Newsletter Issue 28
- September 2012
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Economic
Update
Cambodia's
economy continues to show its resilience to the European debt crisis
and global slowdown. Most economists are predicting 6.2 - 6.6% growth
in 2012, rising to 6.4 - 7.0% in 2013. Inflation is expected to stay
within 5% in 2012.
Financial
Sector
Cambodia's
financial services sector is proving itself to be among the world's
healthiest and most dynamic. The banking sector achieved 31% Y-on-Y
loan growth and 23% deposit growth at midyear. Taiwan's Cathay United
Bank joined the long list of foreign banks here after acquiring 70%
of a small local bank. Cambodia's microfinance institutions (MFIs)
are growing even faster than its banks, with 43% loan growth and a
negligible NPL rate of just 0.25% for MFIs at midyear. Some MFIs are
even starting to add ATMs and a few are applying to upgrade into
banks. The Kingdom has opened its new life insurance industry, and
global giants like Manulife and Prudential are moving in. The
Cambodian Stock Exchange commenced trading in April with its first IPO,
Phnom Penh Water Supply Authority, in which Leopard Cambodia Fund
participated. A local real estate firm, two garment producers, two
port operators, and a government telecom company are reportedly
preparing their IPOs.
Tourism
Tourism
is robust with arrivals surging 27% Y-on-Y to 1.76 million visitors
in the first half, with the majority of the tourists coming from
within Asia. The operator of the Phnom Penh and Siem Reap Airports,
is planning to expand capacity at those hubs to accommodate 4 million
passengers annually.
Construction
Cambodia's
previously somnolent construction industry has finally snapped back
to life, recording 36% Y-on-Y growth in 1H 2012. Residential
construction in particular is picking up. Condominium unit supply
reportedly rose 22% since the start of the year, and by year-end,
apartment units are expected to grow by 28% as 734 new units from 40
projects reach completion. In spite of the rising supply, even
stronger demand for apartment living has pushed up rental prices by 5%
for Grade A units and 8% for Grade B units over the past year. Other
property sectors are also growing; CBRE predicts local shopping
center space to triple in 5 years. (See Travel Notes below for
additional construction coverage.)
Exports
Cambodia's exporters are the sector most exposed to the West's
economic problems. Export growth moderated to 12% in 1H 2012 as local
garment factories gained a larger slice of a shrinking global pie.
Following a series of factory strikes the minimum monthly wage for garment
workers was raised to $73. Agricultural exports slumped, with local
rice exports failing to gain traction while commodity prices
softened. Rubber exports rose 5% by volume in 1H 2012 but fell 28% by
value following a substantial price correction attributable to the
global slowdown. Cambodia's government announced a suspension on
issuing economic land concessions to private companies after several
protests by affected villagers led to violence.
Foreign
Investment
China
granted a $250 million loan to rehabilitate National Road 6, which
runs from Phnom Penh northwest to Siem Reap and Banteay Meanchey, and
a $102 million loan for a new dam in Battambang province. A China
investor will reportedly invest $400 million into a 300MW coal-fired
power plant in Kampot province. UK-based investors announced plans to
build a $20 million rice mill in Oddong district. A Russian-Cambodian
partnership will launch nationwide digital satellite television
service in September, bringing access to 60 channels of nonstop entertainment
to 70% of Cambodia's population.
US
Corporations Visit Cambodia
The
US is finally starting to notice Cambodia's business potential. In
July, US Secretary of State Hillary Clinton led a record-sized
delegation of 200 US executives from corporations such as Boeing,
Chevron, DHL, Oracle, Coca-Cola, GE and Google, to the US-ASEAN Forum
in Siem Reap.
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Leopard Cambodia Fund - Portfolio Company Highlights
ACLEDA
Bank/ ASA Plc:
Leopard
Cambodia Fund holds an indirect equity position in Cambodia's largest
bank, ACLEDA, through the bank's staff shareholding company, ASA Plc.
In 2Q 2012, ACLEDA reported solid results with loan growth of 36%
Y-on-Y to US$ 1.13 billion, and deposit growth of 33% Y-on-Y to US$
1.26 billion. Net profits for the first six months rose 45.6% to US$
31.6 million - well ahead of our forecasts. Meanwhile, non-performing
loans remained paltry at 0.32%. Having successfully expanded across
borders with 22 branches in Laos, ACLEDA has announced it plans to
enter Myanmar in 2013. This is significant because Myanmar's
population is four times the size of Cambodia's and has much lower
banking penetration. In 2Q ACLEDA paid a 31.6% share dividend.
Leopard Cambodia Fund also took an opportunity to further add to its
stake in Acleda Bank via ASA Plc through a secondary transaction.
