Leopard Cambodia Fund - Monthly
Newsletter Issue 14 - June 2009
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LCF Makes its Second Investment...
On 12 May 2009, Leopard Cambodia Fund, L.P. ("LCF")
committed US$1 million in equity financing
to Greenside Holdings. Greenside is
part of a consortium of investors that is refurbishing, designing,
constructing and commissioning a rural power
transmission and distribution system. Greenside
will use the funds received from Leopard to help fund its share of
the approximately $4 million project.
The transmission and distribution system is 120
kilometers in length and includes medium and low voltage
networks. The system is expected to provide grid power to 7,700
residential customers and 375 commercial and industrial
customers. The total population of the distribution area is
approximately 425,000. The electrification rate in Cambodia is
currently one of the lowest in Asia and there is an urgent need for
more power generation and transmission.
The system is expected to be completed in early 3Q
2009. The Consortium has a 25-year lease agreement with
Electricit� du Cambodge ("EDC"). Following the lease
agreement, the transmission system will be transferred to EDC.
Leopard has already received its first profit-share
payment from Greenside and expects consistent annual returns of 20%.
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On June 4, 2009 LCF called up US$1.8
million to establish Cambodia Plantations
(S) Pte. Ltd., a Singapore based company which will serve as an
offshore finance vehicle for agricultural investments in central
Cambodia. The drawdown will fund the establishment of a
subsidiary that is in the process of obtaining a land concession in
the province of Kompong Chhnang for rice
cultivation. Rice has been Cambodia's core product for
several millennia although the cultivation techniques have not
advanced greatly for the past eight centuries. We hope Cambodia
Plantations will play a role in helping modernize this vital sector
while achieving an attractive return for the Fund. Further details
will be provided as the project passes milestones.
Meanwhile, our investment team continues to advance
various other investment opportunities and we hope to continue to
announce additional investments in the coming months. LPs
should expect another drawdown before long.
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Feature Story: Cambodia's Southern Seaboard, by Douglas
Clayton
One of Cambodia's future growth drivers will be the
development of its 440 km virgin coastline. We recently
visited Sihanoukville to get an update on the opportunities there;
here are our travel notes.
After the three hour afternoon drive from Phnom Penh
we head directly to our favorite local restaurant to watch the sun
set over the water while feasting on Kampot pepper crabs and
listening to the mesmerizing waves. Tiny fishing craft float in to
unload their catches; one boat heads directly to our restaurant for
just-in-time delivery service. Offshore two big ships are visible,
the semi-retired cruise ship "Jupiter" which reportedly
will one day ferry tourists to Vietnam's nearby Phu Quoc Island,
and a massive sand carrier anchored on the horizon. Sand dredging
has become Cambodia's latest extraction bonanza, encouraged by
unlimited-quantity buy orders from affluent Singapore which can
only expand its island territory by filling in the sea.
After dinner we check in to our $25 room at a nice
new boutique hotel on Victory Hill. It seems we're the only guests;
this is low season is a slow year.
Next morning our Cambodian friend leads us down
unpaved roads to a river where a "long-tail" boat
awaits. Cambodian VIPs such as our host bring a small military
escort when they travel upcountry; joining us are two soldiers
bearing AK-47s, one wearing a canvas sling with 3 spare banana
clips of ammo. Over the past two years we have never felt the
least bit threatened in Cambodia, but have learned to appreciate
soldiers' dual role as umbrella bearers; Cambodia's mid-day sun can
get scorching.
Our boat glides through a vast, pristine brackish
water ecosystem, with both riverbanks densely barricaded with
mangrove trees with gnarly root systems spilling into the
water. The only sign of human habitation we pass are a
handful of patched-together shacks on stilts, with a couple rickety
fishing boats tied alongside. Cheerful smiles and waves from
the moms and kids to our armed vessel.
Our host shares his ideas to develop an eco-resort
within this natural paradise (which a previous owner had brazenly
earmarked for industrial use). Then we climb back into our
vehicle convoy to explore his hundreds of hectares of land behind
the mangroves. The tour concludes with a visit to the hut of
the local family serving as the land's watchmen; they report it's
pretty lonely living out there and request a second caretaker
family, which our host promises to arrange. On the way out,
our vehicle's driver misjudges a washed out river crossing and
suddenly we are mired in the mud, four wheels spinning helplessly.
