Newsletter Issue 27
- June 2012
economy continued to post solid growth in the first quarter of 2012.
Tourist numbers surged, new garment factories opened, agricultural
production expanded, and construction activity picked up. Cambodia
hosted the ASEAN Summit, China's President, and EU Trade
Commissioner, while President Obama and Secretary of State Clinton
announced plans to visit the Kingdom later this year.
World Bank, IMF and ADB's 2012 GDP growth projections range from
6.5-6.6%, slightly below the 6.8-7.0% estimate for 2011. The mild
deceleration reflects concerns that the worsening European debt
crisis and sluggishness of the US economy will curtail export demand.
ADB predicts 2012 industrial activity to grow by 11.4%, services by
5.3% and agriculture by 3.8%. The IMF and World Bank have favorably
rerated Cambodia's debt distress risk from moderate to low. Inflation
has also eased, with the consumer price index increasing 5.8% in
January and 5.4% in February, both well behind 2011's peak of 7.1% in
July. ADB expects 5% inflation for 2012 and 2013.
tourism sector extended 2011's strong growth trend with visitors
rising 26.8% in the first two months of 2012 to over 670,000. Vietnamese,
South Korean and Chinese tourists led the parade. Two thirds of the
Kingdom's visitors heading for the heritage hub of Siem Reap, where
Park Hyatt announced their new 107-room hotel will open in Q1 2013.
Meanwhile Sokha Hotels held a soft opening of their Bokor Mountain
casino resort in late March, bringing a colonial era hill station
back to life.
Export Market Access and Diversification
garment and rice exports, along with vibrant textile and construction
imports, drove 1Q port revenues at Sihanoukville up 22% y-o-y to US$
8.3 million. The number of garment factories in Cambodia increased
from 270 to 320 over the past year as increasing costs in China
converged with improving export market access. 1Q garment exports
rose 15%, powered by sales to the EU which offers Cambodia duty-free
and quota-free access under the Everything But Arms initiative. In
agriculture, Cambodia made its first direct shipment of rice to
China. Rubber planters, having expanded their land under cultivation
by 17% last year, secured a new market in China's Yunnan Province.
manufacturing, Cambodia is growing beyond garments. RM Asia began
assembling Ford SUVs in Sihanoukville, coinciding with news that
vehicle imports surged 40% in value in 1Q 2012. Japan's Nidec Group
announced it will build an electronics plant in the border town of
Poi Pet, creating 5,000 jobs. Malaysia's FTSB SAP Global JV signed a
MOU to build a $100 million water treatment plant serving three
southwestern provinces in Cambodia. Cambodia's first life insurance
company and first credit bureau opened their doors. Internet
penetration more than doubled in 2011 and local Facebook users
of First IPO on CSX
bourse attracted high investor interest for its first listing in
mid-April. The book-building phase for the Phnom Penh Water Supply's
initial public offering was oversubscribed by 17 times, and the
shares were priced at the top end of the range. PPWS soared 60% above
the IPO price in the first few days before correcting, but still held
up well above the subscription price, unlike Facebook.
Cambodia holding the ASEAN chair for 2012, regional and world leaders
visited Phnom Penh in Q1 to cement international ties and promote
regional economic integration goals. China and Cambodia vowed during
a March visit of Chinese President Hu Jintao to raise bilateral trade
to US$ 5 billion by 2017, with cooperation agreements signed to widen
two national roads, build a bridge in Kandal province and improve
irrigation infrastructure. European trade commissioner Karel De Gucht
also held talks in the capital to boost EU ties.
reforms implemented by the Myanmar government are beginning to pay
off. Following the suspension of economic sanctions against Myanmar
by the European Union, Australia, and Canada in April, the United
States followed suit in mid-May. International investors are now
flocking in from all directions seeking to capitalize on Myanmar's
low-cost labor force, abundant natural resources, and strategic
location. Leopard Capital took 30 recently for a Myanmar Discovery
tour and met some interesting local companies (see article below).
