Newsletter Issue 22 - June-August
2010
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Economy Continues to
Improve
Cambodia's economy
gained momentum in 2Q10, making us wonder if the consensus full year
4-5% GDP growth predictions might prove too cautious. Consider these 1H10 achievements
over 1H09: trade +16%, tourist
arrivals +12%, garments +10%, bank deposits +31%, bank loans +14%,
microfinance loans: +25%, foreign exchange reserves +18% (to $2.9
billion). The only key sector
still ill is real estate, as demand remains dormant despite a plunge
in prices over the past two years.
Nonetheless, construction continues on a few pre-crisis condo
projects in Phnom Penh such as Korea-funded Gold Tower 42, which has
reached its 27th floor now.
There
are some hopeful signs for future FDI, mainly from Asia. New
foreign business registrations surged 42% in 1H10, led by investors
from China, Vietnam and Korea. Vietnam officials said their
businesses intend to invest $1.3 billion in Cambodia over the next
two years in seven industries, including oil, power, mining, and
rubber. China's cumulative investments in Cambodia have now
reportedly reached $8 billion, making it by far the largest
investor. China has been the dominant infrastructure banker and
contractor here, like in most frontier economies, and recent news
suggests no change to that policy. China has just agreed to finance
and construct the $26 million first phase of Phnom Penh's second
river port, which will triple the port's capacity. China's
Ex-Im Bank will also finance Huadian Power's US$412mn, 338-MW
hydropower project in Koh Kong province, which when completed in 2014
will nearly double Cambodia's current generation capacity.
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Leopard
Cambodia Fund News
We are pleased with the performance of our portfolio
companies this year. It was also a nice surprise to see two of
them featured recently in separate magazine cover stories. Here's an
update:
Local
excitement is brewing as Kingdom Breweries prepares to launch
its flagship "Clouded Leopard Pilsener" by October 1st. The
brewing and bottling equipment are working well, and the riverview
Tap Room looks grand. Brew-master Peter Haupenthal is still
fine-tuning the final recipe but the beer's trial batch has drawn
positive comments from early tasters, such as AsiaLIFE Guide:
"With a strong, crisp and slightly bitter aftertaste, Kingdom
Pilsener is certainly in a different league from the regular lager.
Perfect on a hot day, half a pint of the brew leaves a sense of
having drunk real beer, not average dishwater."To review the
full Cover Story, please click here."
Nautisco Seafood successfully
exported its first containers of frozen processed shrimp
to customers in Japan and Korea who now want to sighnificantly
increase the size of their orders. Global prices have risen since BP
contaminated the shrimp-rich Gulf of Mexico. Management is busy
making operational improvements to be able to meet the demand.
Nautisco's workforce has reached 330 and could double again within
six months, delivering significant development impact to a region
that certainly needs it. Click here to read Economics Today's Cover
Story on Nautisco.
ACLEDA Bank's
1H10 earnings soared 71% Y-on-Y to US$ 9.43mn with 60% of this coming
in the second quarter (for more details, please click here). Furthermore, July's
monthly result came in very strong, and management is aiming to
deliver net profit for the full year of at least double 2009. We
were pleased to learn that other foreign investors recently bought
into ASA (the shareholding vehicle for our ACLEDA stake) at a premium
to our purchase price. Lastly, ACLEDA's application for a securities
brokerage license was approved.
CamGSM, into
which the Fund made its largest investment, continues to
generate excess cashflow and to pay down its outstanding debt to
the Fund earlier than contractually required. Its subscriber base
grew 4% in 2Q10 to 2.8 million, lifting its market share to 38%. The
upcoming planned launch of its proprietary mobile money transfer
service may drive further growth.
Angkor
Residences Ltd. is the new official name of
the entity formerly known as Cambo Fund Ltd. Its project to widen,
pave, and put drainage alongside the public access road is now fully
complete, making it much easier to approach and view the
still-undeveloped site, especially in the current rainy season. Siem
Reap's residential property market remains in hibernation but at
least its tourism arrivals climbed 26% in 1H09 over 1H08 which should
eventually breathe life into that city's economy.
Greenside Holdings continues
to make its monthly interest payments to the Fund.
We
are still awaiting official approvals for Cambodia
Plantations' targeted farmland concession.
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Annual
Investor Meeting
A record number of participants attended
Leopard Cambodia Fund's second annual Investors
Meeting on May 28th at the Raffles Hotel Le
Royal, Phnom Penh. LPs heard presentations from the investment team
and from the CEOs of many of our investee companies. The day
concluded with a guided tour of the Kingdom Breweries plant, followed
by a Cambodian dinner. We look forward to an even larger turnout in
May 2011.