The soldiers pull out their cellphones - which thankfully work even
in this remote area, and within a half hour we have a dozen men
standing around, hands on hips but with no useful equipment.
Finally a villager appears on a motorbike carrying a flimsy
clothesline "tow rope", and we decide to take a stroll
rather than witness the debacle we sense will unfold. However
when we return a bit later we find they have somehow rigged up the
thin rope via a long board to another truck and have managed to
extract the stranded vehicle from the mud. Score one for local
knowledge.
We drive through kilometers of agricultural land and
observe that the most flourishing crop there is acacia, a fast
growing tree chipped for pulp or biomass power. The trees are
planted close together and can quickly convert denuded land into a
thick mono-crop forest. We travel along the new roads being
built along the coast which essentially link Sihanoukville Port to
the private Mong Reththy pier further north; some portions sport
utility poles bearing a single internet cable but not power lines.
Another local business group, Attwood, gives us an
interesting tour of their ambitious $380 million deep sea port
project located in Steung Hov a fishing village close to
Sihanoukville. We watch the backhoe operators gently nestle
boulders into the foundation matrix of the Phase 1 general cargo
pier. The rocks are being blasted out of a nearby hill that
Attwood has decided to simply relocate into the sea. The
managers explain their plans to reclaim a huge amount of industrial
estate land and create Cambodia's deepest seaport, which would
allow larger sized ships to berth and lower the cost of freight transport.
Securing funding for a project of this magnitude seems daunting,
but Attwood is forging ahead with Phase 1 and hopes to berth the
first cargo barges within a year. There is also talk of a
sizable coal-fired power plant on the back corner of the project
site; the coal would be imported through the new port.
We pass an oil refinery north of Sihanoukville which
seems to have suddenly appeared without much fanfare. There were
reports a while back that China National Chemical Engineering Group
would build a $400 million, 40,000 barrels per day refinery in
Sihanoukville; presumably this is its incarnation. But the nearly
complete project now looks oddly abandoned, the driveway is chained
and the guard is dozing. Three different sources give us three
different explanations: (1) they are now waiting for crude
oil to be extracted in Cambodia, which has been delayed, or (2)
it's a second-hand plant that was banned in China and dumped in
Cambodia but now banned here as well, or (3) after building it they
realized the water offshore isn't deep enough to bring in a tanker,
even with a long pier, oops. We remain puzzled.
We head back to Sihanoukville's downtown.
Sihanoukville is a 1960s creation and lacks the crumbling French
Colonial mansions and towering trees that make many Cambodian towns
so appealing. Still, there are a few modernist 1960s icons
like the Independence Hotel or the derelict train station, which we
discovered to be partially flooded. Most of the town is of
more recent vintage, with building designs ranging from functional
to tasteless. But Sihanoukville remains the commercial center
of the Cambodia coastline with over 10 banks, 3 casinos, two 4-star
hotels, dozens of guest houses and restaurants, and even a few
traffic lights to bottle up the light traffic.
The once booming real estate market has taken
slumped here, like everywhere. The big garish Japan-funded
Emario Shohan Hotel & Resort overwhelming Hawaii Beach seems
about 75% complete but the finish-up construction crew looks sparse.
Nearby, an even smaller squad of workers toils on the 900 meter
bridge project to link nearby Snake Island to the mainland; the
first few piles are in and easy to spot as they tower 32 meters
above the water. The $25 million bridge is part of a planned $300
million development of Snake Island; no one seems quite sure who is
really behind the project which was conceived by Russians and has a
Chinese contractor. The local Sokimex Group's mammoth 54 hectare
Occheuteal beach development project (where a golf course, casino,
and several 16 story towers are planned) remains a fenced bare lot,
as does the future $33 million Japan-sponsored Sihanoukville
Special Economic Zone near the Port. The only project freshly
launched is the Australian-owned Brocon Group's Song Saa Island
resort; 5 over-the-water villas are offered for sale at
$450,000 each and the designs look nice. Further out, Club
Med says they plan to launch a resort somewhere around
Sihanoukville in 3 years.
But more significant than real estate, a major
upgrade to Sihanoukville's infrastructure is getting
underway. Sihanoukville Port now has new, faster Japanese
cranes handling its container traffic and further investment is
planned. We were happy to see crews upgrading the rough
mountain pass section of the Phnom Penh-Sihanoukville highway.
