Leopard Cambodia Fund Monthly Newsletter Issue: 6
October / 2008
Welcome to the 6th issue of the Leopard Cambodia Fund (LCF) monthly newsletter. In the wake of our Investors’ Forum in Phnom Penh last month, we begin by extending both a warm welcome and our thanks to those who have recently joined us. Monthly closures continue with the next one taking place on the 31st October 2008. Please contact our Chief Operating Officer Thomas Hugger for offering documents, subscription forms and general enquiries at: [email protected].
Progress Update on the Cambodia Stock Exchange
The Ministry of Economy and Finance hosted a 2 day conference on October 17-18 on Cambodia’s future stock exchange, and reconfirmed the exchange will open in late 2009.
The newly-announced listing criteria include two years of profitability, $1m paid up capital or $2m shareholders’ equity, and 100+ shareholders or 10% free float. Listed companies will also have to follow international accounting standards and have at least one independent director.

The transaction currency will be the US Dollar rather than Cambodian Riel, a decision which will be welcomed by many foreign investors.
Korean advisors identified three Cambodian state enterprises as potential IPO candidates: fixed line operator Telecom Cambodia, the Sihanoukville Autonomous Port, and the Phnom Penh Water Supply Authority. They also encouraged cross listings of Cambodian companies on the Korean exchange.
Self Invested Personal Pension Plans
Otherwise abbreviated as SIPPs, these are the means by which UK investors select their own pension investments rather than have a general pension provider do it for them. Investors can decide for themselves in which stock or fund THEY want to invest. And of course SIPPs come with excellent tax breaks. For lower rate taxpayers the Chancellor comes up with 20% of the investment, higher rate taxpayers reclaim subsequently up to their maximum tax level (subject to certain inland revenue limits.) Existing pension funds, if acceptable to the client and existing provider, can also be transferred into SIPPs. The Financial Services Authority lays down fairly strict guidelines as to what are or are not deemed to be acceptable investments to which SIPP providers must adhere – a great means of protecting the investor. Leopard Capital is therefore delighted to announce that via our Feeder Fund (Leopard Cambodia Investments (BVI) Ltd., investors can reap the associated tax advantages. The well regarded SIPP provider Hornbuckle Mitchell will ‘package’ the investment. More information on the company can be found by clicking here.
Hornbuckle Mitchell, due to advice and compliance issues, work through a network of preferred Independent Financial Advisors. Thus initial contact should be made by emailing Stephen Davis at: [email protected]

The Prasat Preah Vihear Temple Dispute
Indochina watchers will have been following developments along the Thai/Cambodian border over recent days. With several soldiers killed or wounded on both sides it would be foolish to dismiss the fighting as a ‘small local difficulty’ that is quickly and easily forgotten. Equally unwise would be to see it as a unique event. Indochina has ‘form’ on its borders, and negotiation and compromise are invariably the final outcome. Pragmatism and national economic self interest dictate it must be so. To understand the dispute and accurately quantify its severity, it must be seen in historical context.The roots go back to the 1950s when Cambodia was a French protectorate and French maps showed the temple as being on the Cambodian side of the border. Thai maps showed the opposite. When the French left Cambodia in 1953, the Thais, no longer facing a large western power, occupied the cliff on which the temple stands. Cambodia subsequently severed diplomatic relations with Thailand and lodged a complaint with the World Court in The Hague who in 1962 ruled that Prasat Preah Vihear belonged to Cambodia. The Thai King ordered that the Court’s decision be accepted and there has been a sticky but well managed and non violent truce ever since. Unfortunately Thai domestic politics then came into play resulting in the recent border flare up. Our view is that the failure to de-escalate the situation may be linked to the severe internal political problems Thailand continues to experience. The embattled Thai government has poor control over its own military, with the Army chief recently suggesting on TV that the Thai prime minister should consider resigning. At this time the Thai Army’s priority may be to burnish its image as defenders of “national interests”, and this border tension appears to facilitate that effort. Should the army step in and solve the political impasse this will underpin their credibility. A lasting solution may have to wait until Thailand has solved its political polarization. In the meantime – perhaps as a gesture – Cambodia is shifting some of its import orders from Thailand to Vietnam. Otherwise the issue has not significantly impacted the national economy, because money talks and so do jobs, and Thailand is the 3rd largest Southeast Asia stakeholder in Cambodia, a country crying out for foreign investment. Trade between the two countries reached $1.47bn last year: with a forecast FY growth rate of over 20%. That bilateral trade will by year’s end be worth $1.75bn. These figures will probably serve to focus governmental minds on both sides. As we have maintained all along, with both countries having much to lose, economic ‘realpolitik’ will eventually force a compromise.
The likely impact on Cambodia of the tightening liquidity in global markets and the sharp decline of oil and commodity prices
A view from our Chief Investment Officer, Ken Stevens

To those sitting in Cambodia, for which revised consensus ’08 GDP forecasts remain a healthy 6.5 percent, the turmoil in American and European financial markets seems a distant event. The comparable meltdowns in Asian markets seem closer to home, but still somewhat remote. Below we discuss the impact that Cambodia will feel from the global liquidity crunch and falling commodity prices.

