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Newsletter Issue 24 - August 2011

Economic Update

In 1H 2011, Cambodia is beginning to see signs of a return to the robust pre-crisis economic activity after a retraction in 2009 and modest recovery in 2010. Economic growth forecasts for the year have been revised upwards to 8.7% by the Economic Institute of Cambodia, while the IMF and the World Bank currently predict a more conservative 6.5%. The elevated forecast is being driven by three of the Kingdom's four economic pillars-garments, tourism and agriculture-while recovery in real estate still remains nascent.

Garments benefit from relaxed regulations. The garment industry contributes more than 70% of Cambodia's exports. In H1 2011, garment exports surged 32% YoY to US$ 1.9 billion as a result of loosened European Union regulations governing rule of origin and increasing demand from Asian countries. As of January 1, 2011, under the Everything But Arms (EBA) trade initiative, least developed countries such as Cambodia could export to the EU duty- and quota-free if the country manufactures 40% of the product's value, whereas the previous threshold was 70%.

Tourism increases with more direct flights. Cambodia's second largest source of income is the tourism industry. In H1 2011, tourism arrivals rose 13% YoY to 1.4 million with Vietnam, Korea and China as the largest sources of tourists, respectively. Ticket sales at Cambodia's main tourist attraction, Angkor Wat, rose 33% YoY to US$ 20 million during this period, and total revenue from the sector is expected to reach US$ 1.9 billion in 2011. An increase in direct flights to Cambodia is one of the principal drivers behind the overall increase in arrivals-Air France has even relaunched direct flights from Paris to Cambodia in July after a 37-year hiatus.

Agriculture also benefits from relaxed regulations. Accounting for a third of the Kingdom's GDP, the agriculture industry also benefited from the relaxed EU export regulations, among other factors. In H1 2011, rubber exports increased 84% YoY to 21,511 tons (US$ 102 million); milled rice exports increased 369% to 80,442 tons ($46 million); and cassava exports increased 88% to 212,018 tons (US$ 8.7 million). Prime Minister Hun Sen has set a target of exporting 1 million tons of milled rice by 2015-a feat considered attainable if the Kingdom builds another 25 to 30 rice mills (a US$ 350 million investment) to expand production from currently just five major mills.

Real estate starts to recover. Cambodia's fourth economic pillar, real estate, has started to show signs of recovery in 2011. The value of approved construction projects (i.e., housing developments, apartments, factories and tourist facilities) increased 94% YoY to US$ 638 million in H1 2011. While land prices for commercial and residential properties in Phnom Penh have still remained flat since the end of 2009, demand and prices are expected to rise over the next two years.

Banks are also rebounding. With 35 banks, Cambodia's congested banking sector showed signs of a rebound in H1 2011. Aggregate loans among the Kingdom's three largest banks increased 9.5% YoY to US$ 2 billion-loan books for ACLEDA, Canadia and Campu grew 11.9%, 10.6% and 5% YTD, respectively. Banks are expecting a surge in agricultural investment to continue driving the increasing demand for loans. The growing agricultural sector has also led to more loans and deposits at the Kingdom's 27 microfinance institutions (excluding ACLEDA)-loans among these MFIs increased 6.7% YoY to US$ 505 million in Q2 2011, while deposits increased 33% to US$ 69 million.

CSX opens with no trading. The long awaited Cambodia Securities Exchange (CSX) officially launched in July, making Cambodia one of the last Southeast Asian nations to open a stock market. However, no companies have been listed yet for trading. Three state-owned enterprises-Phnom Penh Water Supply Authority, Sihanoukville Autonomous Port and Telecom Cambodia-are expected to list by year's end.

Inflation is a rising concern. Driven by rising food and petroleum prices, the Kingdom's inflation rate rose to a 14-month high of 6.5% in May 2011, exceeding the inflation rate of neighboring Laos and Thailand but still well below Vietnam's rate of 20%. The Cambodian government had recently raised its 2011 inflation target by 50 basis points to 5.5%, while the World Bank and the IMF predict 5% and 6.5%, respectively, for the year. To mitigate inflationary concerns, the National Bank of Cambodia is considering raising the reserve requirements of commercial banks from 12% to 16%.

Portfolio Company News

In 1H 2011 Leopard Cambodia Fund ("LCF") achieved one full investment exit and one partial exit, completed two new investments, and added to two existing investments.

CamGSM Company Ltd. ("CamGSM"):

In January CamGSM fully repaid the remaining principal and all interest and fees due to LCF and other participants in the US$ 425 million acquisition facility arranged in November 2009 to facilitate the repurchase of Millicom's stake in CamGSM. LCF's US$ 5.0 million participation returned US$ 6.4 million representing an IRR of 26% and a money multiple of 1.27x.

