Newsletter Issue 26
- March 2012
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Economic
Update
Cambodia's
2011 economic growth outshined economists' predictions, coming in at
an estimated 6.8-7.0%. Most economists are cautiously projecting
6.0%-6.5% growth for 2012 (Leopard's forecast is 7.0 %.) Consumer
Price Inflation peaked in July at 7.1% then moderated to below 6%.
Agriculture was challenged by severe flooding in 3Q, yet rice
production rose 2% to around 8.4 million tons of paddy. Yields
increased from 2.6 to 2.9 tons per hectare in some provinces.
Milled-rice exports also increased as new mills boosted industry
capacity.
Garment
exports rose by one-third to exceed $4 billion in 2011, propelling
overall container port volumes up 31% in Phnom Penh and 7% in
Sihanoukville. Cost pressures in China are expelling labor intensive
industries to cheaper countries like Cambodia, which absorbed 50 new
garment factories in 2011, lifting the total count to 552. Footwear
is another industry making strides in Cambodia.
Tourist
arrivals rose 14% to 2.85 million, of which 1.6 million visited
Angkor Wat (+23% y-on-y). Vietnam, South Korea and China led the
visitor rankings. More than a few tourists seem to enjoy testing
their luck: the profits of NagaWorld, Phnom Penh's only casino,
doubled to a record US$ 98 million in 2011.
The
construction industry has revived in Phnom Penh with a focus on the
high end. The recently completed 22-story Phnom Penh Tower added
Cambodia's first Class A office space, while the 38-story Vattanac
Capital Tower is rising daily in its quest to become the country's
tallest building. Across the river the 800 room Sokha Phnom Penh
Hotel is under construction with a budget of $100 million. Hong Kong
Land hopes to begin work on Cambodia's first high-end shopping center
by the end of this year. Outside the city, Sokha hotel group has
rebuilt and reopened the long, winding road up Bokor Mountain on
which it is constructing a large mountaintop casino resort. Sokha is
building an even larger new hotel on the beach near Sihanoukville.
Altogether the government approved some 2,000 new real estate
projects in 2011 worth over $1.6 billion.
Infrastructure
development continues as well. Phnom Penh recently opened its second
intersection flyover, and workers are now expanding the Japanese
bridge across the river, to be 4 lanes as they have done with the
Monivong bridge on the southern end of the city. In Sihanoukville,
the ribbon was cut on the completed bridge to Snake Island. Crews are
working on the railroad, with some stretches now upgraded. Others are
upgrading provincial roads and constructing hydropower dams. Thai
investors have revived discussions to build a 1,800MW coal-fired
power plant in Koh Kong, near the Thai border, now that border
tensions between the two Kingdoms have eased.
Foreign
Direct Investment rose 14% to $632 million in 2011, led by investors
from China, Korea, Malaysia and Vietnam. Business registrations rose
by over 20% to 3,090 in 2011, which included some notable projects.
Cambodia welcomed its first high-tech manufacturing plant with the
opening of Minebea's US$60 million precision motor factory, heralding
a greater level of Japanese industrial interest in Cambodia.
Meanwhile, local investors financed and opened the new $60 million
Khmer Brewery. Cambodia licensed its 34th commercial bank, leading to
advice from the IMF that maybe that Cambodia's free market policies
are simply too free. China's Xinwei was issued Cambodia's tenth
telecom license and announced plans to roll out a 4G network.
The
Cambodia Stock Exchange is preparing to commence share trading end of
March 2012 following the Initial Public Offering of Phnom Penh Water
Supply which is now underway.
Regional
Highlights: Myanmar
Following
recent democratization measures, including the release of hundreds of
political prisoners, cease-fire agreements with ethnic rebels, and
the reintegration of dissident Aung San Suu Kyi into the political
process, it is apparent Myanmar (Burma) is determined to rejoin the
international community. After being isolated for decades, Myanmar is
emerging as a priority target for multi-national corporations and
investors as it is rich in natural resources and tourism appeal, and
offers a sizeable inexpensive labor force and potential domestic
market. These attributes, coupled with its strategic location between
India, China and Southeast Asia, position Myanmar to become a high
growth economy for decades. Leopard Capital is preparing to establish
a significant presence in Yangon.
