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Newsletter Issue 21 – March-May 2010 

 

 

 
 

 

 

Cambodia’s Gentle Rebound 

 

Like much of the world, Cambodia’s economy is showing signs of a modest recovery, with the ADB now forecasting GDP growth of 4.5% in 2010 following the -2.0% slip in 2009.  Those industries hardest hit by the Global Financial Crisis such as clothing exports, tourism and property construction have bounced off their 2009 lows, while more resilient sectors such as agriculture, telecoms, and infrastructure development continue to show buoyancy.   

   

With the “Greek Tragedy” highlighting the downside of ballooning sovereign debt, it is reassuring to note that Cambodia’s external public debt is just 32% of GDP, and most of it consists of long term, concessionary loans.  Also, Cambodia also still has a sound banking system with virtually no exposure to PIIGS, CDOs, subprime, proprietary trading, etc.  In our view, Asia’s pre-emerging markets such as Cambodia remain the safe harbors in the global financial storm, while offering a shimmering rainbow of domestic-oriented growth opportunities.  We’re glad to have made it our base.

 

 

 

 

 
 

 

Leopard Cambodia Fund Update    

 

On May 6th Leopard Cambodia Fund acquired a 31.48% equity stake in Nautisco Seafood, which operates Cambodia’s largest and most modern seafood processing plant.  Nautisco’s major shareholders are Canadians with seafood processing experience in Eastern Europe.  Production has already started at the newly-built factory in coastal Sihanoukville province, with hundreds of workers peeling, processing, and packaging wild-caught shrimp netted by local fishermen in small boats.  Seafood processing has become a massive industry in Thailand and Vietnam, and Cambodia which offers cheaper labor and a 440 km coastline should be able to follow in its neighbors’ footsteps.  This investment will help support the livelihoods of numerous families living in impoverished coastal areas, and may encourage other entrepreneurs to develop an upstream aquaculture industry in Cambodia.  Website: www.nautisco.com.

 

On March 1st the Fund announced a $3 million investment for a minority shareholding of ASA Plc, the vehicle through which the ACEDA Staff Association holds a 19% stake in ACLEDA Bank Plc.  Two of the Fund’s LPs co-invested another $2 million in ASA, and the Fund represents the syndicate on ASA’s board.  The Fund’s ASA shares will be converted into ACLEDA shares prior to ACLEDA’s expected eventual public listing. From its establishment as a small microfinance institution in 1993, ACLEDA has grown into Cambodia’s largest retail-oriented commercial bank, with 232 of

fices, over 7,000 staff, and more than USD 900 million in total assets.  Key shareholders include Jardine Matheson, Triodos, World Bank/ IFC, and Germany’s DEG.  ACLEDA reported a strong 1Q10 result with unaudited net profits of $3.86 million and non-performing loans declining to just 0.7%.  Website: www.acledabank.com.   

 

Kingdom Breweries  remains on track for a July-end commercial launch.  The brewing equipment has now been installed, and the bottling line will soon arrive.  Bottles, caps, labels, and raw materials have been selected and ordered.  The brewery building is in its final stages of renovation and looks much better.  A crew is now fitting out the “tasting room” bar which we hope will become a familiar landmark among beer lovers in Phnom Penh. LPs attending our May 28th annual investors’ meeting will be offered a site tour and briefing.

 

 

Cambodia Plantations continues to seek its land concession, a process that has dragged on due to evolving government irrigation policies in the targeted area.  Multiple arms of the government must give consent to an agricultural land concession, but we believe our application may now have reached the final stage.  We remain bullish about the rice production business. 

   

Angkor Residences is finishing up its second phase of access road improvements, which involves widening and paving a few public roadways through the villages leading to the site, and installing drainage ditches alongside them.  Meanwhile, a multi-million dollar project has commenced to treat public wastewater in the area and beautify the public canals running by our site.  All this upgrading work should enhance the relative appeal of this residential neighborhood to future property buyers.  But for now, the entire Siem Reap property market remains subdued and development of the Angkor Residences site itself is on hold.

   

CamGSM seems to be off to a strong start in 2010 as it repaid on April 28th over 4.5% of its outstanding $5 million loan principal balance owed to the Fund.  Ministry of Post and Telecoms’ 1Q10 data confirmed that CamGSM remains the largest among Cambodia’s nine mobile phone operators, holding 37.7% share of the country’s 7.1 million issued SIM cards. 

