Table 16: Summary of Projected Financials Table 17: Projected Balance Sheet BALANCE SHEET 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 Current Asset Cash Stock - LPG Stock - Finished Goods (Cylinders) A/C Recievables BDT BDT BDT (8,779,619) - 352,734,971 11,431,120 17,914,686 44,747,620 797,879,008 34,736,386 52,208,546 130,119,676 188,325,158 49,513,454 70,987,755 176,476,514 (225,252,064) 52,922,851 75,052,183 184,063,739 (563,577,116) 56,793,961 79,598,735 191,887,389 (378,202,756) 60,247,034 83,723,403 199,666,487 (144,740,363) 64,524,574 88,699,076 207,752,980 74,413,068 68,447,668 93,348,579 216,166,975 263,368,539 73,307,452 98,964,191 224,921,738 Total Current Asset BDT (8,779,619) 426,828,397 1,014,943,616 485,302,880 86,786,708 (235,297,031) (34,565,831) 216,236,267 452,376,290 660,561,920 Fixed Asset Land and Land Development BDT 18,014,542 41,700,000 41,700,000 41,700,000 41,700,000 41,700,000 41,700,000 41,700,000 41,700,000 41,700,000 Civil Construction BDT 226,325,807 401,104,848 401,104,848 401,104,848 401,104,848 401,104,848 401,104,848 401,104,848 401,104,848 401,104,848 Furniture & Fixtures BDT 595,220 595,220 595,220 595,220 595,220 595,220 1,190,440 1,190,440 1,190,440 1,190,440 Capital Work In Progress BDT 919,472,671 919,472,671 919,472,671 919,472,671 919,472,671 919,472,671 919,472,671 919,472,671 919,472,671 919,472,671 Capital Machinery BDT 745,545,266 745,545,266 745,545,266 745,545,266 745,545,266 745,545,266 745,545,266 745,545,266 745,545,266 745,545,266 Electrical Equipment BDT Vehicles including Prime Mover & Tanker BDT 21,048,221 70,548,221 70,548,221 70,548,221 70,548,221 70,548,221 70,548,221 70,548,221 70,548,221 70,548,221 LPG Bottles (416,591 Cylinders, 1,415,591 Cylinders) BDT 1,021,152,961 595,220 3,521,152,961 1,545,220 3,521,152,961 1,545,220 3,521,152,961 1,545,220 3,521,152,961 3,521,152,961 3,521,152,961 3,521,152,961 3,521,152,961 3,521,152,961 IDCP, licenses and pre-op expenses BDT 436,958,734 522,313,563 522,313,563 522,313,563 Total Gross Fixed Asset BDT 3,389,708,642 6,223,977,970 6,223,977,970 6,223,977,970 Less Accumulated Depreciation BDT - (138,442,820) (468,961,041) (799,479,261) 1,545,220 1,545,220 522,313,563 1,545,220 522,313,563 1,545,220 522,313,563 522,313,563 1,545,220 522,313,563 1,545,220 522,313,563 6,223,977,970 6,223,977,970 6,224,573,190 6,224,573,190 6,224,573,190 6,224,573,190 (1,129,997,482) (1,460,515,703) (1,791,033,923) (2,121,552,144) (2,452,070,365) (2,782,588,585) Net Fixed Asset BDT 3,389,708,642 6,085,535,150 5,755,016,929 5,424,498,708 5,093,980,488 4,763,462,267 4,433,539,266 4,103,021,046 3,772,502,825 3,441,984,604 Total Asset BDT 3,380,929,023 6,512,363,546 6,769,960,545 5,909,801,588 5,180,767,196 4,528,165,236 4,398,973,435 4,319,257,312 4,224,879,115 4,102,546,525 Current Portion of Long Term Loan BDT 215,000,000 659,180,006 978,802,129 817,552,129 763,802,129 257,343,182 249,115,765 249,115,765 249,115,765 Short Term Working Capital Loan BDT Current Liability Security Deposits - A/C Payable 601,558,906 - - 601,558,906 - 601,558,906 - 601,558,906 601,558,906 601,558,906 601,558,906 601,558,906 251,488,966 752,344,631 814,973,975 828,651,349 845,279,771 860,044,296 878,444,372 895,228,500 916,133,135 BDT 215,000,000 1,112,227,878 2,332,705,666 2,234,085,010 