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Leopard
Cambodia Fund Highlights
Leopard
Cambodia Fund ("LCF") has now been fully drawn down and
will be fully committed pending the completion of several
transactions currently in execution. Thus far the Fund has achieved
one full exit and one partial exit. The realized investments achieved
a blended gross IRR of 37%.
ACLEDA
Bank/ ASA PLc
ACLEDA
reported exceptional financial results for the full year 2011. The
Bank's loan growth of 35% increased its loan portfolio to over $1
billion, with less than 0.6% non-performing loans. Earnings surged
66% year-on-year to $44 million representing a return on equity of
28%. Growth prospects remain abundant as Cambodia's domestic credit
provided by the banking sector is still only 23% of GDP compared with
136% for its more developed neighbors. ACLEDA's Laos operations are
now profitable and the in the future the Company may expand further
into Myanmar once political dynamics are deemed favorable. ACLEDA
completed a 12.8% capital increase via a rights offering in early
January 2012 that was fully subscribed by existing shareholders. LCF
subscribed to its pro-rata portion, increasing the size of LCF
investment by approximately US $135,000.
Intean
Poalroath Rongroeurng
("IPR")
In
FY 2011, IPR performed well with loan growth of 31% to US$4.6
million. Heavy flooding in Cambodia only marginally impacted IPR's
rural clients. The collection rate remained high resulting in a low
portfolio at risk over thirty days (PAR>30) of 0.94%. In December
2011 LCF provided IPR with an additional $500,000 in the form of a
convertible loan. The proceeds from the loan will be used to support
loan growth, as demand for agriculture loans remains robust.
Kingdom
Breweries
In
late November, Kingdom launched its first canned beer, Kingdom Gold
Lager, bringing quality Kingdom beer to the local mid-market. The
successful launch has pushed Kingdom to record volume levels, and
Kingdom's products are now available nationwide. Kingdom welcomes as
its new Chief Executive Mr. "Tak" Achiravas Vanasrisawasd
who has prior beer industry managerial experience in Thailand. With
new leadership, more products, and an expanded distribution
footprint, Kingdom is positioned for growth in Cambodia. Kingdom's
award-winning Clouded Leopard Pilsener has been exported and sold in
Australia, France, Hong Kong, Thailand and the UK. Write to Kiri [email protected]
to find out where to buy Kingdom Beer in these countries. The Kingdom
double decker bus has been fitted out and will soon be cruising the
streets of Phnom Penh bringing visitors to Kingdom's brewery Tap Room
to taste the Best Beers in the Kingdom.
Nautisco
HK
LCF
through its portfolio company Nautisco HK owns 34.6 % of Nautisco
Seafood Manufacturing ("NSM"). NSM has suspended operations
following a period of underperformance and the shareholders have been
unable to agree on a restructuring/recovery plan. The disagreement is
being addressed through appropriate channels. LCF is committed
to a fair resolution and to developing the seafood processing
business in Cambodia. In the interim, Nautisco HK has started a new
seafood factory in a leased modern factory in Sihanoukvillle. The new
venture is led by Leonard Minster, a 25-year seafood processing
industry veteran who previously managed Kitchen of the Ocean's
factory in Ranong, Thailand for 15 years. The new venture expects to
commence production within a few months.
Electricite
Du Laos Generating Co. ("EDL"):
In
4Q, hydro-power company EDL paid an interim dividend, providing a
yield of 4.1% on LCF's purchase price. The Company is expected to
make a second dividend payment in the first half of 2012 with an expected
yield of 6-7%, providing LCF with a dividend yield in excess of 10%
for 2011. Analysts expect EDL's earnings in 2012 to rise 23%
year-on-year and EBITDA to nearly double as the expansion of one
large plant comes on line and as newly acquired plants are
consolidated into earnings. Currently EDL has a market capitalization
of $467 million and trades at 5.5x 2012 expected earnings and a
forecasted dividend yield of approximately 11%.
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New Executive
We welcome a new Associate Partner to Leopard Capital's full time
team in Phnom Penh to strengthen our value addition capabilities for
our portfolio companies. Brian
Erskine has 15 years of operational, investment,
and consulting experience in North America, Europe, and Asia. In
Asia, his background covers the transportation, retail,
manufacturing, aviation, education, and agriculture spaces. His
overall experience encompasses risk management, asset management,
strategy, business development, and corporate finance, spanning multiple
industries and companies including Mercer Management Consulting,
General Electric, Downtown Associates, PPG Industries, Masan Group,
and Vietnam Investments Group. He earned an MBA in finance from the
Wharton School at the University of Pennsylvania and an AB with
honors from Harvard University, and holds the Investment Management
Certificate from the CFA Society of the UK and the Treasury
Management Certificate from the Tepper School at Carnegie Mellon
University. Brian is fluent in French and conversational in
Vietnamese.