government continues to drive reform. The Myanmar Central Bank signed
a MOU with the Tokyo Stock Exchange and Daiwa Institute of Research
to establish a local securities exchange. And starting this month,
businessmen and conference attendees are able to obtain visas on
arrival, eliminating a major inconvenience. The last major hurdle
inhibiting FDI is the passage of a new foreign investment law to
provide greater rights and protections. A version of the law is
circulating through parliament and is expected to be passed later
opening repositions the Mekong Region and ASEAN as a more significant
investment destination and economic hub. Investors interested to
learn about Leopard Capital's plans in Myanmar should write to
Mohamed Ahamed, [email protected].
Cambodia Fund Update
Cambodia Fund ("LCF") is almost fully invested now, with
some cash reserved for top-ups.
largest investment holding, ACLEDA Bank, is off to another very
strong start this year. In 1Q 2012 ACLEDA's loans surged 37.5%
year-on-year to US$ 1.1 billion while deposits grew 25.9% to US$ 1.2
billion. Earnings rocketed 40.4% to US$ 16 million, well ahead of our
forecast. The Bank announced a share dividend which will increase
LCF's share position by approximately 30%.
After celebrating its 20th Anniversary in January, ACLEDA opened two
new branch offices in Preah Vihear and Oddar Meanchey provinces near
the Thai border, where economic activity has surged following road
improvements. Subsidiary ACLEDA Securities shined as selling agent in
the first public offering in Cambodia, PPWSA. ACLEDA also announced
that having successfully expanded into Laos it would next be moving
into Myanmar with three new microfinance branches targeted for next
year. We note that Myanmar's population is four times as large as
Cambodia's while its banking and microfinance penetration is much
lower, and believe Myanmar represents a significant growth
opportunity for ACLEDA.
is gaining momentum with 12.8% loan growth and a doubling of profit
growth in 1Q 2012. Having operated with low leverage, IPR is now
positioned to deploy debt funding to drive further growth. A European
lender has agreed to provide a Thai Baht loan, helping reduce IPR's
foreign exchange exposure (some of its loans are denominated in
Baht.) The Company is in the process of approaching other potential
lenders. Parties interested in financing a microfinance institution
that focuses on serving Cambodian farmers may write us for info.
invested in a new seafood processing venture in late 2011, Chenla
Seafood. Chenla recently commenced production in a state-of-the art
leased facility located near the Port of Sihanoukville. The Company
is on track for HAACP certification and has secured a number of
international customers, one of whom ranked Chenla among the top 10%
of seafood factories in the region after a recent inspection.
Breweries has been focusing on distributing its new canned Gold lager
into the mass market, resulting in several consecutive months of
expanded sales. Meanwhile Kingdom's award-winning premium beers have
secured a foothold in France and will next enter the Land of Smiles,
Beverage re-launched its "Phuket Beer" in 4Q 2011 only to
encounter supply chain disorder as Thailand's massive flood submerged
the country's industrial heartland. Since the water subsided things
have been returning to normal, and in March the Company turned
profitable after its export sales resumed.
Water's factory construction is complete, equipment has begun to
arrive, and product packaging is being finalized. Water should be
hitting the shelves later this year.
Du Laos Generating:
strong 2011 results seemed to catch investors' attention and the
stock is now up approximately 13% above its IPO price. EDL paid out
the second portion of its 2011 dividend, providing a full year yield
of 11.6% for LCF and others who purchased shares at the IPO price.
Penh Water Supply Authority:
participated in Cambodia Stock Exchange's historic first IPO, and
fully exited with a 42% net gain after PPWSA's share price sailed
past our year-end price target in the post launch excitement.