2,194,012,384 1,704,181,859 1,710,718,966 1,729,119,042 1,745,903,170 1,517,692,041 Term Loan BDT 2,476,676,117 3,876,241,569 2,897,439,440 2,079,887,311 1,316,085,182 1,058,742,000 809,626,235 560,510,470 311,394,706 311,394,706 Paid up Capital BDT 201,558,906 601,558,906 601,558,906 601,558,906 601,558,906 601,558,906 601,558,906 601,558,906 601,558,906 601,558,906 Total Liability BDT 2,893,235,023 5,590,028,353 5,831,704,012 4,915,531,227 4,111,656,472 3,364,482,765 3,121,904,107 2,891,188,419 2,658,856,782 2,430,645,653 Paid up Capital BDT 487,694,000 899,722,003 899,722,003 899,722,003 899,722,003 899,722,003 899,722,003 899,722,003 899,722,003 899,722,003 Sponsors' Equity BDT 487,694,000 487,694,000 487,694,000 487,694,000 487,694,000 487,694,000 487,694,000 487,694,000 487,694,000 487,694,000 Related Party Loan BDT 456,694,000 456,694,000 456,694,000 456,694,000 456,694,000 456,694,000 456,694,000 456,694,000 456,694,000 Retained Earnings BDT 22,613,190 38,534,530 94,548,358 169,388,721 263,960,468 377,347,325 528,346,890 666,300,330 772,178,869 Total Equity BDT 487,694,000 922,335,193 938,256,533 994,270,361 1,069,110,724 1,163,682,471 1,277,069,328 1,428,068,893 1,566,022,333 1,671,900,872 Total Liability & Equity BDT 3,380,929,023 6,512,363,546 6,769,960,545 5,909,801,588 5,180,767,196 4,528,165,236 4,398,973,435 4,319,257,312 4,224,879,115 4,102,546,525 Total Current Liability - 201,558,906 Term Liability Equity - 456,694,000 Table 18: Summary of Projected Ratios FINANCIAL RATIO 2020 2021 2022 2023 2024 2025 2026 2027 2028 0.38 0.44 0.22 0.04 -0.14 -0.02 0.13 0.26 0.44 Liquidity Ratios Current Ratio Debt Managem ent Ratios Gearing 4.92 4.13 2.91 1.95 1.13 0.83 0.57 0.36 0.19 Long Term Debt to Equity 4.20 3.09 2.09 1.23 0.91 0.63 0.39 0.20 0.19 5.82% Profitability Ratios GP Margin 15.86% 15.10% 14.24% 12.72% 11.21% 10.23% 8.61% 7.55% NP Margin (Before Tax) 3.08% 0.74% 2.42% 3.09% 3.75% 4.32% 5.53% 4.86% 3.58% NP Margin (After Tax) 2.08% 0.50% 1.63% 2.09% 2.53% 2.92% 3.73% 3.28% 2.42% EBT to Sales 3.08% 0.74% 2.42% 3.09% 3.75% 4.32% 5.53% 4.86% 3.58% EBT to Total Assets 0.51% 0.35% 1.76% 2.68% 3.87% 4.77% 6.47% 6.05% 4.78% EBT to Total Equity 3.63% 2.51% 10.43% 12.96% 15.05% 16.44% 19.58% 16.31% 11.73% Sales : Fixed Assets 0.18 0.55 0.79 0.88 0.98 1.10 1.23 1.39 1.59 Sales : Total Assets 0.17 0.47 0.73 0.86 1.03 1.10 1.17 1.25 1.33 Asset Utilization Ratios Page 32 of 37 Table 193: Projected Income Statement INCOME STATEMENT Sales Cost of Good Sold: Cost of Raw materials (LPG) Total Cost of Materials Factory Overhead Total Cost of Goods Manufactured Add: Opening Stock of Finished Goods Goods Available for Sale Less: Closing Stock of Finished Goods 2019 - BDT BDT BDT 2020 1,088,858,747 2021 3,166,245,456 2022 4,294,261,832 2023 4,478,884,313 2024 4,669,259,802 2025 4,858,551,179 2026 5,055,322,502 2027 5,260,063,063 2028 5,473,095,618 596,051,280 596,051,280 338,071,619 934,122,899 934,122,899 1,811,254,392 1,811,254,392 911,048,386 2,722,302,778 17,914,686 2,740,217,463 2,581,772,940 2,581,772,940 1,119,731,415 3,701,504,356 52,208,546 3,753,712,902 2,759,548,661 2,759,548,661 1,153,886,574 3,913,435,236 70,987,755 3,984,422,990 2,961,399,415 2,961,399,415 1,189,106,040 4,150,505,455 75,052,183 4,225,557,638 3,141,452,500 3,141,452,500 