In this Issue

Fund Performance

Country Snapshot:
Vietnam

Travel Notes

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In addition to performance updates and analysis on Leopard Asia Frontier Fund (LAFF), this revamped monthly Leopard Capital Group newsletter will feature highlights from Leopard Capital's existing and forthcoming private equity funds in Cambodia, Haiti, Myanmar, and Bangladesh. The newsletter aims to provide broad coverage of Leopard Capital's pioneer approach to investing in listed stocks, private equity, and real estate in frontier markets around the globe.

Fund Performance

Leopard Asia Frontier Fund (LAFF) USD A-shares gained 1.1% in April 2013, outperforming the MSCI Frontier Markets Asia Index (-0.4%) but underperforming the MSCI World Index USD (+2.9%).

In April, the best performing indexes within the LAFF universe were Iraq (+8.1%) - where we started to invest two months ago - and Pakistan, which gained 5.2%. Mongolia was again the worst performing market this month, losing 9.9%. With a year-to-date performance of -21.9%, the Mongolian Stock Exchange has also been the world's worst stock market this year. The reasons for this poor performance are the ongoing dispute between Rio Tinto and the Mongolian government over the huge copper deposit at Oyu Tolgoi and the poor performance of the index heavyweight Tavantolgoi (a coal mining company majority-owned by the Mongolian government). The top-performing portfolio stocks were a brewery from Pakistan (+78.6%), a Pakistani textile company (+29.9%), a bakery from Mongolia (+29.3%), and a Mongolian hotel (+25.9%).

We were fairly active in April thanks to new money inflow. We added to existing positions in Bangladesh, Iraq, Laos, Mongolia, Pakistan, Papua New Guinea, Sri Lanka, and Vietnam. We made one switch in Pakistan: we sold a bank and spent the proceeds buying stock in a tobacco company. We also exited one position in Myanmar completely.

As of April 30, the portfolio was invested in 110 shares, 1 closed-end fund (with 44.7% discount to NAV), 1 GDR (with 58% discount), and held 5.8% in cash. The two biggest stock positions are a power producer from Laos (5.3%) and a pharmaceutical company from Bangladesh (4.8%). The countries with the largest asset allocation include Vietnam (18.1%), Bangladesh (14.2%) and Sri Lanka (13.5%). The sectors with the largest allocation of assets are consumer goods 44.9% and financials 12.0%. The average trailing portfolio P/E ratio (only companies with profit) was 15.2, the average P/B ratio 2.3, and the average dividend yield 4.5%.

Factsheets highlighting the fund's performance as of 30 April 2013 are available here:

Country Snapshot: Vietnam

Every month we highlight economic developments in one country within the Asia Frontier Capital Universe.

Don't Overlook Opportunity: Vietnam's Unheralded Exchange Offers Undervalued Stocks

In recent years, the Ho Chi Minh Stock Exchange (HOSE) has received plenty of bad press, much of which has been warranted. The bourse has been the most volatile in the world since 2009 thanks to breakneck inflation, currency devaluations, and bad bank loans. Last August, the VN Index - a capitalization-weighted index of all listed companies on the exchange - dropped 12% in eight days after the arrests of multiple bank officials stirred distrust in the Vietnamese financial system.

But with the Vietnamese government taking steps towards macroeconomic stability through reform of the banking sector and state-owned enterprises (SOE), the VN Index is up 18.80% year-to-date and has been one of the best performing indexes in Asia this year.

The HOSE is Vietnam's chief stock market, launched in 2000 as the largest exchange in the country. As of Q1 2013, the HOSE had a total market capitalization of US $36.8 billion and 308 stocks listed, while the Hanoi Stock Exchange had a market capitalization of US $4.5 billion with 396 companies listed.

The overall economic outlook for Vietnam largely hinges on the success of reforms made in the country's banks and state-owned enterprises (SOE). The Communist government recently removed language from the Constitution mandating that the state take a leading role in the country's economy. As the process of privatization and deregulation continues, Vietnam will attract more foreign investment, especially in light of the government's recent consideration to raise the country's foreign ownership limit in certain industries from its current 49%.

The International Monetary Fund (IMF) recently announced that it cut Vietnam's GDP growth projection for 2013 from 5.8% to 5.2% due to the slow progress being made on economic reforms. April's US $1 billion trade deficit was far larger than expected and the plan to create an asset management company to resolve the issue of bad debt in Vietnam's banks has fallen behind schedule. However, when this asset management company is set up, it will rekindle credit growth by buying up banks' bad loans to encourage increased lending.

On the bright side, Vietnam's inflation recently decreased to its lowest rate in six months and exports climbed by 20% in Q1 2013. The country has also witnessed greater currency stability, with the Vietnamese Dong (VND) hovering around 20,900 VND to the dollar. The Central Bank recently reduced borrowing costs and the lower interest rate should further propel growth. Another boon for the country's stock market was the April decision by the Ministry of Finance to order energy retailers to lower the prices of gasoline, diesel, and kerosene.

