Leopard Cambodia Fund - Monthly
Newsletter Issue 8 - December 2008
Welcome to the 8th and final 2008 Issue of the
Leopard Cambodia Fund (LCF) Monthly Newsletter. As we go to press,
Buddhism notwithstanding!... a few Christmas lights are beginning
to twinkle around Phnom Penh as hoteliers and restaurateurs cater
to the influx of high season, high spending western tourists.
With the rainy season finally behind us and the weather now
at its balmiest, the city's boutique hotels and chic French bistros
are enjoying brisker business; we were even turned away from our
favourite restaurant Romdeng last week. The plethora of coverage
Cambodia has received in the travel sections of the quality
British, American and European press these last months has
certainly helped: even the usually reserved Financial Times became
a touch excited about Phnom Penh and Siem Reap--quite a coup for
the country to be written up in the luxury 'How to Spend it'
section of the world's leading financial newspaper. But it's the
quality rather than the quantity of the tourists which catches our
eye-backpacks are still very much in evidence of course and a
staple source of tourism income they are too, but in areas such as
the French quarter it's not the backpack which is so much in
evidence, rather it's the Prada handbag and the cork/bottletop
ratio at one or two of the more trendy (and pricey) establishments
seems to be inverting. We encourage our investors and other readers
to come to Cambodia and help this 'inversion' along-come and see it
whilst hotels like Le Royal, one of the best in South East Asia is still
charging room prices akin to your average B&B in Paris or in
London-the value won't last for ever.
Monthly closures of LCF continue with the next close
on Wednesday 31 December. More details can be obtained from our
Chief Operating Officer Thomas Hugger at: [email protected].
Operating in a country with extraordinary social
needs, Leopard Capital likes to invest where possible in projects
which deliver not only an excellent financial return to investors but
also an above average 'utility' return to local people. The power business
has the potential to deliver on both fronts. Hard to imagine but the
whole of Cambodia has only 195MW of installed generating
capacity-that's what, probably enough to run a section of Central on
Hong Kong Island? Point is of course, there is a structural
deficit of this most necessary commodity and with the right take off
agreement, the demand inelastic business of power generation and
distribution can be highly profitable AND deliver tremendous social
advantages to people. We are currently
looking closely at a couple of interesting Small Power Projects
(SPPs) and Transmission and Distribution projects.
Here, Leopard Capital Associate Matt Magenheim gives a brief
explanation of just why it looks so interesting.
writes: 'Cambodia's energy sector is at a critical stage of
development. Despite expansion of the electricity supply since
1995 when the rehabilitation of the national power system began,
capacity is still significantly below the rapidly growing
demand. Electricity costs in Cambodia are among the highest in
the world, while the electrification rate remains one of the lowest
in Asia. Currently, less than 20% of Cambodian households have
access to the public electricity grid, and tariffs generally range
from $0.15 to $0.50 per kilowatt hour. Rural Cambodians off the
grid at best may have access to small community generator sets which
may charge car batteries for household use at rates of up to $1.00
per kilowatt hour.
The domestic electricity supply is fragmented, consisting of 20 to 25
small isolated power systems that primarily rely on diesel or heavy
fuel oil. In 2007, the capacity output of the Electricit� du
Cambodge was approximately 195 megawatts and 1,100 gigawatt
hours. By 2024, required capacity is expected to approach 3,050
megawatts and 16,250 gigawatt hours.
The Royal Government of Cambodia has targeted hydroelectric
generation as a priority and estimates that Cambodia has the
potential to generate more than 10,000 megawatts from hyrdro
sources. There are currently several hydroelectric dam projects
under development by Chinese firms with plans to add more than 2,000
megawatts of large scale power generation projects over the next ten
years. As a stopgap measure, Cambodia plans to import up to 260
megawatts from Vietnam, Thailand and Lao PDR over the next three to
five years. Several transmission projects for this are now
under construction with funding by development finance institutions.
Large scale power plants fueled by gas or coal may be introduced in
Cambodia if recent local resource discoveries prove commercial and
extraction commences. However, these projects will require
significant investment in expanding the national grid system.
Cambodia is committed to rural electrification and has set a goal of
providing quality electricity services to 70% of the rural population
by 2030. It is estimated that only 13% of rural households have
access to electricity today. The limited national grid
system will require significant expansion of the domestic
transmission and distribution system as well as innovative small
power generation projects to ensure electrification of rural
communities and emerging commercial centers.
Investment opportunities in the power sector are numerous and include
both power generation and transmission. Greenfield projects for
medium to large scale hydropower, coal and gas plants are
available. There is also the potential to acquire smaller
oil-fueled plants that are currently operating inefficiently but have
attractive power purchase agreements with Electricit� du
Cambodge. Cross-border transmission lines as well as domestic
transmission and distribution systems may offer attractive returns
contingent on the agreements investors are able to negotiate with
Electricit� du Cambodge.