 

Greenside Holdings is also current on its debt servicing payments to the Fund, and its power grid is carrying electricity to thousands of rural homes that never had electricity before.

 

In addition to the seven investments above, the Fund has signed initial agreements to acquire minority equity stakes in two more companies:  an operating micro-finance institution and in a start-up WiMAX internet service provider.  Hopefully these two investments will be completed and announced in the next newsletter.  Several other investment proposals are at earlier stage of active evaluation.  We anticipate that the Fund may be fully committed within a few months, and have therefore started preparing our successor fund, Leopard Cam-Lao SME Fund LP, with a targeted launch date of December 1, 2010. In addition to carrying on our new investment sourcing in Cambodia, this fund will add a 30% targeted commitment to Laos, where we will set up a Representative Office. If you would like information on this Fund, please email Mohamed at [email protected].

 

 

 

Secondary Market

 

While Leopard Cambodia Fund – and its feeder fund – stopped accepting new investors as of Dec. 31, 2009, it is sometimes possible to enter (or exit) the fund trough the secondary market in feeder fund shares.  Potential buyer or sellers should contact Mohamed, [email protected].

 

 

Leopard Sri Lanka Update

 

We have received advice from targeted cornerstone investors our Sri Lanka funds on some structural revisions to consider before their initial launch.  We are consolidating these ideas and have postponed the funds’ launch in the meantime. Investors interested in Sri Lanka should write to Mohamed, [email protected]. 

 

Sri Lanka’s Parliamentary election was held, with President Mahinda Rajapaksa’s party winning another landslide following his convincing re-election to the Presidency in January.  President Rajapaksa now has a historic mandate to rebuild Sri Lanka’s economy and reunify its social divisions.  The Government has just rolled back its “State of Emergency” powers as a first step, but must now reel in fiscal spending and the budget deficit to meet IMF requirements and strengthen economic stability.

 

 

 

 

Team News 

 

Our Cambodia office is pleased to welcome Sandro Baechler as a summer intern.  Sandro is pursuing a MA in Banking and Finance from University of St. Gallen, Switzerland, and has prior work experience at JP Morgan, UBS, and Lehman.  

 

 

 
 

 

Roadshows

 

We will be in Boston June 1-4 and UK/Europe June 21-July 2 for SuperReturns conferences and investor meetings. If you would like to meet up please alert Mohamed,[email protected].

 

 

 

In the Cambodia Press   

  • Parliament passed the law allowing foreigners to legally own condominiums above the ground floor in buildings majority-owned by Cambodians.  The long awaited Anti-Corruption Law was also enacted, making bribery illegal.  
  • Cambodia now ranks as the #3 destination of Vietnam investors, having received 63 projects worth US$900 million.  Most recently, Vietnam’s Saigon Medical Investment JSC and Cambodia’s Sokimex Group have started construction on a $42 million, 500 hospital in Phnom Penh.  This will be the largest private sector hospital in Cambodia, and will be affiliated with Ho Cho Minh City’s Choray Hospital. 
  • Japan’s JICA has granted $6.6 million to build Cambodia’s first fish breeding center in Sihanoukville, aiming to scale up local aquaculture production, which could expand raw material supply for our Nautisco Seafood plant.   
  • Oz Minerals estimated its Mondulkiri site contains over 2 million ounces of gold.  State-affiliated Japan Oil, Gas and Metals Corp. has agreed to survey a potential onshore oilfield around Tonle Sap Lake. 

 

 

 
 

 

 

Visit Notes: Sri Lanka’s Liberated East 

We’re on a marathon investment inspection tour of the South and East coasts of Sri Lanka.  Locals like to say the East has the island’s best beaches, natural harbor, fishing, farmland etc. so it’s time to put such claims to the eyeball test.  The East also provides a preview of what reconstruction programs may lay ahead for the North, since the East was liberated from the separatist LTTE Tigers a few years earlier. On the way East, we also want to tour the South which the government has made another priority area for investment.

Leaving Colombo, our first stop is in Galle, an intact port town from the wooden ship era. We enjoy a sunset stroll along the Dutch fort’s elevated waterfront ramparts, from which one can soak up much of Old Galle’s historic architecture.  A few of the nicer buildings have already been spruced up and it’s not hard to imagine Galle becoming renowned as an atmospheric tourist hangout.  