1,224,124,944 4,365,577,444 79,598,735 4,445,176,179 3,364,495,627 3,364,495,627 1,260,527,639 4,625,023,266 83,723,403 4,708,746,669 3,569,056,961 3,569,056,961 1,298,404,643 4,867,461,604 88,699,076 4,956,160,681 3,822,460,006 3,822,460,006 1,337,815,666 5,160,275,671 93,348,579 5,253,624,250 BDT BDT BDT - BDT - 17,914,686 - (916,208,213) Cost of Goods Sold 52,208,546 (2,688,008,917) 70,987,755 (3,682,725,147) 75,052,183 (3,909,370,808) 79,598,735 (4,145,958,903) 83,723,403 (4,361,452,776) 88,699,076 (4,620,047,593) 93,348,579 (4,862,812,102) 98,964,191 (5,154,660,059) Gross Profit BDT - 172,650,533 478,236,539 611,536,685 569,513,505 523,300,899 497,098,403 435,274,909 397,250,961 318,435,559 Other Income BDT - 55,806 3,040,388 4,859,664 8,202,711 19,369,375 39,326,491 61,898,380 84,565,078 113,266,837 General Selling & Admin Exp BDT - (45,364,419) (131,875,063) (176,995,718) (184,380,617) (191,995,636) (199,567,292) (207,438,144) (215,627,767) (224,149,069) Financial Expenses BDT - (93,840,897) (325,814,695) (335,671,321) (254,742,335) (175,541,773) (126,881,942) (10,106,319) (10,718,940) (11,481,959) Profit Before Tax BDT - 33,501,023 23,587,170 103,729,311 138,593,264 175,132,865 209,975,661 279,628,825 255,469,333 196,071,368 Less Tax BDT - (10,887,832) (7,665,830) (33,712,026) (45,042,811) (56,918,181) (68,242,090) (90,879,368) (83,027,533) (63,723,194) Net Profit After Tax BDT - 22,613,190 15,921,340 70,017,285 93,550,453 118,214,684 141,733,571 188,749,457 172,441,799 132,348,173 Less Dividend Payment BDT - Retained Earnings BDT - (14,003,457) (18,710,091) (23,642,937) (28,346,714) (37,749,891) (34,488,360) (26,469,635) 22,613,190 - 38,534,530 94,548,358 169,388,721 263,960,468 377,347,325 528,346,890 666,300,330 772,178,869 89,972,200 89,972,200 89,972,200 89,972,200 89,972,200 89,972,200 89,972,200 89,972,200 89,972,200 0.25 0.18 0.78 1.04 1.31 1.58 2.10 1.92 1.47 15.86% 15.10% 14.24% 12.72% 11.21% 10.23% 8.61% 7.55% 5.82% NP Margin before Tax (%) 3.08% 0.74% 2.42% 3.09% 3.75% 4.32% 5.53% 4.86% 3.58% NP Margin after Tax (%) 2.08% 0.50% 1.63% 2.09% 2.53% 2.92% 3.73% 3.28% 2.42% 48,769,400 No. of Shares EPS GP Margin (%) - Table 20: Projected Cash Flow CASH FLOW 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 - 33,501,023 93,840,897 (55,806) 23,587,170 325,814,695 (3,040,388) 103,729,311 335,671,321 (4,859,664) 138,593,264 254,742,335 (8,202,711) 175,132,865 175,541,773 (19,369,375) 209,975,661 126,881,942 (39,326,491) 279,628,825 10,106,319 (61,898,380) 255,469,333 10,718,940 (84,565,078) 196,071,368 11,481,959 (113,266,837) BDT BDT BDT BDT BDT BDT BDT BDT BDT - 138,442,820 (44,747,620) (11,431,120) (17,914,686) 201,558,906 251,488,966 (10,887,832) (93,840,897) 55,806 330,518,221 (85,372,057) (23,305,265) (34,293,861) 400,000,000 500,855,665 (7,665,830) (325,814,695) 3,040,388 330,518,221 (46,356,837) (14,777,068) (18,779,208) 62,629,344 (33,712,026) (335,671,321) 4,859,664 330,518,221 (7,587,225) (3,409,397) (4,064,428) 13,677,374 (45,042,811) (254,742,335) 8,202,711 330,518,221 (7,823,650) (3,871,110) (4,546,552) 16,628,422 (56,918,181) (175,541,773) 19,369,375 330,518,221 (7,779,098) (3,453,073) (4,124,668) 14,764,524 (68,242,090) (126,881,942) 39,326,491 330,518,221 (8,086,493) (4,277,539) (4,975,673) 18,400,076 (90,879,368) (10,106,319) 61,898,380 330,518,221 (8,413,996) (3,923,094) (4,649,502) 16,784,128 (83,027,533) (10,718,940) 84,565,078 330,518,221 (8,754,762) (4,859,784) (5,615,612) 20,904,636 (63,723,194) (11,481,959) 113,266,837 Net Cash Flow from Operating Activities BDT - 540,010,457 1,104,324,043 383,251,736 422,684,998 449,120,014 471,659,477 520,328,048 502,757,556 464,540,870 Cash flow s from Investing Activities Changes in Net Fixed Assets BDT (3,389,708,642) (2,834,269,328) 0 0 0 (0) (595,220) (0) 0 0 Net Cash Flow used in Investing Activities BDT (3,389,708,642) (2,834,269,328) 0 0 0 (0) (595,220) (0) 0 0 Cash flow s from Financing Activities Changes in Long term debt Changes in Shareholder's Loan Paid up Capital Share Premium Change in Short Term Loan Dividends declared or ow ners' w ithdraw als Loan Repayment Made During the Year BDT BDT BDT BDT BDT BDT BDT 2,691,676,117 201,558,906 487,694,000 - 2,058,745,458 400,000,000 412,028,003 (215,000,000) (659,180,006) (14,003,457) (978,802,129) (18,710,091) (817,552,129) (23,642,937) (763,802,129) (28,346,714) (257,343,182) (37,749,891) (249,115,765) (34,488,360) (249,115,765) (26,469,635) (249,115,765) Net Cash Flow used in Financing Activities BDT 3,380,929,023 2,655,773,461 (659,180,006) (992,805,586) (836,262,220) (787,445,066) (285,689,896) (286,865,656) (283,604,124) (275,585,399) Net Increase in Cash/Cash equivalents Opening Balance: Cash/Cash equivalents Closing Balance: Cash/Cash equivalents BDT BDT BDT (8,779,619) (8,779,619) 445,144,037 352,734,971 797,879,008 (609,553,850) 797,879,008 188,325,158 (413,577,222) 188,325,158 (225,252,064) (338,325,052) (225,252,064) (563,577,116) 185,374,361 (563,577,116) (378,202,756) 233,462,392 (378,202,756) (144,740,363) 219,153,431 (144,740,363) 74,413,068 188,955,471 74,413,068 263,368,539 Cash flow s from Operating Activities Net Profit before Tax Adjustments for Interest Adjustments for Other Income BDT BDT BDT Depreciation Expense Change in Accounts Receivable Change in Stock: Raw Material Change in Stock Finished Goods Change in Security Deposit Change in Accounts Payable Cash Paid for Tax Interest & Financial Expense Other Income 361,514,590 (8,779,619) 352,734,971 Page 33 of 37 5.3. VALUATION SUMMARY For valuation purpose, we have used Discounted Cash Flow (DCF) Method Assumptions:     We have used Free Cash Flow to Equity on projected financials Our forecast are based on certain assumptions (Please refer section 7.1 for detail) We used discount rate of 13.00% based on long term investment rate, risk free rate and country risk premium We used Terminal Growth rate 5.4%. Under these assumptions, we conducted a discounted cash flow valuation using the free cash flow to equity method, summary of which have been provided below: Table 21: Valuation Summary - DCF Method DCF Valuation ( 10 yrs projections) Year Operating Cashf low BDT Capital Expenditure BDT Equity Changes in Long term debt BDT Debt Repayment BDT Free Cash Flow To Equity - FCFE BDT Cumulative Cash Flow BDT Discounted Cash Flow BDT Internal Rate of Return Payback Period % 0 1 2019 2020 - 487,694,000 412,028,003 2,893,235,023 2,458,745,458 - 3 4 2022 5 2023 383,251,736 6 2024 422,684,998 0 0 0 (0) - - - - (817,552,129) 7 2025 449,120,014 (215,000,000) (659,180,006) (978,802,129) (8,779,619) 