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Our Managing Partner, COO, and good friend Thomas
Hugger
has returned to his former job as Head of Portfolio Management at LGT
Investment Management in Hong Kong. Fortunately Thomas remains a
Consultant Partner of Leopard Capital, so we can continue to tap his
experience and judgment from time to time. We thank Thomas for his
diligent service and lasting contributions, and wish him the very
best.
We
are pleased to welcome as our incoming COO Michael
Pritchett. Michael graduated from University of
Virginia with degrees in Electrical Engineering and Economics, then
marketed real estate in the US, developed alternative energy in
Europe, and set up his own charcoal factory in Thailand.
We
are fortunate to continue to attract high quality summer interns, the
latest four being: Nora Maligmat,
Who is pursuing a BS at university of Hawaii, Raisuddin Khan, a BBA student at the
Hong Kong University of Science and Technology, David Frank, an MBA student from the
University of Cologne, and Ussa Seang,
who just completed his MBA from Cornell University. All have made
useful contributions while learning about the private equity
investment process and experiencing life in Phnom Penh.
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The autumn conference season is approaching, and our CEO
Douglas Clayton will be speaking at the following events.
LPs and potential future investors who wish to arrange a private
meeting around the conference dates should email [email protected].
In London,
Sept 16-17: Investing in Frontier Markets, Assessing Favourable
Regions and
products in a Diverse Market. Organizer: Marcus Evans
Conferences. Location: Marriott Hotel Marble Arch, London. For more
information on this conference, please click here.
In
Saigon,
Oct 19-21: 2010 Southeast Asian Private Equity Conference, Maximizing
Return through Southeast Asia Partnerships.
Organizer: Thunderbird Graduate School of Management's Global Private
Equity Center. Location: Sheraton Hotel & Towers Ho Chi
Minh City. For more information on this conference, please click here.
In
Hong
Kong, Nov 11-12: Annual AVCJ Forum: Asia's Private Equity Week
2010: Organizer: Asian Venture Capital Journal.
Location: Four Seasons Hotel, Hong Kong. For more information on
this conference, please click here.
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- The Cambodia Stock Exchange's launch
has been reset for July 2011 "at any cost".
- Cambodia's monthly minimum wage was
raised by $5 to $61.
- Capital Intelligence assigned Cambodia
a B+ Credit rating.
- Forbes ranked three unspoiled Cambodian
beaches amongst "Asia's Best Beaches".
- The US and Cambodia completed their
first ever joint military exercise.
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Travel Notes: Myanmar Revisited, by Douglas Clayton
Over dinner, one of our
European investors tells me he's building his retirement home in
Myanmar, of all places. "You should come see it", he
says, and goes on to describe a housing estate so that sounds nothing
like the Myanmar I remember. It doesn't take much to convince me to
join him there for a look.
I fell in love with Myanmar on
my first visit there in the late 1980s - a simpler time when Yangon
was called Rangoon, Myanmar was Burma, and mainland Asia was all an
irrelevant frontier market to most foreign investors. Burma's
exotic countryside seemed like a living museum, a place to see how
people lived before machines were made, when energy was delivered by
hand and hoof. Misty images linger of Inle Lake's floating
villages, the long rickety teakwood bridge near Mandalay, the
storybook English cottages around Maymyo hill station, and the sight
of hundreds of ancient pagodas stretching out under Bagan's
shimmering sunset. On a few subsequent visits it felt like not
much had changed in Myanmar, as if it was content to remain a
spectator to the Asian Miracle unfolding around it.
It didn't have to be this way.
In the early 1990s Myanmar got off to a promising liberalization
start, moving ahead of its neighbors in Indochina in some aspects. A
former employer of mine even launched a Myanmar Fund in 1994,
although this later proved to be ahead of its time. Myanmar's
leaders winched back their half-open doors after watching more
globalized ASEAN economies topple like dominoes behind the Thai
Baht's 1997 collapse. At the same time the US banned investment
in Myanmar by US nationals, in an emotional effort to force policy
change in an already isolated country. But long years of
economic sanctions proved as ineffective in reorienting Myanmar's
leadership as they did in Cuba, North Korea, Zimbabwe, and Iran.
Firmly in power since 1962, Myanmar's ruling generals simply brushed
off Western criticism and redirected their business opportunities to
more pragmatic neighbors such as China and ASEAN. These countries -
lately joined by India - have been delighted to acquire cheap natural
resources and strategic infrastructure projects without competition
from Western companies. Like a misguided missile, the sanctions
missed their military target and landed on the poorest of the poor,
by driving out the development agencies and labor-intensive factories
which might have lifted millions out of poverty by now.
Myanmar's people now get one-tenth as much development assistance per
capita as Cambodia's, although per capita income is much lower in
Myanmar.
So with the liberalization
program largely suspended, Myanmar's economy has pursued an uneven
development path, moving ahead with energy exporting projects that
mostly supply its neighbors while standing still in many other areas.