 

We lodge overnight nearby at tourist-friendly Unawatuna beach which like much of coastal Sri Lanka was wiped out in the 2004 Tsunami then recreated.  Heading onward along the coast, we visit a series of fishing inlets harboring flotillas of boats with “donated by” nameplates of well-known charities.  These small boats cannot go out very far or long, so their catch is limited in size.  The assortment of fish they net is sold dockside to traders who ice and truck it to Colombo for sale into the domestic market.  We spot some medium sized boats as well, which might be selling tuna directly to Japanese collection boats offshore.  

 

Further East we finally reach Hambantota, the home province of President Rajapaksa and by coincidence now the recipient of Sri Lanka’s most ambitious infrastructure upgrade.  Currently just a shabby, impoverished village, Hambantota has been earmarked to become a rest stop on the world’s shipping highway.  China, the core customer of the cargo cruising by, is bankrolling and building a billion dollar bunkering and bulk port in Hambantota. This world-class port facility will be complemented by a planned international airport, industrial estate, coal power plant, oil refinery, tank farm, convention center, administrative center, and various other big-ticket facilities.  The overall project reminds us of Thailand’s visionary Eastern Seaboard initiative, which overcame early skepticism to propel that nation’s remarkable industrial development over the past two decades.  Hambantota’s facilities will be rolled out over a 15 year period, with most of the investment checks written by foreign governments and multi-national companies. 

 

We find the Port’s entrance gate near a vast workers’ camp which consists of orderly rows of, temporary housing.  Most of the workers are of course Chinese. We talk our way past the port’s local guards and undertake an unguided driving tour of the port site, dodging around lumbering loaded dump trucks.  The scale of the worksite is mind boggling, and reminds us of a huge copper mine site we once toured in Mongolia.  What they are building here is an inland, artificial port – think of a gigantic swimming pool 17 meters deep and spacious enough to maneuver multiple 100,000 ton cargo ships within.  Toss in a dredged channel to the sea, and a couple kilometers of oversized breakwaters outside, and you have a pretty big project indeed.  And it is being built, at breakneck speed. 

 

After we snap some photos from various viewpoints, a SUV suddenly races up to us. Out steps the unsmiling Chinese security manager, who demands to know, in crisp English, exactly what we are doing here and who gave us permission to enter.  We reply that we were in fact just leaving, and watch him glare at our vehicle as we speed off to the exit. 

 

Next we visit the planned $200 million international airport site, which involves a rather long detour into the countryside.  The airport currently consists of a cleared jungle field with the following key improvements:  a decorative gate, a billboard featuring the beaming President, and an orange nylon windsock.  We expect that if the Chinese agree to build it, the small “final touches” of building a runway, terminal and control tower won’t take long. On the way back, we see that some smaller components of the Hambantota transformation project are well underway:  a windpower pilot farm, a government administration complex, and an International Exhibition Center – courtesy of Korea. 

 

It’s late now so we head north to our next hotel, just outside Yala National Park.  Our fellow hotel guests -mostly Swedes and Italians – seem enthused about all the wild elephants and other animals they have seen in the park.  Unfortunately our ambitious schedule doesn’t permit us to join the morning safari trip, and we push northward up the East Coast to Arugam Bay.  This bay is reputed to be a world class surf spot, but we don’t spot any over-tanned dudes with boards.  We do find a charming beach hotel there operated by a Danish lady whose husband sadly perished in the Tsunami; we admire her for reopening and carrying on. 

 

Next on our agenda is a tour of Oluvil Port, a project being financed by Denmark and constructed by a leading Danish civil contractor.  While this port is only a fraction of the size and cost of Hambantota, it is still quite a substantial project comprising breakwaters, cargo berths, a fish boat basin, and a small fish processing plant.  The experienced Danish project manager gives us a comprehensive tour and discusses the local challenges his team encountered and overcame; he seems unflappable. The only problem is that the port has been located – perhaps for political reasons – in an impoverished area with little real need for a port this size, so it may end up well built but lightly used. 