On the stock market, industries that have incurred heavy losses include shipping, real estate, and banking. South Vietnam Container Shipping Company (VSG) has reported losses for 15 quarters in a row, and in Q1 2013, VSG's revenue fell by 23.6% year-on-year due to a decline in ship leasing prices and container loading and warehouse leasing services. VSG will stop trading on the HOSE because its total loss has exceeded its paid-up capital. The real estate sector has also exhibited weak performance, with Vung Tau Real Estate and Construction Company (VRC) suffering losses for the fourth straight quarter and PV2 Investment Company (PV2) and Hoang Long Group (HLG) also posting major losses. The troubles befalling Vietnam's real estate sector have afflicted stocks in the building materials and cement sectors as well. In the banking sector, profits of many of the country's largest banks fell sharply from 2012, with Eximbank (EIB), Asia Commercial Bank (ACB), and Vietcombank (VCB) all seeing their profits shrink drastically from last year's numbers.

But Vietnam's consumer-related stocks are a different story. These stocks remain attractive due to their low valuations (many are trading at a P/E ratio of 5x) and the expectation of continued growth in the consumer sector. Vietnam's population of nearly 90 million has a rapidly-expanding middle class with disposable income to spend. The country remains one of the world's main hubs for textile production and light manufacturing due to its low labor costs in comparison with China, its growing workforce (many of whom are moving to cities for the first time), and its strong historical export performance. US $6 billion of foreign direct investment (FDI) was pledged to Vietnam in the first quarter of 2013, a 64% increase from 2012, and trade and investment should continue to grow ahead of the upcoming Association of Southeast Asian Nations (ASEAN) Economic Integration slated for 2015. The movement toward a regional single-market will eliminate tariffs, boost free trade, and improve transportation links within ASEAN, further boosting Vietnam's export-focused industries.

The majority of Leopard Asia Frontier Fund's investments in Vietnam are actually listed on the Hanoi Stock Exchange, which is the favored trading exchange for domestic investors and is remarkably cheap. It is interesting to note that many companies based in Ho Chi Minh City choose to list on the Hanoi Stock Exchange, and vice versa.

Despite the historical volatility of the Ho Chi Minh exchange, winning stocks can be found and valuations remain astoundingly low when matched against comparable stocks listed on exchanges in Thailand, the Philippines, and Indonesia. With the government finally making slow but steady progress towards reform and warming up to the idea of economic liberalization, now is the right time to invest in Vietnam's 'dark horse' equity markets.

Travel Notes

Visiting Companies in Ho Chi Minh City, Vietnam

In April 2013, Fund Manager Thomas Hugger visited a number of companies in Ho Chi Minh City, Vietnam ("HCMC"), formerly known as Saigon. The focus of this trip was to visit existing portfolio holdings and to meet with potentially interesting companies that fulfill LAFF's investment criteria: attractive valuations paired with a positive earnings outlook and secured cash flow. In Vietnam, LAFF prefers consumer-related companies sans real estate exposure due to the poor performance of the country's property market. LAFF has generally chosen not to invest in property stock or banks in Vietnam and so far this has been a wise decision. LAFF's proclivity towards Vietnamese consumer-related stocks over the past 12 months has been based on our finding of some extremely cheap stocks trading below book value at a single digit P/E ratio and paying a nice cash dividend.

One of the companies I visited was a water park situated a little outside of the city centre of HCMC. The water park opened in 1999 after 1 ½ years of construction on a piece of land leased for 20 years. The total investment was 43.5 billion VND (US $3.1 million) and the company broke even in 2004. Currently, the management believes that the water park is running at full capacity, with a maximum daily attendance of 31,000 visitors. Given that the lease for the current water park is expiring soon (2018), the company is undertaking a study regarding the feasibility of a new, larger water park. Construction on the new park should start next year and be finished by 2015. The investment would be 300 billion VND (US $14.4 million) and the park should break even after 5 years. The company also used in the past its cash to invest in a bank's listed shares and is sitting now on a big loss. This water park is at the moment not attractive to LAFF.