But some rays of hope are appearing. Myanmar's military government
has started its own process to introduce a Constitution-based
democracy, using its own definition of the concept. A national
election will be held on November 7th, which optimists believe should
bring some younger retired generals into power and set the stage for
a resumption of economic reform and global engagement.
As a down payment on change, Myanmar announced in May a new
"Visa on Arrival" policy for tourists. For the
tourism industry, this change is monumental. I decide to road-test
the new policy on this trip, knowing that getting a visa from a
Myanmar Embassy is time consuming at best. Bravo - the new visa
policy really works, and what used to take five days now takes just
five minutes at the airport. Impressed, I walk out wondering
what other local barriers to development could likewise be cleared
overnight with a stroke of a pen. If Myanmar could just bring
its investment policies up to typical ASEAN standards, Yangon's
airport would be awash with eager investors. But today and most of my
fellow travelers seem to be toting backpacks not briefcases.
On my taxi ride to my hotel,
something feels odd about Yangon compared to the other Southeast Asia
cities I regularly visit, and I try to figure it why. Of course the
streets are much bumpier here, and the roadside looks greener but
less trimmed. The traffic is lighter, and consists of obsolete
Japanese sedans rather than those smart Lexus SUVs and occasional
Hummers one sees in Phnom Penh. (I later learn that a 200% excise tax
triples the cost of a car here.) But then I realize the biggest
difference is what is totally missing - the thousands of motorbikes
that swarm the streets of Saigon and Bangkok. Someone tells me
two-wheelers were banned from downtown Yangon after a VIP's son
suffered an unfortunate accident on one. Or perhaps a General
simply concluded this would simply make Yangon a more pleasant,
orderly, and less polluted city; if so he was right about that.
Moving the masses and
motorbike owners is a fleet of truck-busses, each hauling 15-20
passengers in the rear. Gone are the smoke-belching colonial-vintage
British busses I saw on my first trip, absurdly overloaded with
passengers, some clinging to the door and others perched up on the
roof. I'm sure the locals don't miss those clunker busses, but
they provided me some great photos back then.
One benefit of Yangon's
investment neglect is that it still contains magnificent examples of
British imperial architecture. I am relieved to find these
glorious buildings still stand, yet many are vacant and ghostly now,
as government officials have relocated to the mysterious new capital
city of Naypyidaw 320km north. The fate of these deteriorating
buildings is unclear but a mass privatization of state properties is
quietly underway, which one suspects might hasten their eventual
demolition.
In our Facebook Age of global
uniformity I am happy to see most of Yangon's men and women are still
wearing a longyi rather than western clothing. The Burmese appear to
have maintained the traditional values that modernization tends to
diminish, including basic honesty. A resident expat tells me it
is not uncommon to see someone climb on to a public bus carrying a
large bundle of currency clearly visible in a plastic bag (kids,
don't try that back home.) He says the Burmese are hard
workers, also. Around one million have crossed the border to toil in
Thailand's factories and homes, where they have earned a reputation
as cheerful, diligent, inexpensive, and un-militant. One of those
million works in my own home and she certainly fits the description.
We stop for lunch at the historic Strand Hotel, where I stayed on my
first visit. I still recall the dining room back then: the battered
silver tea servers carefully polished, the dignified waiter in frayed
white jacket presenting an elaborate menu of Victorian meals - only
to advise that each dish I tried to order was "out of
stock". Eventually I got the message and ordered the plow
buffalo curry that was the standard fare at all government-run hotels
then. But today the Strand has been restored to its colonial-era
splendor and we enjoy a meal fit for a Viceroy.
After lunch we cross the river
to my friend's "dream home" site, which turns out to be a
splendid riverfront lot with a distant view of the iconic Shwedagon
pagoda. A few dozen workers are carving out the driveway and
reshaping the riverbank, using only hand tools. They smile shyly at
us but keep on hoeing. The site is one of the finest lots in the Pun
Hlaing Golf Estate, a self-contained residential community that
contains Myanmar's best international hospital, best international
school campus, and best golf course - a Gary Player championship
course that includes the country's best spa, gym, and tennis courts.
We drive electric cars over smooth roads lined with shade trees, lush
landscaping, and flood-proof drainage, and there is even a special
power connection to banish blackouts. Such amenities are unique
in Myanmar, yet lot prices are cheap by Yangon standards and I make a
mental note to book one the next time I win the lottery.
The Golf Estate is an
unexpected oasis, but otherwise Myanmar feels a decade behind
Cambodia, which itself feels a decade behind Vietnam, which feels two
decades behind Thailand. For the adventurous investor, Myanmar is the
Shangri-La, Asia's frontier of frontiers. Everyone knows that
fortunes will be made here once the sanctions are lifted and the
economy opens up, as Myanmar is a naturally rich country with a
temporary governance problem. Some entrepreneurs who scored by
entering Cambodia early are looking to replay their experience here,
and I stop in to see what a few are doing. One of the founders
of the popular FCC restaurant in Phnom Penh has set up a beautiful
pub called 50th Street, featuring live music - Yangon already has a
thriving music scene compared to Phnom Penh. We also stop in to
visit the publisher of Myanmar
Times, who also runs the leading daily in Cambodia.