Electricite
Du Laos Generating Co. ("EDL"):
EDL
was the first listed company on the Laos Securities Exchange, and
Leopard Cambodia Fund participated in the IPO. EDL had a market
capitalization of around US$ 743 million and traded at 5.5 x 2012
expected net profits as reported by Bloomberg. In 2012 earnings per
share are expected to rise 29% as new capacity comes on line and
newly acquired plants are consolidated into earnings. The long term
outlook remains strong for EDL with various agencies increasing their
long term forecasts for energy demand in Laos and also in neighboring
countries. EDL financed the acquisition of the new plants through a
41% capital increase in July composed of a rights issue (1 New for 4
Old shares) at 4,300 Laotian Kip (LAK) per share and a public
offering at 4800 LAK per share. Leopard Cambodia Fund took up its
rights and collected an interim cash dividend.
IPR:
Leopard
Cambodia Fund holds an investment in Intean Poalroath Rongroeurng
Ltd. ("IPR"), a Cambodia microfinance institution, through
a 33.6% equity stake and convertible loan. In the first half of 2012
IPR booked a net profit of US$ 317,093, a 2.2x gain Y-on-Y. Loans
increased by 58% Y-on-Y, while Non-performing loans dropped from
0.84% to 0.75% Q-on-Q. IPR sourced a Thai Baht loan from Europe and
is looking for additional debt funding heading into the high
disbursement season in late 2012.
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Leopard Capital News
Investment
Team Change
Scott
Lewis has resigned as Chief Investment Officer of Leopard Capital
Cambodia to become Head of Corporate Finance at Oryx Petroleum in
Geneva. Scott remains an active Consultant Partner at Leopard Capital
and we thank him for his dedicated service. Richard Intrator has
replaced him as our Phnom Penh-based Chief Investment Officer.
Richard's 30+ years of work experience as a chief executive,
investment banker, entrepreneur and strategic consultant will be
highly valuable in managing LCF's portfolio and preparing companies
for exits. We warmly welcome Richard to our team.
Leopard
Asia Frontier Fund
Leopard
Capital expanded its frontier investment offerings into public
equities with the April launch of Leopard Asia Frontier Fund, which
invests in up to a dozen frontier stock exchanges across Asia, from
Mongolia to Papua New Guinea. The fund offers diversified access to a
high growth region with greater liquidity than our private equity
funds, and is managed by Thomas Hugger. For more information please
contact our Group Marketing Manager, Mohamed Ahamad, [email protected].
Leopard
Haiti Fund
In
July Leopard Capital launched Haiti's first private equity fund,
Leopard Haiti Fund, with a $20 million first closing backed by The
World Bank's International Finance Corporation (IFC), Netherlands
Development Finance (FMO), and the Inter-American Development Bank's
Multilateral Development Fund (MIF). Leopard Haiti Fund will provide
growth capital to Haitian businesses with priority toward affordable
housing, renewable energy, food production, and tourism, seeking to
achieve commercial returns in businesses delivering positive social
impact. The fund managers are Thierry Bungener, Rilwan Meeran and Guy
Balan, all based in Port-au-Prince. Please write to Mohamed (above)
for more details.
Leopard
Myanmar Property Fund
Sweeping
political and economic reforms in Myanmar, or Burma, have led Leopard
Capital to create Leopard Myanmar Property Fund to participate in the
first wave of real estate development in a long neglected market.
Those who have visited Yangon recently know how hard it is to get a
hotel room, let alone rent an apartment, house, office, or retail
unit. With the expected final approval of the new Foreign Investment
Law, Myanmar will arguably become the world's most exciting real
estate investment market. The Fund's offering documents are almost
ready now, so interested participants should alert Mohamed.
Award
Leopard
Capital was recently named "Private Equity Firm of the
Year" in Acquisition International magazine's 2012 M&A
Awards - the only PE manager named that operates in emerging
markets.
Blog
Stay
up to date with breaking investment news about the world's most
exciting frontier markets through Leopard Capital's "Emerging
Frontiers Blog", www.emergingfrontiersblog.com. The
blog tracks all the markets covered by Leopard Asia Frontier Fund and
Leopard's current and upcoming private equity funds.
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Special
Feature: "Phnom Penh Under Construction", by Steven Monroe
Residents
of Phnom Penh cannot help but notice the reawakening of the local
real estate scene. Newspapers intersperse stories of economic
hardship in advanced economies with local puff pieces about grand
openings of fashion shops, trendy restaurants and boutique hotels.
Leisure seekers can choose between sampling new coffee shops,
amusement parks, golf driving ranges, or a new sports arena.