Electricite Du Laos Generating Co. ("EDL"):

In December 2010 LCF committed US$ 2.7 million to acquire 5,000,000 common shares of EDL which owns and operates hydropower plants in Laos. The shares debuted on the newly launched Laos Securities Exchange (LSX) on 11^th January 2011, and performed strongly in the first couple of months of trading. LCF sold approximately 30% of its position into the trading strength, booking an average realized gain exceeding 60%. Trading was more subdued in the 2Q with the share price approximately 22% above the IPO price as of 30 June 2011.

Regional Law Firm:

In March 2011 LCF provided an unsecured loan of US$ 1 million to a leading Regional Law Firm that has operations across Southeast Asia. Proceeds of the loan will be used to fund the firm's growth. LCF will receive periodic fixed and variable payments during the life of the loan.

Tropical Beverage Co., Ltd. ("Tropical Beverage"):

In May 2011 LCF invested US$ 1.6 million in Tropical Beverage, a Thai based sole proprietorship engaged in the marketing and distribution of its flagship boutique beer brand "Phuket Beer." The beer is produced by a third party brewery and marketed and distributed in Thailand and exported to other SE Asian countries, Japan, USA and the EU. The investment was in the form of secured term loans and loan facilities. The loans and facilities which mature over a 3-5 year period are expected to generate an interest rate attractive relative to commercial lending rates in the region.

Golden Vault/ASA, Plc./ACLEDA Bank, Plc. ("Golden Vault"):

In January, following the impressive performance of ACLEDA Bank, Plc. ("ACLEDA") in 2010, LCF, through Golden Vault, purchased US$2.0MM of additional share certificates of ASA, Plc. ("ASA") (the entity holding shares on behalf of ACLEDA employees and other ASA members). The purchase increased LCF's total investment in ASA to US$ 5.0 million.In June 2011 ACLEDA paid a 15% share dividend which increased Golden Vault's total shareholding further. Through Golden Vault, LCF owns 7.4% of ASA representing 1.4% of ACLEDA. ACLEDA's business momentum continued in 1H2011 as the Company generated US$ 21.7 million of net profit vs US$ 9.4 million in the first half of 2010.

Kingdom Breweries Pte. Ltd. ("Kingdom"):

In 1H2011 Kingdom entered into an agreement with Fluid Asia Pacific Ltd ("FAP") to provide a secured fixed cash deposit as collateral to a major Thai commercial bank in order to facilitate a working capital loan for FAP. LCF funded its pro rata share of the capital increase needed for Kingdom to make the deposit. FAP is a leading beer distributor in Thailand distributing Carlsberg, Kronenbourg, Tetley's and Weston's beers and ciders to over 250 outlets with plans to expand to 1,500 outlets within four years. FAP has entered into a distribution agreement to distribute Kingdom products in Thailand. Kingdom will be paid an interest rate attractive relative to commercial lending rates in the region and FAP will repay Kingdom within 24 months. Kingdom's management has reformulated its strategy after slower than expected sales and is planning on introducing new products, enhancing domestic distribution and pursuing a targeted export strategy in 2H 2011.

Nautisco Seafood Manufacturing Ltd. ("Nautisco"):

After a slow 1Q2011 in which raw material availability and pricing was not attractive in 2Q2011 the Company resumed purchasing raw materials and shipping product to customers. The Company's Board and management are implementing a revised strategy that will reduce the Company's dependence on Cambodian wild caught shrimp and enable the Company's factory to operate at a high level of efficiency and utilization year round. The strategy entails increasing mix of value added products, adding reprocessing orders and generally increasing efficiency and discipline in procurement and production.

Cambodia Plantations Pte. Ltd. ("Cambodia Plantations"):

In 2Q 2011 Cambodia Plantations terminated an agreement to acquire a company with an economic land concession for dry season rice cultivation as such company was not able to secure the concession in a timely manner due to ongoing re-zoning of lands around the Tonle Sap Lake. Such project may be revisited at a later date when there is less uncertainty. Cambodia Plantations has continued to evaluate land concession opportunities for other crops and has identified a concession which it is currently pursuing.

Intean Poalroath Rongroeurng Ltd. ("IPR"):

IPR's financial performance in 1H2011 improved materially versus 2010 and was generally in line with expectations. LCF continues to work with IPR management to improve internal audit and credit approval procedures and to choose and implement a software package for the Company's new management information system.

Greenside Holdings Ltd. ("Greenside"):

LCF's US$1.3 million investment in Greenside continues to perform as expected. As of 31^st July 2011 LCF has received over US$ 500,000 in profit share payments.