Capital hosted its annual investors meeting at Raffles Hotel in Phnom
Penh on May 24th and 25th. Attendees received detailed overviews of
Leopard Cambodia Fund's portfolio companies, an update on Leopard's
recently-launched public equities vehicle Leopard Asia Frontier Fund,
and presentations on Leopard's upcoming funds for Cambodia-Laos,
Myanmar, Bangladesh, and Haiti. The event concluded with a trip to
Kingdom Breweries' TapRoom in the open-top, double-decker Kingdom
Capital hosted the "Myanmar Discovery Trip" for investors
in Yangon from May 20th - 22nd. Over 30 overseas investors and 25
local companies participated in the event. The group visited several
businesses and factories including a major housing development, a
steel fabrication facility, a consumer products factory, and a
seafood-processing group. The tour also included networking events
with members of the business community, a visit to the Myanmar
Securities Exchange Centre, and presentations from several local
business experts, service providers and market research experts. Most
attendees reportedly left with a positive impression of Myanmar and
its vast opportunities.
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
Capital has created a new Emerging Frontiers Blog to provide
investment and economic news and commentary on the world's most
exciting transitional economies. Visit www.emergingfrontiersblog.com.
"Cambodia's Koh Rong Archipelago"
By John Conway
several decades Cambodia was "off limits" to travelers
exploring Southeast Asia. Over the past decade as the country has
regained political stability, foreign investment and workable
infrastructure, it has started to share in the region's impressive tourism
boom. Whereas only 50,000 tourists visited Cambodia ten years ago, it
now attracts close to 3 million annually. Yet most visitors come for
the ancient temples and few for the Cambodia's beaches, even though
neutral reviewers like Forbes rate some as among Asia's Best.
One region gunning to change perceptions is the Koh Rong Archipelago,
a stretch of islands in the Gulf of Thailand reaching 30 km off the
coast. Several Leopard team members have decided to explore them for
two full days by chartering the Cygnet, a 45-foot sailboat berthed in
Sihanoukville. Cygnet's Captain Ron is a loquacious seaman full of
salty tales of sailing expeditions from Fiji to Zanzibar. His Thai
wife Jenny serves meals and tasty snacks - her spring rolls in peanut
sauce, stir-fried vegetables in oyster sauce, and BBQ ribs are
particularly delicious - when she is not out hoisting sails.
Passengers are expected to do little but soak up the idyllic tropical
scenery. As we sail past islands, the tranquility is palpable; save a
handful of fishing boats, it appears we have the archipelago to
first stop is Koh Rong, Cambodia's largest island. For years only
fishermen inhabited this place, until stories of crabbing
opportunities drew an influx of aspiring mainlanders down from Kampot
Cham province. Before long, the crabs were over-fished and the local
population started to drift away until a new use for the pristine
island was conceived: adventure tourism. The island boasts 42
kilometers of empty white sand beaches including one magnificent
8-kilometer stretch. To welcome hardy travelers, Koh Rong offers six
rustic resorts, each with 10-15 bungalows and a few hours of
electricity a day when the generator is working.
bigger plans are afoot. Royal Group, a well-connected Cambodian
business conglomerate, has secured a 99-year lease and plans to
develop the entire island into a multi-billion dollar beach resort
community. The master plan calls for a phased development
encompassing high-end hotels, condos and villas, golf courses,
marinas and casinos. Road construction has started and a section in
the middle of the island has been earmarked for an international
airport. The long-term plan would accommodate 100,000 visitors at a
time and position Koh Rong as an alternative to Thailand's premier
destinations, Phuket and Koh Samui.
Does this make sense? Koh Rong is about the size of Hong Kong Island,
and its population size (2,000) and state of development today are
similar to Hong Kong's when the British occupied it in 1842. Today
Hong Kong Island has 1.8 million residents and gets 40 million
tourists annually. Amazing what can happen in 170 years!
there really any demand for luxury hotels on Cambodia's coastline? We
motor over to the area's first high-end project, Song Saa Private
Resort, located on two tiny islands adjacent to Koh Rong called Koh
Bong and Koh Ouen. Song Saa, which means "sweethearts" in
Khmer, is the brainchild of Rory and Melita Hunter, an Australian
couple who previously renovated French colonial apartments in Phnom
Penh. Song Saa is now open with the larger island adorned with nine
overwater villas, seven beach villas, and 11 jungle villas. Rory
somehow lined up all the financing during the global debt crisis
while Melita designed the villas to reflect the natural habit, using
where possible local materials such as bamboo and twisted vines.