Frontier
Public Equities
Leopard
Capital has created a new group subsidiary, Leopard Capital
Management Ltd., which will specialize in public equities in Asian
frontier markets. Qualified investors may request info at:
[email protected].
Emerging
Frontiers Blog
Please
visit our new blog covering investment, business and economic news in
the emerging frontier markets we like most.
www.emergingfrontiersblog.com.
Annual Meeting
and Myanmar Trip
Limited
Partners and probable future investors are invited to attend the
Leopard Cambodia Fund 2012 Annual Investors Meeting on May 25th at
the Raffles Le Royal Hotel, Phnom Penh. The General Partner will meet
on May 24th. We will also organize an optional side trip to
Yangon, Myanmar (Burma) from May 21st to 22nd, 2012.
To
obtain more details and secure your spot please write to Marina, [email protected]
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Secondary
Market
Leopard
Capital attempts to match buyers and sellers of LCF commitments and
shares of LCF's "feeder fund", Leopard Cambodia Investments
(BVI) Ltd. Potential buyers and sellers should email Mohamed
Ahamed at
[email protected].
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Swiss
Account
Need a Swiss
bank account or asset management services? Our trusted partner in
Zurich can assist. Please write to Thomas Hugger
([email protected])
for more info.
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Travelogue:
"Mondulkiri - The Road Less Traveled", by Michael
Hodgson
Most
visitors to Cambodia will tour the riverfront capital, Phnom Penh,
and become familiar with Siem Reap's lively hot spots on Pub Street
after exploring the ancient monuments of Angkor. Few however find
their way into Cambodia's remote provinces such as Mondulkiri. One of
my Cambodian colleagues at Leopard inspired me to make the 8 hour
journey from Phnom Penh.
Mondulkiri
Province abuts the Vietnamese border in Cambodia's Northeast.
Although it is physically Cambodia's largest province, it is also the
most sparsely populated with only three inhabitants per square
kilometer. Little is known about Mondulkiri's history prior to French
colonization in 1864 which led to the first dirt road being hacked
through the malaria-plagued jungle to the provincial capital, Sen
Monorom. The province's tribal inhabitants earned a fearsome
reputation and a posting to the province was probably the last thing
a colonial administrator would have wished for. Later, during
America's Vietnam War, the Ho Chi Minh Trail ran though Mondulkiri
and its unfortunate natives, who had nothing to do with that, were
carpet bombed. Until a decade ago Mondulkiri was the last bastion of
an ethnic minority guerilla group, FULRO - the United Front for the
Liberation of Oppressed Races - which fought against outsiders of all
ideologies.
It
was only recently that the 127 km final section of the road to
Mondulkiri's capital was paved, courtesy of a soft loan and
construction crew from China. As a result of its former isolation,
the province remains steeped in the past with over 80 percent of the
population belonging to one of the ten tribal minorities. Whilst some
of the hill tribesmen have taken jobs in the capital "city"
or smaller towns along the road, the majority have remained in close
proximity to their place of birth. Due to their animist beliefs,
these tribesmen retain a spiritual connection to the land and subsist
in the traditional manner of their ancestors, gathering fruit and
wild honey, hunting game in the forests, and carrying out slash and
burn agriculture techniques closer to home. Few are literate or can
speak Khmer, increasing their isolation.
While
the region's hilly terrain does not lend itself to large-scale rice
production, it is well-suited for growing rubber, cassava, coffee
beans and cashew nuts. Cassava has of late been a success story in
Cambodia with many farmers turning to the crop from less lucrative
ones. Rubber is also attracting attention particularly from
Vietnamese and other foreign investors. Cambodia currently has
100,000 hectares of mainly small, family-run rubber plantations with
an additional 60,000 hectares of larger scale plantations under
cultivation. The government's goal is to increase that figure to
300,000 hectares by 2020. With its rich red soil and relatively few
people to relocate, Mondulkiri is attracting rubber investors. The
French/Khmer Socfin KCD venture was awarded one such concession but
encountered resistance from the local Phnong tribe which held a
traditional ceremony to curse the company and make it "vanish
like a dead pig." The curse does not seem to have had the
desired effect, as the project continues.
