Leopard Cambodia Fund – Monthly Newsletter Issue 12 – April 2009

Leopard Cambodia Fund completed its one year fund raising period on 2 April 2009, closing with USD 27,187,000 of committed capital. Although the final amount fell short of our original target, the GP is grateful for all the commitments received amidst this period of global wealth evaporation and risk aversion. The Manager has trimmed its overheads to match this level of management fee income and as a result we now have four rather than five Managing Partners, all of whom are focused now on building a truly exciting investment portfolio. Certainly this looks to be a promising vintage year for Private Equity funds, and in Cambodia the opportunities continue to flow in as the economy contracts and traditional funding sources dry up.
Our sole investee company, Cambo Fund Ltd., has just received the title deeds of the final parcels of adjacent land which were purchased. We now have our final site configuration and can move the project into the design stage. Meanwhile, we are negotiating the acquisition of up to 4,000 hectares of leasehold land for our rice plantation project, and several other promising ventures are also progressing.
Partners’ Meeting
Leopard Cambodia Fund LP held its annual LP/GP investors’ meeting on April 10, 2009 in the Raffles Le Royal Hotel, Phnom Penh. The General Partner updated the Limited Partners on the fund’s activities, discussed the prospects of Cambodia’s key economic sectors, and introduced some of the specific investment opportunities now under active consideration. Social events included a welcome dinner cruise along the picturesque Tonle Sap and Mekong rivers presided over by Dr. Marc Faber, Chairman of Leopard Cambodia Partners GP LLC.
Khmer New Year
Phnom Penh basically shut down for the week of April 13th as Cambodians celebrated their New Year. (Of course many urban Cambodians warmed up for this event by celebrating the Western New Year and Chinese New Year in previous months!) Coastal hotels and guesthouses were fully booked as affluent Phnom Penh folk responded to the loss of their domestic staff for a week.
Sectoral Highlight: Rubber Investment Opportunities in Cambodia by Polleak-Guillaume Ok Serei (Leopard Associate)
The rubber industry in Cambodia dates to the twilight years of French Indochina. The development of Cambodia’s rubber industry followed the growth of the rubber industry in Southern Vietnam. Most Cambodia plantations were established between 1925 and 1935 in response to increased rubber demand from the rapidly growing auto and aviation industries.

The Cambodian rubber industry reached its peak in the late 1950’s and early 1960s prior to the onset of political instability and eventually war. At the industry’s peak, rubber was Cambodia’s largest export, and the Chup Plantation in Kampong Cham province was one of the largest in the world. Many of the major technological achievements which helped increase rubber yields were pioneered in Cambodia and experts continue to regard Cambodia as having the world’s most suitable climate and soil for rubber but the sector has been starved of investment since the late 1960s.

Today rubber is Cambodia’s second largest agricultural sector and has substantial growth potential. There are vast swaths of available land – only around 80,000 hectares are now under cultivation, whilst there are 716,000 hectares of red soil – the most suitable soil for rubber, plus many more hectares of grey and black soils which are also suitable.

The Cambodian rubber industry has been experiencing an investment renaissance in recent years. Large Cambodian rubber estates owned by French Companies into the 1970s but nationalized under subsequent communist/socialist regimes, have been or are in the process of being privatized and revitalised, while new concessions have been and continue to be granted.

Yields are expected to increase in the coming decade with increased investments and improved management. Analysts estimate Cambodia’s rubber is currently under-priced by approximately 10 to 20% due to a lack of certification capacity, but here too, the situation is improving. Cambodia has recently become a member of the International Rubber Association, which has granted it accreditation to export high quality rubber to a larger range of destination countries. (For the moment, virtually all of Cambodia’s rubber is exported to Vietnam and re-exported to Chinese tire manufacturers.)

The global financial crisis and the weakening of commodity prices have dampened enthusiasm for new investment. Furthermore, some overstretched investors are seeking to exit existing investments. Such a situation creates opportunities for those who believe in the long term fundamentals of rubber- a belief that global economic growth, particularly in China, will resume at some point and that natural rubber will regain its advantage over synthetic rubber due to a return to higher oil prices (synthetic rubber is petroleum based).