His office is in a historic building that is nicely renovated and
decorated with huge colorful abstract paintings by one of the many
first-rate local artists here. The spacious press room would
make a great movie set, while heavy printing presses occupy the floor
below, which smells of ink. These days one rarely finds owners
of old-fashioned newspapers who are still optimistic about their core
business, but Myanmar travels in a different dimension and the Myanmar Times is bravely
in expansion mode.
Over the course of my visit I
encounter the usual frontier market inconveniences: the
country's Internet service flickers on and off, my Gmail seems to be
blocked, my Blackberry doesn't work. My hosts describe some more
serious surprises that await intrepid investors. For example,
the economy operates without a fully-functioning banking system.
After a bank run in 2003 led to the closure of 20 commercial banks,
the range of available banking services was sharply reduced and never
fully restored. As a result, commercial transactions may
involve bags of cash, while surplus savings typically get deposited
into property or cars as tangible stores of value. As a result
land in downtown Yangon is surprisingly expensive, bearing little
relationship to the yields that owners can derive from it.
The West has very low
expectations about the upcoming elections but the view here on the
ground seems more sanguine. Certainly it seems to me that
Myanmar can sink no lower but has huge upside once it decides to
develop. To comprehend Myanmar's potential, look over the
border at Thailand, a country of comparable size and population whose
capital Burmese forces sacked and pillaged 243 years ago. Around the
time of World War 2, colonial Burma's economy and development
surpassed Thailand's, but over the last half century of independence
Burma impoverished itself through socialist policies and military
rule. Both countries still have armies that assign themselves an
overarching political importance, but by holding frequent elections
and welcoming foreign investment, Thailand has been able to build a
GDP 10x larger than Myanmar's. Thailand will continue to grow well above
the world average but the gap between these historical peers seems
likely to narrow as Myanmar introduces a political system more
similar to Thailand's. Note that Myanmar has only just begun to
tap into its dazzling endowment of natural resources (oil and gas,
minerals, precious metals, gemstones, timber, seafood, etc.) or to
develop the myriad processing industries these resources would
support. With the largest landmass in mainland Southeast Asia
and large fertile river deltas, Myanmar also has the potential to
become a major exporter of rice and other agricultural
products. Its 2,000km uninterrupted coastline on the strategic
Indian Ocean offers deep water port sites, virgin beaches, and
substantial fisheries potential not to mention 600 little-used
tropical islands. From my own wanderings in both countries, I
would rate Myanmar's long-term tourism potential just as strong as
Thailand's - which draws 14 million tourists a year versus Myanmar's
300,000.
Obviously this country will be a fabulous place to invest, when the
time is right. I fly out resolved that Leopard Capital will be
here when that time comes.
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Picture of the Month: Modern Myanmar, Photo by Douglas Clayton
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This
document does not constitute an offer to sell, or a solicitation of
an offer to invest in Leopard Cambodia Fund LP, Leopard Cambodia
Investments (BVI) Ltd., Leopard Sri Lanka Fund LP, Leopard Sri
Lanka Private Equity Investment Fund, Leopard Cam-Lao SME Fund LP,
or any other funds sponsored by Leopard Capital LP or its
affiliates (collectively, "our Funds"). We will
not make such offer or solicitation prior to the delivery of a
definitive offering memorandum and other materials relating to the
matters herein. Before making an investment decision with respect
to our Funds, we advise potential investors to read carefully the
respective offering memorandum, the limited partnership agreement
or operating agreement, and the related subscription documents, and
to consult with their tax, legal, and financial advisors. We have
compiled this information from sources we believe to be reliable,
but we cannot guarantee its correctness. We present our opinions
without warranty. Past performance is no guarantee of future
results. © 2010 Leopard Capital LP. All rights reserved
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Leopard in the News: Media articles about Leopard's funds are posted on our
website, please click on the following links: Leopard Cambodia.
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The
NAV
of Leopard Cambodia Investments (BVI) Ltd. was as of 31st March 2010
US$ 972.25 (31st December 2009 US$ 1'015.16)
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Leopard
Cambodia Fund, LP
Fund size:
ISIN No:
KYG5458L1023
CUSIP No:
Valoren No:
Bloomberg:
Lipper ID:
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Leopard
Cambodia Investments (BVI) Ltd.
Fund size:
USD 20,610,000
ISIN No:
VGG5458M1005
CUSIP No:
Valoren No:
Bloomberg:
Lipper ID:
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