361,514,590 445,144,037 (595,550,394) (394,867,131) (8,779,619) 352,734,971 797,879,008 202,328,615 (192,538,517) (8,779,619) 319,924,416 348,613,076 (412,746,297) (242,179,407) (170,796,845) (763,802,129) 8 2026 471,659,477 (595,220) - 9 2027 520,328,048 2028 502,757,556 464,540,870 (0) 0 0 - - - (257,343,182) (249,115,765) (249,115,765) (249,115,765) (314,682,115) 213,721,075 271,212,284 253,641,791 215,425,106 (507,220,632) (293,499,557) (22,287,273) 231,354,518 446,779,624 102,654,192 115,281,668 95,409,861 71,711,750 14.38% Years 8.50 % 13.00% Te rm inal Grow th Rate % 5.40% BDT 2 2021 1,104,324,043 (3,389,708,642) (2,834,269,328) Discount Rate Te rm inal Value 540,010,457 2,987,606,073 Discounted Terminal Value BDT 880,113,938 Total Equity Value BDT 1,099,206,734 Number of Shares No. 48,769,400 Equity Value per Share BDT 22.54 Return 125% Based on the valuation, the value per share derives at BDT 22.54, which shows a return of 126% over a 10 years horizon. 5.4. KEY INVESTMENT CONSIDERATIONS  Sponsor’s experience and expertise in energy sector of Bangladesh: The Group, the sponsor of Project Texas, is one of the most reputed business houses in Bangladesh. TEXAS has a proven track record of blending and distributing of petroleum and energy related products since 2015. Hence, the sponsor will leverage its expertise, business knowledge and wide distribution network for establishing TEXAS- that will make this project more feasible compared to those of its competitors.  Highly experienced management team: The Group has a highly experienced management team, from which TEXAS will leverage the management skills. Notably, this team is already highly involved in planning and designing this LPG project.  Sponsor’s strong distribution network: TEXAS will utilize the countrywide business network of the Group, which puts the company in an advantageous position than the other new players in the market.  Plan for Initial Public Offering: TEXAS management has a solid plan to go for IPO within next three to five years, after compliance with the Securities & Exchange Commission (“SEC”) guidelines. Under existing regulatory guidelines, TEXAS need to be a listed within three years of commercial operation since the paid up capital of the company exceeds the limit prescribed by SEC. Considering the valuation of listed energy companies in Bangladesh, it is expected that the primary shares of TEXAS will be traded at a price higher than the current offer price. Page 34 of 37  Feasibility of the Project: The financial projections show that the project is very sound and viable. Considering the growing demand of LPG in the country, TEXAS has planned to cater around 5% of market demand, which is expected to generate sufficient revenue to justify the offer price. Strategic reasons behind setting up TEXAS are to meet the growing demand of LPG in Bangladesh, to establish world class manufacturing facilities in a state of the art factory and eventually capture the domestic market share by virtue of sustainable growth. 