 

As we make our way up the East coast it becomes apparent just how much road work is in going on in this formerly rebel-controlled province.  Every road seems to be getting widened, smoothed, and resurfaced, section by section, while at each river, creek or ditch crossing there seems to be a brand new concrete bridge underway.  Our travel speed and passenger comfort surge each time we reach a finished section.  When all this is finished Eastern Sri Lanka will leapfrog from having the country’s worst to best road system. Still, we enjoy the experience of crossing one river the traditional way, in a battered single-car ferry powered entirely by human muscle.  Two attendants on the ancient platform tug on the guide cable stretching across the river while the boat skids forward.  Approaching the opposite shore, they leap up and down on the tailgate to position it so that we can safely drive off.  This eco-friendly ferry’s days are numbered however, as a modern new bridge is under construction 50 meters away. (see picture below) 

 

We drive through the pleasant town of Old Batti and wander around its small 300 year old Dutch fort, which now houses some local government offices.  This town holds potential tourism charm, a bit like Galle, and we spot the shingles of numerous NGO offices, whose staff usually sniff out the better places to live. Moving northward, we hit a couple once-famous beaches but find that while they are now attracting swarms of locals, they are still missing any tourism support facilities more durable than a food cart.  That will change. 

 

Lining the coastal road are endless agricultural fields.  Unlike in rural Cambodia, we spot numerous tractors and harvesters in use here, while the buffalos just wallow and watch.  The support towns also appear more prosperous; many display public buildings and clinics donated post-tsunami by foreign governments and NGOs, unlike Cambodia which rarely experiences any natural disasters.  However the region still shares Cambodia’s problem of having insufficient post-harvest technology, the farmers dry their rice along the sides of the road. 

 

Our final stop is Trincomalee, home of what Admiral Horatio Nelson proclaimed the “world’s finest harbor”.  Since the British fleet sailed out a half century ago, the magnificent harbor has been forgotten while costly manmade ports are constructed in Colombo, Hambantota and Oluvil.  “Trinco” looks to us like a grand place to invest; here is a sizable town with an important past and an inevitable future.  Also, the rail line runs here, so it could plausibly become an important industrial hub – already there are foreign-owned major cement and flour factories here.   

 

Just north of Trinco we are pleased to discover what we’d rate as our favorite beaches in Sri Lanka:  Uppuveli and Nilaveli. These are lengthy, walk-able beaches dusted with fine, off-white sand, fringed with coconut trees and looking out on an inviting aquamarine sea.  Excursion operators offer whale watching and snorkeling trips. Most of the existing hotels look weary, but larger operators like John Keells are gearing up to open higher-end properties here.  And yes, we spot some NGO home-offices partially hidden just behind the beach, surely being described back to headquarters as a hardship posting.   

 

Our tour completed, we head back to Colombo, exchanging the traffic-free roads of the East for the congestion of central and western Sri Lanka.  We reflect back on the China-like audacity of the Hambantota project and the transformative impact it could have on the sleepy South, which could emerge as a new growth engine of the national economy.  If Trincomalee is given its own airport and container terminal, it could emerge as a third integrated industrial / services growth zone alongside Colombo and Hambantota. Meanwhile, the rest of Eastern Sri Lanka will be steadily expanding its agricultural, fisheries and tourism industries, boosted by the improved transport connectivity.  

 

We look forward to next exploring the liberated North and assessing how that fits in to Sri Lanka’s changing economic paradigm.  

 

 

 
 

 

 

Picture of the Month:  Our Favorite Ferry, Photo by Douglas Clayton 

 

 

 

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 Sri Lanka Fund LP, Leopard Sri Lanka Private Equity Investment Fund, Leopard Sri Lanka Value Fund, and/or Leopard Sri Lanka Value Fund (non-US) (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. © 2009 Leopard Capital LP. All rights reserved

In this Issue 

Cambodia’s Gentle Rebound

Leopard Cambodia Fund Update

Secondary Market

Leopard Sri Lanka Update

Team News

Roadshows

In the Cambodia Press

Sri Lanka’s Liberated East

Picture of the Month

 

 

Quick Links 

 

 

Leopard in the News: Media articles about Leopard’s funds are posted on our website, please click on the following links: Leopard Cambodia.

 

 

The Issue Price of Leopard Cambodia Investments (BVI) Ltd. was as of 31st December 2009 US$ 1’015.61 (30th November 2009 US$ 1’014.94)

 

Leopard Cambodia Fund, LP  

Fund size:  

USD 34,135,000

 

ISIN No:  

KYG5458L1023 

 

CUSIP No:

G5458L102

 

Valoren No:

003811078

 

Bloomberg:

LEOPARD KY

 

Lipper ID:

65096323

 

Leopard Cambodia Investments (BVI) Ltd.   

 

Fund size:

USD 20,610,000

 

ISIN No:

VGG5458M1005  

 

CUSIP No:

G5458M100

 

Valoren No:

003884357

 

Bloomberg:

LEOBVIL VI

   

Lipper ID:  

65096324  

 

 

   

   

   

   

   

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