Furthermore two competing world-class shopping malls are under
planning by Hong Kong Land and Japan's Aeon Group.
Having
interned at Leopard's Cambodia office for the past three months, I
have seen and experienced this small city's rapid growth on a daily
basis. My mornings begin at 6 a.m. with the crack of jackhammers from
the construction lot next door and the cackle of vendors hawking
goods on the street below. Out the door by half past seven, I find
Phnom Penh's streets already clogged with gleaming SUVs, and buzzing
tuk-tuks and motorbikes, all jockeying for position on the smoothly
paved roads. As we move to the city's outskirts, my tuk-tuk passes
nondescript shophouses selling row upon row of imported engines,
tools, and floor tiles, until we reach Leopard's office above Kingdom
Breweries.
Overlooking
the Tonle-Sap River on the city's northern edge, our office provides
a panoramic view of the capital's skyline. Jutting out on the horizon
and sculpted like a glass-plated boot - or a dragon's back - is the
nearly completed Vattanac Capital Tower. At 38-stories, this US$ 170
million project will become the tallest and probably highest standard
building in Cambodia. It is being built by a local banking family, as
a come-uppance to the nearby 32 story OCIC Tower, which houses a
rival local bank.
Looking out at the river, one can see a firm from China putting in
pillars for the second span of the Chroy Changvar Bridge, 46 years
after the first span was erected. The two new lanes will help reduce
bridge congestion as the city sprawls across the river. On the far
side, the modern-Gothic Norton University tower campus looks
virtually complete now, and stands adjacent to the newly opened
Beeline Arena, which has started hosting basketball and volleyball
games. Looking nearly finished is the $18 million embankment
reinforcement project that runs 1.7 kilometers from the bridge down
to the Sokha hotel construction project at the end of the Chroy
Changvar peninsula. The $100 million Sokha hotel has been topped out
now at 16 stories and when it opens will give Phnom Penh a new
convention center. The Sokha will join the Sofitel - which opened
last year - as the city's first new five star hotels built in the
last decade.
Back
on our side of the river, giant NagaWorld casino and 500 room hotel
overflows with Asian gamblers. The casino, which is listed in Hong
Kong and a holding of our Leopard Asia Frontier Fund, announced a 38%
jump in profits to USD 52.4 million in the first half of 2012. The
monopoly operator next plans to roll the dice and double capacity on
a nearby lot.
Nearby NagaWorld is Koh Pich - a dredged island off the banks of the
Bassac River that is becoming a hub for restaurants and recreation. A
few weekends ago, one of my Cambodian friends proudly showed me
around, pointing out wedding halls, cinemas, amusement rides, a water
park, and a golf driving range. The place was packed with teenage
Cambodians in skinny jeans and "Angry Birds" baseball caps
slurping smoothies by their scooters while texting vigorously. Half
of Phnom Penh's residents are under 21, and these ones are the roots of
Cambodia's future middle class. Frozen yogurt in hand, I struggled to
keep up with my friend's tour of the island's present and planned
facilities. "When Obama comes in November, he is expected to
give his speech there" he boasted, pointing to a gaudy, polished,
Roman columned auditorium in an empty lot. When we reached the
island's edge, my friend administered his coup de grace. "See
those boats dredging up dirt on the horizon? They are laying the
groundwork for a marina that will hold sky scrapers, malls and a
hotel with an infinity pool on top. One day, this might all look like
Singapore", he predicted.
The
flood of real estate investment is having a profound, indelible
impact on the capital, and presents a threat to the city's natural
and architectural legacies. Boueng Kak Lake has recently been filled
in by a local tycoon in partnership with a China group, after local
residents were forcibly evicted. If developed, the increase supply of
downtown real estate this vast space could create would swamp foreseeable
requirements for years. The city's oldest French colonial building,
proudly sporting an octagonal pointed tower, was recently demolished,
forever erasing a historic landmark. However another several other
run-down colonial buildings have been handsomely renovated into
commercial establishments, such as The Exchange restaurant and
Brown's riverfront coffee shop. The city's Central Market has been
restored to its original 1937 Art Deco glory through a $4.2 million
grant from France.
Phnom
Penh is a city in motion. Evacuated at gunpoint and left abandoned
from 1975-1978, the city has been physically restored and expanded,
and is now equipped to host ASEAN Summits and world leaders.
Optimistic entrepreneurs aspire to quickly recover lost development
years. One just hopes that in the rush to catch up this delightful
city doesn't toss away its charms, as so many other Asian cities have
done.
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Picture of the Month: Blue Skies Over Phnom Penh,
By Chris Slade 
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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, Leopard
Haiti Fund LP, or Leopard Asia Frontier Fund 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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