Angkor Residences Ltd.:

LCF and its partners continue to monitor property market conditions and will revisit development/sale options as the year progresses.

Annual Investor Meeting

This past May LCF held its annual investor meeting in Phnom Penh, Cambodia with a very impressive turnout of investors from around the globe. In addition to the meeting in Phnom Penh investors were given the opportunity to visit Laos and Sihanoukville; in Laos, investors attended presentations provided by both government officials and Laotian companies, and they also visited a number of Lao companies and tourist attractions. In Sihanoukville, the highlight was a visit to Nautisco Seafood Mauufacturing Ltd., the first modern seafood processing company in Cambodia in which LCF is an investor.

The 2012 LCF annual investor meeting is tentatively scheduled be held in Phnom Penh, Cambodia on 24^th and 25^th May 2012. Given the popularity of this year's excursions to Laos and Sihanoukville, side trips to other destinations in the region will be planned in conjunction with next year's annual investor meeting. If you are interested in attending next year's events please email us at investors@leopardcapital.com.

Team News

In the last 6 months several new team members have been added to the Leopard Capital team.

Alex de Lesseps has joined the Board of Managers of Leopard Capital LP. He is a Director of BlueOrchard Finance, a Geneva-based lender to microfinance institutions, and President of two firms making private equity investments in emerging markets, Coral Capital and Pandaw Investment Holdings. Earlier in his career he founded two US film production companies, Intertel USA and Tanit Productions, and a French personal care manufacturer, Les Laboratoires de l'Atlantique, and was also an angel investor in California Pizza Kitchen. In 2004 Mr. de Lesseps was awarded the Fulbright Humanitarian Award.

Christopher Garnic has joined Leopard Capital as an investment Associate. Previously, Chris was a civil engineer at MWH Global, specializing in renewable energy, water, and wet infrastructure projects in the United States. He holds a MBA from the Indian School of Business and the London Business School, and a BSc (Biological and Environmental Engineering) from Cornell University. Chris will focus on energy and renewable energy projects for Leopard Cambodia Fund and future Leopard Capital sponsored funds.

Vandy Leng has joined the Leopard Cambodia Fund team as an Investment Associate. He has written several empirical research papers relating to currency substitution in Cambodia, economic growth in Southeast Asia, the International Monetary Fund's responses to financial crises, and the monetary policy of the US Federal Reserve. Vandy has a Master's degree in Public Policy (specializing in Economic Policy) at University of Tokyo, and a Bachelor of Economics from Kobe University in Japan. He is fluent in Khmer, English and Japanese

Kiriroath(Kiri) Chhoeung has joined the Leopard Cambodia Fund team as an Investment Associate, and brings with him seven years of operational experience in general management, business development, sales, marketing and finance. Previously, Kiri co-founded and managed two proprietary business ventures in Cambodia, in Tourism and Waste Management, one of which was subsequently acquired. Before becoming an entrepreneur he served as Procurement Manager at British American Tobacco Cambodia and Logistics Officer at World Gas (Cambodia). Kiri was awarded a Fulbright scholarship by the US Government and completed a MBA in Innovation and Entrepreneurship from the University of Oregon. Kiri will initially be seconded to work at Kingdom Breweries.

Matthew Hector has joined the Leopard Cambodia Fund team as an Investment Associate. Matthew holds a Honours Bachelor of Commerce degree in Finance and International Business from Queen's University, Ontario, where he received the Merrill Lynch Scholarship for Academic Excellence.

Summer Interns:

Leopard Capital received over 400 applicants for internships this year, and, regretfully, due to space constraints we had to turn away many exceptional candidates. The following interns were selected for the Leopard Capital Summer MBA Internship Program:

Melissa Winter, Wharton, MBA, 2012

David Beach, University of Chicago, MBA, 2012

Sok Ung, New York University, MBA, 2012

Alex Ruiz Lee, INSEAD, MBA, 2011

Jenna Bonczewski, University of Chicago, MBA, 2012

Gautam Sawhney, INSEAD, MBA, 2011

New Domain

We have switched our group URL to http://www.leopardcapital.com, although http://www.leopardasia.com still works as well.

Secondary Market

Leopard Capital matches buyers and sellers of LCF's feeder fund, Leopard Cambodia Investments (BVI) Ltd. If you are interested to either invest or exit, please contact Mohamed Ahamed at, ma@leopardcapital.com.

Visit Note: Champasak, Laos: Salad Bowl of the Mekong

by Kenneth Stevens

As part of our never ending quest to find compelling investment opportunities in the most exotic locations, Leopard Capital recently travelled to Champasak, the gateway to Southern Laos. The landscape of the southern region is dominated by the Mekong River and the towering Bolaven Plateau, which make it important for agriculture and tourism.