1. Falling oil and commodity prices are positive for Cambodia

The benefit of cheaper oil is already being felt amongst Cambodian consumers and businesses. The frugal Cambodian authorities provide minimal subsidies for oil, thus savings are being quickly passed on to consumers and businesses. Heated inflation figures of CPI rising 20-30% YoY now seem a distant memory, and upcoming monthly figures are likely to be modest and re-assuring. As most of Cambodia’s foods and raw materials are imported, softening commodity prices will likewise result in cheaper prices. Cambodian farmers and exporters are not enjoying the unusually high market prices that occurred in mid 2008, so not everyone benefits from the slump in commodities. However at Leopard we’re encouraged to see that many investors of all sizes are still interested in funding large scale agriculture projects in Cambodia. They now see Cambodia’s abundant but under-utilized farm land as a good opportunity to expand production of food and other needed raw materials. Missions from numerous governments have visited Cambodia to enquire about huge farm deals and long term supply contracts that ensure their food security. As mentioned below, if the price of Cambodian farm land or long term farm leases softens in the short term, this will be a good opportunity to invest for the long term.

2. The impact of global liquidity concerns is less obvious, but likely

As liquidity in global financial markets tightens, Cambodia’s economy will be spared the more immediate and obvious problems facing some economies, but there will be some follow on effects. With no stockmarket at present, Cambodian investors will not suffer from the hardship of “wealth destruction” and thus the global turmoil should not cause domestic consumption to decline significantly. Cambodia also has virtually no interbank market, thus domestic short term lending rates have not jumped. Moreover, healthy banks are safe from the “contagion effect” that might otherwise be caused by interbank loans to weaker banks.

Like their counterparts elsewhere, Cambodian businessmen will find it more difficult to obtain loans in late 2008 and 2009 and interest costs will firm. The reason for this is not likely be a shortage of funding, but instead, growing prudence and caution amongst local bankers. Currently the banking system has ample liquidity as banks are flush with deposits and commercial lending rates are reasonable as indicated by a US dollar prime rate of 8-9%. However one area to watch will be the movement of foreign deposits and inward remittances to Cambodia. These sources contributed a significant portion of deposit growth in recent years (rising 38% per annum in 2006 and 2007). It is likely that the global slowdown could reduce funding from these groups in the near term. Cambodian banks and companies are isolated from a potential rise in global lending rates as they have very limited offshore borrowing. Total private sector loans were only 19% of GDP at the end of 2007, thus Cambodia Inc. enjoys much a lower leverage compared to its peers throughout Asia.

3. A slowdown in investment and growth is likely

Cambodia will likely see a slowdown in investment due to the global credit crunch, particularly in the construction of high profile property projects and perhaps a delay in some infrastructure works. Foreign investment and foreign aid funds a large portion of property and infrastructure projects. As foreign property developers find it more difficult to obtain funding at home, they may be choose to delay or cancel projects in far away Cambodia. On a positive note, many badly needed infrastructure works will go forward without delay, particularly those which are funded by the multilateral groups such as the ADB, IFC etc. However some projects which are funded by single nation donors (usually smaller but also important road or bridge projects) may get reviewed by the donor governments and face possible delay or cancellation.

Signs are already emerging of a slowdown in the property market. Property agents and local newspapers report that prices are softening and that the foreigners are beginning to delay their projects. Some property investors fear that foreigners will sell their half finished projects to meet funding requirements at home.

4. A near term slowdown is likely to be positive for longer term growth

Many economy watchers (including Leopard) feel that if growth and investment slows to modest rates in 4Q 2008 and in the first half of 2009, that this is likely to be a positive development. After posting 10.5% annual GDP growth in the 2003-2007 period, a soft landing would likely be in the best interests of the longer term economy and would allow the excesses of the past several years to be corrected. Notable examples are that loan growth expanded nearly 100% YoY in 1Q 2008 and Phnom Penh properties had doubled or trebled in price in the past few years.

For Leopard Cambodia Fund and other investors with cash in hand, the next 6-9 months should be a very good time to invest in Cambodian companies and fixed assets. Some potential acquisitors are likely to be cash strapped or increasingly cautious, leading them to delay their acquisitions and investments. This creates buying opportunities for the remaining buyers. We also believe that the pricing of deals is likely to improve further as company owners will lower their expectations, due to tightening supplies of loans and the sobering impact of a slowing economy.

There are few sources of long term capital in Cambodia, and the on going liquidity crisis will force some suppliers of capital to overlook Cambodia in the near term. Many of the rival buyers that Leopard have come up against in our deals have been Asian investment banks or Asian investment funds who have been using their ‘discretionary’ funds to acquire Cambodian assets or stakes in Cambodian companies. For many of these groups discretionary funds will now be largely unavailable or directed toward opportunities at home or in more traditional markets. We have even encountered large hedge funds dabbling in the Cambodian market in anticipation of big returns. The meltdown of worldwide stockmarkets and tightening liquidity will likely force these non-traditional investors to overlook the country and attend to concerns in their home markets. This leaves more opportunities for Cambodian specialists, such as Leopard.

In the News 
  • THE Royal Phnom Penh Hospital – a US$40 million subsidiary of Thailand’s Bangkok Hospital – will open an 8 storey, 200 bed hospital in July 2009 on Russian Boulevard.
  • CampuBank, a wholly owned subsidiary of Malaysia’s Public Bank, was rated by Moody’s as D+ with a stable outlook.
  • Scandinavian telecoms company TeliaSonera paid an undisclosed sum this month for a majority stake in Cambodia’s fourth-largest mobile phone provider Star-Cell. Star-Cell has around 97,500 subscriptions and an estimated market share of 3 percent.
In this Issue
Stock Exchange Update
The Temple Dispute
Impact of Tightening Liquidity
In the News
Quick Links

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
The NAV of Leopard Cambodia Investments (BVI) Ltd. was as of 30th September USD: 1’003.53 (29th August: USD 1’002.94)
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