Given the unusually high cost of electricity from traditional
sources, Cambodia offers unique opportunities for alternative energy
projects that would minimize or avoid the negative environmental
impacts of generating power from oil, coal or hydroelectric
dams. Leopard Cambodia is currently researching several options
including underwater current driven turbines along the Mekong River,
biomass, biogas, solar, and wind. These projects could
initially target rural towns off the national grid.
So in sum, power-related projects look to us, attractive
indeed-provided sufficient returns can be negotiated. We hope to give
you more concrete news in the ensuing months".
The Gloom Boom & Doom Report
Many of you will be avid readers, or at the very least be aware of,
Dr. Marc Faber's iconic "Gloom Boom & Doom Report"
which highlights unusual and often contrarian investment
opportunities around the world. Marc is also Chairman of Leopard
Cambodia Partners GP LLC and in this month's edition of his report
includes a feature on Cambodia. To view Marc's website please
for subscription information please email his assistant Lucie Wang
at: [email protected]
Return of Excess Contribution to the Fund LPs
The GP has elected to distribute the Net Capital (excess) back to the
various Fund LPs on 15th December 2008. Thanks to the considerable
new commitments last month the Fund has received additional cash from
the new investors which will be used to return to the existing LPs
their pro-rata share of the capital and expenses previously drawn
down. This will also help to clarify and ease the tax issues for some
LPs, especially those based in Europe.
Your GP is pleased to announce the formation of the LP
Advisory Committee. The three members of this newly formed committee
are all highly experienced investors and we are delighted that they
have accepted the invitation to serve.
Dr. Simon Ogus is CEO of DSG Asia,
an independent consultancy based in Hong Kong which offers analysis
of the economies and politics of Asia. Simon is well known among
Asian investors for sounding the alarm ahead of both the 1997 Asian
and 2008 US financial crises. Prior to founding DSG Asia Simon was
Chief Asia Economist for SBC Warburg.
Boris Zhilin is a co founder of
Armor Capital, a Lausanne-based manager of a global investment fund
with long experience in emerging markets. Prior to founding Armor
Capital in 1998, Boris worked at Bear Stearns where he specialised in
screening, executing and then monitoring private equity investments.
Markus Winkler is President of the
Board of VGZ Zurich, an independent asset manager which he founded in
1973 after working for Bank Leu and UBS. He is also a founding member
of the Swiss Association of Asset Managers and the Swiss Investors'
Association, and serves as Director or Advisor of a number of listed
funds investing in Asian and other emerging markets.
Further to the establishment of this committee, LCF's
LPs approved the GP's proposal to accept a representative of LCF's
feeder fund, Leopard Cambodia Investments BVI Ltd. on LCF's LP
Advisory Committee, and Markus Winkler has kindly agreed to serve as
The LP Advisory Committee's function is (a) to review and approve or
disapprove any potential conflict of interest transactions between
the Partnership or a Portfolio Company, on the one hand, and the
General Partner or any employee or Affiliate of the General Partner,
on the other hand, (b) to advise the General Partner on such other
matters about which the General Partner may from time to time, in its
sole discretion, determine to consult the LP Advisory Committee and
(c) to review and object to any valuations if it deems such an
objection to be necessary.
looking at Red on your Bloomberg screen?
if that whetted your appetite then let's go back not quite so far in
time and visit the Cambodia which Lee Kuan Yew visited from Singapore
in the mid '60s when he is reported to have said to King Norodom
Sihanouk 'one day I hope Singapore looks like Phnom Penh'.
And now take a quick look at how just how advanced agriculture was in
Cambodia-remember when you look at this film, this was shot when most
of us were either at primary school or merely a glint in the
proverbial. Now, the first step for agriculture investors is to
bring Cambodia back to where it was 40 years ago.
In the News
2009 GDP growth forecasts
have been revised down to 4.9% (World Bank), 4.8% (IMF), and
4.7% (ADB), due to the challenging external environment.
have pledged a record $951m
of Official Development Assistance to Cambodia in 2009, up
38% from 2008. The largest donors are: China ($257m), the EU
($241m) and Japan ($113m).
mobile phone penetration rose 15% yoy
in the first 11 months of 2008.
Minister Hun Sen mentioned in a speech that the opening of the Cambodia Stock Exchange may
be delayed because of the global financial crisis. Most
industry analysts already expect a 2010 opening is now more
likely than 2009.
The team at
Leopard Cambodia Fund wishes you all a Very Happy Christmas and a
Prosperous New Year!
Articles containing information and comments 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
of Leopard Cambodia Investments (BVI) Ltd as of 28 Nov 2008 is
USD1005-42 (31 Oct 2008 USD1004-35)
Investing in LCF via a Self
Invested Personal Pension Plan (SIPP)
UK taxpayers can invest in LCF via a SIPP and enjoy
all the tremendous tax advantages which come with SIPPs. Hornbuckle
Mitchell are our SIPP provider and more information on the company
can be found here: www.hornbucklemitchell.co.uk
contact should be made with Hornbuckle Mitchell through their Asia
SIPP expert Stephen Davis at: [email protected]
Leopard Cambodia Investments