Champasak is a bustling business center with a diverse cultural history which is influenced by its numerous ethnic groups and also the cultures of neighboring Thailand and Vietnam. The town is nestled along the banks of the majestic Mekong River and architecturally is a blend of older French Colonial buildings, modest Lao designs and perhaps too many rows of Chinese style shophouses. In Southern Laos, the Mekong reaches its widest point (up to 14 km) of its entire 4,350 km length and serves as a vital highway for transport and passenger boats of all shapes and sizes and is also a rich source of fisheries.

The fertile provinces surrounding the town have become the 'salad bowl' of the Mekong region, providing much of the produce sold in the hyper-marts and wet markets of Bangkok and other nearby cities. The morning market in Champasak is one of the largest and most impressive we have seen in all of Southeast Asia, overflowing with fresh farm products and huge quantities of live fish. Given its abundant food resources, ample (and cheap) power, and easy access to ports in Thailand and Vietnam, the area is a good location for more food processing and packaging facilities such as canneries and cold storage plants.

The Bolaven Plateau

The Bolaven Plateau rises to 1,300 m above sea level and is the home of numerous minority groups, hill tribes and other reminders of the region's rich history. Its cool climate, fertile soil and ample water allow it to produce premium agricultural goods and its raw beauty draws an increasing number of tourists. The Plateau also has the unfortunate distinction of being one of the most heavily bombed zones during the US-Vietnam conflict and international efforts are underway to clear large quantities of unexploded ordinance.

Some of the world's best coffee is produced near the town of Paksong, as the French began cultivating coffee here in the early 1900s. Coffee lovers in Europe, North America and North Asia are becoming increasingly aware of the Plateau's fine beans which include the premium quality Arabica and high octane Robusta varieties. The secret to the quality of its coffee is the 'terroir' provided by a unique combination of highly fertile volcanic soil and the unusually high altitude of the plantations. Leopard is reviewing a number of opportunities to invest in the Lao coffee industry including coffee plantations and trading companies. Other high value products are farmed on the Plateau including tea, avocados, berries and around its base, bananas, other fruit and rubber.

As we began our 70 km, uphill excursion to the Plateau, we passed a local branch office of ACLEDA Bank, which provides micro-finance loans to a growing legion of coffee farmers, small agricultural groups, and related businesses. ACLEDA is our largest investment in Cambodia, but the group is quickly expanding its operations in Laos and reports that its profitability in Laos is 'at least' as good as in Cambodia.

Further up the road, we visited a factory owned by Dao Heung, the largest business group in Southern Laos, which intends to list on the Lao Stock Market in the next few years. The plant produces several consumer products under its own brand name 'Dao' including coffee, tea, dried fruits, bottled water and others. The Dao brand is commonly seen in the region, particularly in Thailand and Vietnam, and the group is increasing its exports to buyers in Japan and other North Asian destinations. A large instant coffee factory, said to be one of the largest in Asia, is under construction at the site, which will further expand the group's export sales.

Booming Tourist Destination

During the trip we sampled some of the delights which make Southern Laos a growing tourism destination, including spectacular waterfalls (some well over 100 meters tall), caves, laid back coffee and tea plantations, temples and most of all, the warm hospitality of the Lao people. The area is also home to an ancient Khmer temple, Wat Phu, which predates Angkor Wat by several hundred years and has been designated a World Heritage Site. Other popular excursions are river trips to the '4000 islands' area near the Cambodian border, where in the dry season the receding waters allow access to numerous, small seasonal islands, modest resorts and on occasion, a glimpse of rare Irrawaddy river dolphins. The remote and rugged jungles of Attapeu province attract seasoned adventurers in search of rare wildlife and serious trekking experiences.

Most visitors are surprised to find that land-locked Laos has some of the finest duty free shops in Asia. Impressive selections of wine, chocolate and other delicacies are on offer, courtesy of Dao Heung Group which operates shops at all four international airports and nearly every border crossing into Thailand and Vietnam. The border shops are often packed with buyers stocking up on reasonably price Grand Cru wines (and more modest selections) that rival or exceed the offerings of most wine shops abroad.

In summary, we were pleased to find numerous investment grade opportunities in Southern Laos. We will return soon ... and not only to restock our bins of Grand Cru.

Picture of the Month

Traditional Fishing on the Mekong River, Champasak, Laos,
photo by Kenneth Stevens

Disclaimer:

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 Cambodia-Laos Fund II 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. � Leopard Capital LP. All rights reserved.