The Ho Chi Minh Stock Exchange (HOSE)

The second company I visited was a producer of batteries for cars, trucks, and motorbikes. The company was founded in 1976 by the government via a merger of former private companies and has been listed on the Ho Chi Minh City Stock Exchange (HOSE) since 2006. For me, this was a "déjà vu" visit of a typical state-owned enterprise (SOE). The battery company's growth rates in 2012 and 2013 will be down substantially due to slower GDP growth and increased foreign competition. Like many Vietnamese SEOs, this company dominated its business until recently, but is now losing market share to a leading Japanese battery producer. The Vietnamese government may reduce its shareholding in this company after 2015 from its current holding of 52%. Until 2015, the government is not prepared to invest in expanding the business and has capped the budget for marketing and advertising. The company's focus at the moment is on value-added products with higher margins. The company was also successful in gaining an Original Equipment Manufacturer (OEM) order from a major Japanese motorcycle producer, although the margins on this are lower than the margins on its own products. The utilization rate of the company's two current factories outside of HCMC is around 80%, and 15-20% of the products are exported to Bangladesh, Cambodia, China, Hong Kong, Laos, and Myanmar. This phenomenon is common amongst other Vietnamese companies and shows that due to Vietnam's low labor costs, domestic companies have the capability to export successfully.

Another state-owned enterprise I visited was a producer of detergent powder and washing liquids. The company started in 1986 and 51% of it is still owned by the government. The company has two production facilities - one in HCMC and one is Hanoi, the capital of Vietnam. 100% of the capacity of the Hanoi factory and 30% of the HCMC capacity is used for production for Unilever, which is interesting given that the gross margin for Unilever's order is only 7%, fixed through a 5-year contract that will be up for renewal next year. The remaining goods produced are sold in Vietnam (primarily in the south) under the company's own brand at much higher margins. The HCMC factory is situated about an hour's drive south of the city. The company is currently working to set up a new factory closer to HCMC and the port facilities which will have new, modern machines. The CEO plans to reduce overhead by opening the new factory in 2014, further growing the debt-free company, which already exports half of its production to countries like Afghanistan, Cambodia, Japan, New Zealand, the Philippines, and Taiwan.

Other companies I visited were a recently-listed real estate developer (no state ownership), an oil drilling company (part of the state owned PetroVietnam Group, but listed), and a producer of plastic pipes (30% state owned) which was able to increase its FY 2012 profit by 25% through cost savings.

Downtown Ho Chi Minh City

By far the most interesting company that I visited was the leading taxi operator in HCMC with no state ownership. Despite a challenging market, the company is very successful thanks to its strong brand name. The number of taxis running in HCMC has declined from 12,000 in 2010 to 8,000-9,000 in 2013. The company I visited currently has about 4,000 taxis, and its main competitor is facing financial difficulties due to overexpansion and significant investment in other sectors. 95% of people's transportation in HCMC is done by motorbikes and only 1% by taxi. I believe that there is a tremendous upside for this company's future growth in HCMC, Hanoi, and other large cities.

Currently, Vietnam is the largest country holding in Leopard Asia Frontier Fund and this visit reconfirms my bullish outlook on the country. The economy is improving, the "NPL problem" at the banks has finally been addressed (albeit slowly) and interest rates are falling. In addition, the future reform of the state-owned enterprises appears to be very promising. One interesting point to note is that the top 20 stocks in Vietnam (which account for 80% of the index's market capitalization) trade at an average of 23x P/E ratio, while the rest of the stocks in the index trade at a trailing P/E of only 5x. These low valuations explain why LAFF is primarily invested in small and mid-cap Vietnamese stocks.

Ho Chi Minh City's street, always full of of motorcycles

Leopard Cambodia Fund

Leopard Cambodia Fund ("LCF") was launched in April 2008 as the first private equity fund for Cambodia and successfully raised over $34 million during the depths of the 2008-2009 global financial crisis. The Fund has since made 14 investments in Cambodia, Thailand, and Laos in the following sectors:  telecommunications, banking, microfinance, beer production, mineral water production, municipal water, power transmission, hydropower generation, and agriculture.

Kulara Water Exit

In May, Leopard Cambodia Fund LP ("LCF") successfully exited its entire investment in Kulara Water ("Kulara") to Kulara's founding shareholder. The transaction harvested an undisclosed profit for LCF.

Kulara produces eau Kulen brand bottled mineral water. The water is sourced from a large aquifer beneath Kulen Mountain near Siem Reap.  LCF provided Kulara with venture financing and operational support, enabling Kulara to complete its factory construction and refine its business plan. LCF plans to redeploy the proceeds from the sale into other promising businesses in the region.

New Investment: Engage Resources

Leopard Cambodia Fund made its most recent investment in March, providing growth capital to Engage Resources (Thailand) Co. Ltd. ("Engage"), a producer and developer of kenaf-based products. Kenaf is a fibrous plant used in the animal feed, construction, and paper & pulp industries. LCF's growth capital injection will contribute to Engage's product development, assist in the expansion of operations from Thailand into Cambodia, and add value to its core business.

Kingdom Breweries Sponsors Auto Racing Team

Kingdom Breweries, one of LCF's portfolio companies in which the Fund has an active equity investment, recently sponsored an auto racing team in the legendary 5-day Tour de France Automobile, a 2,000 km race on scenic French secondary roads from Paris to La Rochelle via Orléans, Vichy, Albi, and Limoges. This marked one of the first local business sponsorships of an international sporting event in Cambodia's history.