Sihanoukville's dormant airport and railroad line now each have
credible plans for reactivation (see "In the News"
below), and either of those projects could have a major impact on
the coastal economy.
We finish our trip with memorable hikes through
several large privately-owned beachfront areas which are currently
difficult to access and blissfully tourist-free. These sites are
very scenic and would certainly make spectacular resort locations,
if someone could deliver enough people there. Today we still
see more stray cows than humans on most of Cambodia's white sand
beaches; this reminds us of Phuket, Thailand when we first visited
it before it blossomed into Southeast Asia's swankiest beach
destination. Here in Sihanoukville, we can sense the change is
inevitable, only the timing is uncertain. As always, the investor's
task is to get the timing right.
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Leopard
Capital founder Douglas Clayton
will address the Super Returns Emerging Markets Conference in Geneva
June 30-July 1st, visit Zurich July 2-3, and New York City July 6-10
to speak at the Asian Venture Capital Journal's Venture
Capital and Private Equity Forum, New York, on July 9th. If you
would like to meet him in any of these places, please email: [email protected].
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Leopard
welcomes new arrivals
We are pleased to welcome several new members of our
Phnom Penh team:
Kevin Fleischhaker, 28, Intern
has three years of experience working in natural resources,
technology, and finance. He previously served as a Merchant Banking
Associate at Quest Capital in Toronto. Mr. Fleischhaker holds an MBA
and BSc from the University of Toronto.
Sarah Maghfur, 25, Intern
is currently completing her MA at Johns Hopkins University's SAIS,
where she focuses on Southeast Asian studies and international
finance. She previously worked in anti-corruption and governance
issues at MSI, Inc. in Washington D.C, including work coordinating a
Millennium Challenge Corporation-funded technical assistance project
to the Government of the Philippines and a USAID legislative
strengthening project to the Kyrgyzstan Parliament. Sarah received
her BA in Economics and International Relations from Mount Holyoke
College and is fluent in Indonesian and Malay.
Wathana Cheng , 29, IT Specialist
was previously employed as IT Officer at BBC World Service Trust,
after serving as IT Consultant at B.N.G Ltd, and IT Assistant
Manager at Medtecs Cambodia Co., Ltd. He holds a Bachelors
degree in Information Systems Management from National Institute of
Management.
Phat Sotheary, 24, Executive Assistant
previously worked at Abercrombie & Kent Cambodia as Assistant to
the Director of Operations. She was trained as a finance department
volunteer at National Centre of Disabled Persons and holds a
Bachelors degree in Accounting from National Institute of Management.
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The concession to operate Cambodia's railway
system has been awarded to a joint venture between Royal Group, a
local conglomerate, and Toll, an Australian logistics provider. Rail
service is expected to launch in 2011 after a $73 million, ADB-funded
track rehabilitation project is completed, to link western Cambodia
from Sihanoukville Port to Phnom Penh to the Thailand/Malaysian
railway system.
The Tourism Minister announced a new national
airline - Cambodia Angkor - will be launched in September,
reportedly backed by Vietnam Air. It plans to connect Siem Reap
to Sihanoukville - Cambodia' key tourist centers - and later, Siem
Reap to foreign cities.
South Korea has agreed to lend $60mn to finance road
and sewage system projects in
Cambodia.
Cambodia has finally been removed from the US
Export-Import Bank blacklist, just two decades
after having abandoned Marxism-Leninism.
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Picture of the Month
Sihanoukville's Sokha Beach
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Leopard in the News: Articles
containing information and comments on both Cambodia and on the
Leopard Cambodia Fund appear regularly in various publications and
news outlets. To view the page in our website
displaying links to these, click
here.
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The
NAV
of Leopard Cambodia Investments (BVI) Ltd as of 31st March
2009 is USD 1008.75 (27th Feb 2009 USD 1008.01)
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Fund
size:
USD27,187,000
ISIN No:
KYG5458L1023
CUSIP
No:
Valoren
No:
Bloomberg:
Lipper
ID:
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Leopard Cambodia Investments
(BVI) Ltd.
Fund
size:
USD17,012,000
ISIN
No:
VGG5458M1005
CUSIP
No:
Valoren
No:
Bloomberg:
Lipper
ID:
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