However the villas are also kitted out with infinity pools, rainfall
shower heads, and flat screen TVs and cost over $1300 a night, making
Song Saa Cambodia's most expensive hotel.
A wooden pathway links the larger island to its smaller companion
where plans are being made to create tree houses and a wildlife
sanctuary. Upon arrival, we are greeted by a host of Song Saa
employees whom provide us with face-towels and refreshing beverages
before our tour of the resort. Following the tour we rest in the
dining area, built on stilts extending a hundred meters out into the
water, and snack on treats prepared by chef Neil Wager, who in the
past cooked for various celebrities at six-star resorts. We lounge on
comfy couches and beds suspended by ropes as we take in the scenery
and become immersed in the ambiance.
impresses us the most about Song Saa is the project's dedication to
conservation. While tasteful design and good service can always be
replicated, Song Saa's competitive advantage rests in the unspoiled,
natural beauty surrounding the resort. The Hunters have thought
carefully how to preserve this ecological treasure, and we hope that
Koh Rong's project planners will follow Song Saa's "triple
bottom line" business model. Song Saa's maintains a team of
marine biologists and community officers who coordinate projects with
local officials and villagers. The team is negotiating to establish a
marine protected area extending 200 meters outward from the coral
reefs, which would set a new standard in Cambodia. Song Saa has also
helped establish solid-waste management, recycling and composting
systems in several villages. Future projects include a coral reef
restoration program, and a project to conserve sea grass beds. Since
sea grass beds store carbon, eco-oriented hotel guests will be
invited to offset their traveling carbon costs through a donation to
the sun begins to set, we find a calm cove to anchor for the evening.
The Cygnet provides comfortable sleeping accommodations in two
private cabins with two beds in each, and a number of couches.
However the weather is clear and we decide to sleep under the stars
on cushions laid out on the deck, and enjoy a good night's sleep. In
the morning before breakfast, we take a morning swim to the nearby
beach. There is no other person or boat in sight.
sail onward to Ko Rong Saloem, another gem in the archipelago, and
visit Lazy Beach Resort, whose name says it all. No infinity pools
here - guests are housed in rustic bungalows without air
conditioning, fan, or hot water - yet Lazy Beach offers a discount
ticket to paradise, reflected by the resort's occupancy rates (often
at 100%). After discovering excellent snorkeling over coral reefs at
both ends of the beach, we embark on a 20-minute hike on a path
through the forest to another secluded beach with waist-high water
hundreds of meters out. The more adventurous can seek out a poorly
marked trail at the south-end of the beach that leads to a waterfall
within the island's interior. After our hikes around the island, we
explore Lazy's culinary options. Although the resort's dining
atmosphere is not as breathtaking as Song Saa's, the grilled
fresh-caught fish with garlic and Kampot pepper is well received.
their general emptiness, what make these islands unforgettable are
their stunning landscapes with snowy beaches, turquoise waters, and
jungle interiors. Also notable are their intact bio-diversity. A
late-night swim reveals bioluminescent marine plankton glowing all
around. The plankton's florescent hues are caused by a chemical
reaction that emits light; similar to the way a firefly glows. Such
bioluminescence indicates a healthy and diverse marine ecosystem, the
significance of which cannot be understated. There is no doubt that
Koh Rong Archipelago will continue to attract developers as word gets
out about the natural treasures it holds. However, only through
responsible, sustainable development will visitors be able to
continue to enjoy such treasures for generations to come.
Picture of the
Month: Approaching Sang Saa Resort
Sang Saa Resort, Koh Rong Archipelago, Cambodia
Photo by Vara Ho, Leopard Capital
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.