6. KEY RISKS & MITIGATIONS TEXAS would be subject to risks of a typical nature for similar LPG companies. The majority of these risks are commercial business risks that can be mitigated effectively. The major risk factors and its mitigations in terms of the project have been identified below: 6.1. PROJECT IMPLEMENTATION RISK Risk: The project may not be fully funded due to cost escalation or failure of sponsor to inject necessary equity money on time. Mitigation: Sponsor of TEXAS has estimated the project cost on a conservative basis keeping room for cost optimization. The sponsor has taken the following measures to minimize the chances of cost escalation: a. Carried out proper due diligence to include all possible cost elements and obtain realistic cost estimates to avoid surprises at later stage b. Selected credible suppliers with good track record Despite the above measures, in the event there is cost escalation due to any unavoidable reason whatsoever, the sponsors are fully aware of their responsibilities to inject necessary additional equity in the form of paid up capital or shareholders’ / sister concerns’ subordinated/ unsecured loans to ensure timely completion of the project. The sponsor will inject sufficient equity fund on time to ensure timely completion of project and bear any sort of cost escalation. Based on their past track record in project implementation and financially sound condition of the Group, it is expected that the sponsors will be able to successfully carry out their responsibility of timely equity injection. 6.2. MANAGEMENT RISK Risk: The Company might be vulnerable to any change in 'Key man' risk; that will have severe impact on the management control Mitigation:   6.3. The Group management has proven track record of managing a company and also, launching a number of new businesses and projects. The company has also a very good succession plan. TEXAS will have professional management in place for key functional areas such as Operations, Procurement, Finance, Sales and Marketing. INTEREST RATE RISK Risk: The project may not remain profitable, if interest rates of the debts increase. Mitigation:  This is not a very likely scenario over mid to long term. The output indicated that TEXAS should still be able to service the debt on time. Page 35 of 37 6.4. INDUSTRY RISK Risk: Despite supply constraint, the LPG industry might get saturated within next few years since many companies have already applied to the government to install LPG plants Mitigation:  The LPG industry is not expected to get saturated since the demand is increasing significantly over time on the backdrop of the fast-expanding housing sector and rapid industrialization. There is not much indication of improvement and increase of gas supply, especially at domestic level. The government is also encouraging consumption of LPG instead of piped natural gas to ease the mounting gas crisis across the country.  Companies with long term commitment in the local market will sustain in the long run. The Group has already established a strong brand with focus on strategic market segment. 6.5. SOCIAL & ENVIRONMENTAL RISK Risk: TEXAS may pose social and environmental risks through its operations. Mitigation:  Conforming to country environmental standards and international standards for LPG plants mitigates such risks for TEXAS  TEXAS will maintain high standards of compliance and does not leave any loop hole in maintaining high standards for preventing any environmental hazards created by the company’s operations. Page 36 of 37