Leopard Cambodia Fund - Monthly
Newsletter Issue 7 - November 2008
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Tough times... but Leopard advances
These are certainly tough times, as if, indeed,
serious market watchers need to be told. For those operating in
'Frontier' markets, raising funds can become a significant
challenge when even experienced investors worry about holding cash
in a bank (lest the bank go the way of Northern
Rock/Dexia/Iceland), let alone about holding investments in an
emerging and faraway market. Understandably, fear comes to dominate
greed and the objective of creating wealth takes a poor second
place to the preservation of existing wealth. Of course when the
dust settles it all comes down to risk and to valuations and whilst
Cambodia is certainly not without its considerable problems, the
country's dollarised economy (who doesn't feel comfortable with the
currency at this time-indeed who hasn't made some money on the
currency translation to date?), political stability, low valuations
and almost complete lack of national gearing mean that the risk in
the medium term remains very much on the upside, albeit for now,
with more perceived country risk and with less immediately obvious
upside. Sure, the economy will grow at only 5% or so next year and
some of the soft loans extended to the country may not be quite so
soft for a while but-on a regional or even on a global basis, 5%
looks pretty attractive and cheap is, well, just that: cheap. So
despite global market and currency falls and despite general
despondency, the tourists still come (perhaps up to 2m by y/e),
spending their dollars, pounds, yen and euros, the (superb jasmine)
rice still grows and the clamour of the rising middle class for
consumables of all kinds tails off only a little: the basic
dynamics remain good and investors continue to see this. So 'Tough Times' notwithstanding, we are delighted
to say that
we have made very considerable fundraising progress this month:
in fact assets
under management have virtually doubled to $23m
and we wish to extend both a warm welcome and also our thanks to
those investors who have indeed been convinced of the value and who
have joined us over the course of this last, turbulent month,
probably one of the rockiest in the markets which any of us
remember.
Growth and value for the moment to one side, we respect the
unalterable reality of that bane of financial analysts: sentiment.
And given that external demand even for cheap assets in Cambodia
has eased off a shade this last quarter we are in no rush to invest
and believe that patience and caution will pay dividends in the
months to come in the shape of keener prices for solid investments.
Monthly closures continue with the next close taking place on the
28th November 2008. Please contact our Chief Operating Officer
Thomas Hugger for offering documents, subscription forms and
general enquiries at: [email protected].
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Leopard Capital Welcomes Varma and AGIFEL
We are pleased to welcome two of our most recent investors: Helsinki
based Varma, Finland's largest private pension fund
and also Hong Kong based and 32% HSBC owned
Arabian Gulf Investments (Far East) Ltd (AGIFEL).
Both houses come with a wealth of emerging market experience and we
are delighted to welcome both, whose commitment raises our fund size
to approximately $23 million.
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'Hip' Cambodia?
As we have said to investors repeatedly, tourism is one of the
great growth areas of the Cambodian economy and with tourist
arrivals growing at 20% per year for the last five years to a
predicted two million for 2008, the investment opportunities are
tremendous. This is not backpacker country at $20 per day-Cambodia
has become, according to the Financial Times, dread word-'hip' and
hip just does not come at $20 per day. The tourists are high
spenders-just look at the plethora of articles in the quality British
Press over the last month: Sunday Times 9th November 'Beauty,
tragedy and jungle adventure...a week in Cambodia', The Sunday
Independent 16th November 'We only serve Cosmopolitans here' and
even the Weekend Financial Times Smooth Guide 16th November 'cool
art deco, flamboyant fashion....and the eternal allure of Angkor
Wat'. Even the 'strictly no tat under any circumstances', uber
quality travel agent Cox and Kings have run a half page Cambodia
advertisement in the 'Times'. High class, high spend tourism in
Cambodia is booming and whilst Phnom Penh grows from strength to
strength as boutique hotels housed in beautiful French villas
spring up like mushrooms, it is, at least for now, Angkor Wat which
most come to Cambodia to see. Rediscovered by Frenchman Henri
Mouhot in 1864 and described by him as 'grander than anything left
to us by Greece or Rome', Angkor Wat-a monumental structure
symbolising the Hindu Cosmos-is now rightly described as one of the
great archaeological sites of the world. It is Angkor Wat and,
lying just beyond, the 12th century Khmer Empire's last capital
Angkor Thom which are the draws. And with 1.5m visitors per year,
draw them they very much do. The 'service' town for the Angkor
complex is Siem Reap which lies just off the great Tonle Sap lake.