There are three avenues available in Cambodia to potential investors in rubber cultivation: 1) large existing plantations which due to underinvestment require substantial re-planting; 2) Greenfield or relatively new estates on recently obtained land concessions and 3) smaller estates with both producing trees and areas requiring replanting. Option #3 is most attractive to Leopard given the long gestation period of rubber trees (7-10 yrs before full production), the large size of existing plantations, and the limited economies of scale in rubber cultivation.

Investing in a processing operation (there is limited processing capacity in Cambodia) alongside an international strategic partner would also be interesting.
IFC/EMPEA Conference
Leopard Capital’s Managing Partner, Douglas Clayton, will be speaking at the International Finance Corporation’s 11th Annual Global PE Conference at the Ritz Carleton, Washington, DC on May 12-13. For more information please visit the event website: www.globalpeconference.com.
SuperReturn Emerging Markets 2009, Geneva, 30 June -1 July
As announced in last month’s newsletter, Leopard Capital founder Douglas Clayton and Leopard Cambodia Fund investor and LP Advisory Committee member Markus Winkler are among the featured speakers at Super Returns Emerging Markets conference in Geneva this June 30-July 1st. This year’s theme is “Private Capital, Growth Capital, & Venture Capital in Converging, Emerging and Frontier Economies”. Register at http://www.icbi-events.com/sremergingmarkets/ citing the following code: VIP: KN2220LEOPA. Hope to see you there.

In the News
  • The Government issued a sub-decree detailing stock exchange regulations. It enables the Securities and Exchange Commission of Cambodia (SECC), which is to be launched officially on April 29th, to prepare further regulations. The stock exchange itself is officially scheduled to be launched by the end of the year.
  • The Asian Development Bank (ADB) revealed more optimistic growth forecasts for Cambodia than the World Bank and the International Monetary Fund (IMF) had in the previous months, with predictions of a GDP growth of 2.5 per cent for 2009 and of 4 per cent for 2010.
  • The 5th annual Cambodia ICT World Expo was held earlier this month on the theme “Building a Robust ICT Industry.” The sector is starting from a low base but is expanding rapidly and the country’s infrastructure is improving – with 8,000km of fiber-optic cables now linking all provinces together and with Laos, Vietnam and Thailand. Local banks in particular are modernising their ICT systems in a context of rising competition among them.
  • JCB, one of the world’s top four construction equipment manufacturers, newly opened an office in Phnom Penh, to distribute its machinery products for construction, mining and agriculture activities across Cambodia. The construction sector is currently experiencing a decline and JCB sees “a big opportunity here.” Its local competitors are Asian, mainly Japanese.
  • The Khmer Rouge tribunal opened its first trial as hearings of Duch, the former chief of the S-21 prison, started.
Picture of the Month
A high-yield rice plantation next to a site Leopard might acquire.
Rice Kg Chhnang
In this Issue
Partners’ Meeting
Khmer New Year
Rubber Investment Opportunities
IFC/EMPEA Conference
SuperReturn Emerging Markets 2009
In the News
Quick Links

Leopard in the News: 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 here.

The NAV of Leopard Cambodia Investments (BVI) Ltd as at 31st March 2009 is USD 1008.75 (27 Feb 2009 USD 1008.01)

Investing in LCF via a Self Invested Personal Pension Plan (SIPP): We would like to remind UK taxpayers that they can invest in LCF via a SIPP and enjoy all the tremendous tax advantages associated with SIPPs. Hornbuckle Mitchell is our SIPP provider and more information on the company can be found here:
Initial contact should be made with Hornbuckle Mitchell through their Asia SIPP expert Stephen Davis at:

Leopard Cambodia Fund
ISIN No KYG5458L1023
CUSIP No G5458L102
Valoren No 003811078
Bloomberg LEOPARD KY
Lipper ID 65096323
Leopard Cambodia Investments (BVI) Ltd.
ISIN No VGG5458M1005
CUSIP No G5458M100
Valoren No 003884357
Bloomberg LEOBVIL VI
Lipper ID 65096324