Apart
from such cash crops, the province produces a variety of agricultural
products for domestic consumption such as bananas, sweet potatoes,
and (rather surprisingly) strawberries and avocados. Some of these
could potentially be expanded into larger commercial production. Due
to its elevation Mondulkiri enjoys a cooler climate than most of
Cambodia, somewhat akin to Vietnam's Dalat which produces specialty
crops while serving as a domestic tourism mecca. Mondulkiri's
pleasant climate, rolling hills, thick forests and gushing waterfalls
render it a suitable destination for eco- and adventure tourism. Its
proximity to Vietnam has spawned casinos near a newly opened border
crossing. The road to those casinos is currently under construction
and skirts past lonely hill-tribe villages and along magnificent
stands of bamboo.
Mining
exploration is a burgeoning industry. The Chinese mining company
Zhong Xin Industrial Investment is currently excavating three mines
as deep as 500 meters in the Memang Gold Mines Area. Vietnam's
Vinacomin is exploring for bauxite in Mondulkiri, after BHP Billiton
and Mitsubishi withdrew from the Province. The Australian group Oz
Minerals recently sold its gold deposit claims in Mondulkiri to
Renaissance Minerals for $17.8 million. ASX- listed Brighton Mining
has reportedly acquired gold properties in Mondulkiri, and Liberty
Mining is believed to hold claims; the list goes on.
At
risk from Mondulkiri's ability to deliver agricultural produce and
minerals is its important role as a wildlife habitat. In 2002, the
government designated 400,000 hectares as part of the Mondulkiri
Protected Forest (MPF). The area is home to a small number of tigers,
clouded leopards, the rare fishing cat and the kouprey. Other fauna
include the critically endangered Siamese crocodile, which is found
in tributaries of the Srepok River within the MPF, the Irrawaddy
Dolphin, and the world's largest remaining population of
black-shanked douc, an endangered monkey.
Slightly
easier to spot are Mondulkiri's elephants. Cambodia is home to over
600 wild elephants and 100 domestic elephants, half of which call
Mondulkiri home. For those interested in owning their own pachyderm,
the average cost of a domestic elephant is US$13,000, with some
younger elephants fetching up to three times that amount. The
Elephant Valley Project (www.elephantvalleyproject.org) is an
elephant sanctuary on the outskirts of Sen Monorom that was
established several years ago by a young Englishman, Jack Highwood.
The purpose of the sanctuary is to provide veterinarian treatment and
care to a small herd of sick and mistreated elephants. The sanctuary
has recently acquired a new addition, Ruby.
Jack
regaled a group of us one evening, against a soundtrack of barking
deer calling in the valley below, with a curious tale of how the
global economic crisis had affected elephants in neighboring
Thailand. Thai law allows mortgages over certain types of movable as
well as immovable property. Included within the movable category are
elephants. Some Thai logging camps near Chiang Mai were so completely
indebted to their lenders that when the banks came to foreclose on
their assets, they ended up owning herds of elephants. The banks
sought to offload the elephants as a "job lot" and Jack was
interested in buying them and establishing a similar center in
Thailand. But before he could raise the funds, the lot went to a
local tycoon who apparently fancied owning his own herd of elephants.
Along
the long journey from Mondulkiri back to Phnom Penh, I absorbed the
rich biodiversity, the poverty and the economic opportunity the
province has to offer, and was left with a sense of cautious
optimism. Economic development is sweeping through Cambodia and will
continue to spill over into this province. Investing in Mondulkiri,
particularly in its agribusiness, eco-tourism and mineral extraction,
will deliver needed employment opportunities along with improved
social and physical infrastructure. However the related demand for
land could reduce Mondulkiri's natural forest cover and deplete its
endangered wildlife, while eroding the traditional culture of the ten
hill tribes. Clearly a balance must be found. Early investors will
have the unique opportunity to establish responsible investment
precedents that both preserve and provide resources to Mondulkiri
Province.
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Picture of the
Month: Elephant Valley Project
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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.
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The NAV
of Leopard Cambodia Investments (BVI) Ltd. was US$ 991.74 as of 30th
September 2011
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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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