With over 150 hotels and counting, with a growing number of high
quality restaurants and with a tremendous revival in Arts and
Crafts via such organisations as Artisans d'Angkor, expatriates
with the right skills are in great demand and it is in Siem Reap
where Leopard Cambodia Fund has made it's first investment. Here,
our CIO Ken Stevens gives an update on progress:
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Angkor Residences ... moving forward with confidence
The past two months have been a busy period for the management team
of Leopard's first investment, Cambo Fund Limited (CFL) in which
Leopard Cambodia Fund has a 24% interest, and its residential
housing project, the 'Angkor Residences'. Below we provide an
update on the property market in Siem Reap and a discussion of the
progress made by CFL management.
Siem Reap residential property market is
buoyant-driven by fundamental demand.
In contrast to Phnom Penh, where several large,
foreign led condo towers and commercial projects may be delayed,
the less developed Siem Reap market appears healthy due to a
limited supply of high end housing for wealthy Khmers and
expatriate managers. The plan of Angkor Residences is modest in its
goal to develop and sell 200-250 units over the next 3-4 years at
an average price of US$1,400-1,600 per square meter. Management
informs us that a competing residential project in Siem Reap has
been successfully selling units at a significantly higher price.
Construction costs look reasonable, may soften in
2009.
Recent construction estimates have been consistent
with CFL's estimates and several factors suggest that construction
costs will soften in Cambodia in 2009. The prices of building
materials (largely imported) in Cambodia are falling alongside
declining oil prices and a construction slowdown in the
neighbouring countries of Thailand and Vietnam. Moreover,
development costs should also benefit by the slowdown or
cancellation of some large projects in Phnom Penh. Some previously
"unavailable" contractors are now finding themselves with
fewer projects in hand and some excess capacity.
Land acquisition for Angkor Residences is nearly
complete.
Currently, CFL has acquired 2.6 hectares of land (80% of the
planned total) at an average price of US$167 per square meter. This
compares favourably with the current market price in this location,
which appears to have firmed in the second half of 2008. Management
is now negotiating for the acquisition of a few adjacent land
plots. If successful, these will be incorporated into the design
and upcoming pre-sales launch. If management does not purchase
these plots in the near future, then they will keep an eye on these
plots and consider their use in a follow on stage of development.
CFL directors meeting sets priorities for next six
months
At the first 'directors meeting' in late September,
the plan for Angkor Residences was reviewed by its directors. The
priority tasks were identified as follows:
a) Conclude the final design for Angkor Residences. A prominent
list of local and foreign architects have submitted their design
concepts for the project and are now under management
review.
b) Prepare to launch unit pre-sales in the second or third quarter
of 2009. Our Cambodian partners have been discussing the project
with their contacts and interest appears to be favourable. Some VIP
buyers have expressed an interest to buy units even before the
completion of the design and pre-sale documents. A decision
will be made in December whether to launch and pre-sell all 200-250
units at once, or whether to build and sell the units in two
stages. The latter strategy may be taken in anticipation of even
higher land and unit values in 2010 and 2011. Secondly, given the
attractive location of the land and its large plot size, some
property consultants have enquired as to the possibility of
building a high end boutique hotel or serviced apartment on half of
the site.
c) Construction of a new access road into the site is to begin
in December and should take six months to complete. The directors
anticipate that this work will enhance land values further.
d) Select project manager to oversee the build out of Angkor
Residences and update final development costs. CFL expects to make
its final selection of the main contractor in the first quarter of
2009.
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In
the News
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Finance Minister Keat Chhon announced that the
Government has revised Cambodia's 2009 GDP
forecast down to 6.5%.
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Soci�t� Concessionaire des A�roports which
manages the Sihanoukville airport have announced that the second phase of the
airport's renovation are nearing completion and that the airport
should reopen by the end of 2008.
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The National Assembly is scheduled to approve two major hydropower dams worth $495 million in Koh Kong province. The
proposed 174megawatt and 164-megawatt dams on the Stung Russei
Chnun river will supply power to Pursat and Koh Kong provinces
and also to Phnom Penh and will be operated by Chinese owned
Michelle Corporation on a 30 year BOT concession.
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Cambodia and Vietnam have signed a deal to
link their railways Cambodia's foreign minister said last Saturday.
Foreign Minister Hor Namhong said China would help Cambodia with
the railroad link to Vietnam which will cost more than US$500
million to complete. "China has promised to build the
railroad from Phnom Penh to Vietnam as part of the project to
create a link from Singapore to Kunming in China" Hor
Namhong said on his return from Hanoi. Cross-border trade
between Cambodia and Vietnam totalled $1.7 billion in the first
eight months of this year.
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Leopard in
the News
Articles containing information and comment on both
Cambodia and on the Leopard Cambodia Fund appear regularly in
various publications and news outlets. To view the page in our
website displaying links to these click
HERE
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The NAV
of Leopard Cambodia Investments (BVI) Ltd as of 31st October 2008 is
USD1'004.35 (30th September 2008 USD1'003.53)
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Leopard Cambodia Investments
(BVI) Ltd.
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VGG5458M1005
CUSIP Number
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