The Kingdom Breweries Racing Team entered three cars, a 1972 Porsche 2.4 S (#84), a 1960 Aston Martin DB4 GT (#85), and a 1957 Aston Martin DB2/4 (#86) and the #84 car, piloted by Team Captain Alexandre de Lesseps, finished 4th overall and also won one of the ten specials of the rally. The sponsorship brought considerable attention to the Kingdom brand and to Cambodia's export growth of world-class products.

The Kingdom Breweries racing team

Leopard Haiti Fund

Leopard Haiti Fund ("LHF") was launched in July 2012 as the first private equity fund for Haiti, initially raising US $20 million from the World Bank's International Finance Corporation (IFC), the Netherlands Development Finance Company (FMO), and the Inter-American Development Bank's (IDB) Multilateral Investment Fund. The Fund invests in small and medium-sized businesses that are vital to job creation, economic development, and Haiti's continuing recovery from the 2010 earthquake. Priority sectors include food processing, affordable housing, renewable energy, and tourism.

Leopard Haiti Fund Invests in Water Kiosk Venture

In May, Leopard Haiti Fund made its first investment, providing equity financing to dloHaiti, Inc. ("dlo"), a water kiosk venture that will provide safe, affordable drinking water to underserved neighborhoods across Haiti.

Haiti's lack of clean drinking water contributed to the 2010-2013 cholera epidemic and women and children typically walk as much as five hours a day to collect water, using up to one-third of their daily energy intake and diverting time from household, educational, or economic activities.

dloHaiti will establish a network of wells serving water kiosks that will dispense and deliver water to households in 5-gallon jugs. The kiosks will be powered by solar cells and will contain high technology filtration systems. dloHaiti's water will exceed WHO health standards and be priced at a 25%-40% discount to other water sources. The Company's for-profit model will initially create over 600 jobs and save Haitian consumers more than US $400,000 annually in water expenditures.

LHF's investment will help finance dloHaiti's business and product development, infrastructure deployment, and domestic market expansion.

Leopard Myanmar Property Fund

Leopard Myanmar Property Fund ("LMPF") seeks to invest in high-quality office space, serviced apartments, and hotels in Myanmar's grossly undersupplied real estate market. The country is experiencing a sudden surge in demand following its dramatic economic and political reforms.

Yangon Property Prices Soar in 2012

As Leopard Capital prepares to launch its Myanmar Property Fund to capitalize on the country's dearth of quality real estate, Yangon's property market has soared. A recent report by Silk Road Management found that the Yangon residential property market was the best performing in the Asia Pacific in 2012, with the Silkroad Yangon Property Index (SYPIX) up 47.2% last year. The full report can be accessed here.

Shwedagon Pagoda, Yangon

Leopard Bangladesh Fund

Leopard Bangladesh Fund ("LBF") is targeting US $75 million for Bangladesh's growing middle-class and attraction as a low-cost manufacturing hub. The Fund will make investments in the food processing, pharmaceutical, manufacturing, education, and retail sectors.

Leopard Bangladesh Fund Secures US $15 Million Commitment from IFC

In March 2013, Leopard Bangladesh Fund received an anchor commitment of US $15 million from the International Finance Corporation (IFC). Leopard continues to attract investors for the Fund and plans to make an initial close in Q4 2013. The Fund For more information, please contact Mohamed Ahamed at This email address is being protected from spambots. You need JavaScript enabled to view it..

Capitalist Exploits' "Cambodia: Boots On the Ground Meet Up"

In April, Leopard Capital's Founder & CEO, Douglas Clayton, and Fund Manager & COO, Thomas Hugger, were key speakers in Capitalist Exploits' "Cambodia: Boots On the Ground Meet Up" in Phnom Penh. The three-day conference featured presentations from twelve companies in a wide diversity of industries, and over two dozen people attended. The event came to a close with a barbeque at Kingdom Breweries and plenty of Cambodia's premier beer.

To learn more about Capitalist Exploits and the next Boots On the Ground Meet Up in Indonesia, please visit their website: http://capitalistexploits.at

Emerging Frontiers Blog

We invite you to stay updated with daily investment news and analyses within Asian frontier markets by visiting Leopard Capital's free Emerging Frontiers Blog. Emerging Frontiers now includes news and analysis from all countries within the Leopard Asia Frontier Fund universe.

Please Note: New Amendment to Privacy Ordinance

On 1st April 2013, new provisions relating to direct marketing introduced by the Hong Kong Personal Data (Privacy) (Amendment) Ordinance 2012 (the "Amendment Ordinance") came into effect.

Leopard Capital LP respects the importance of your privacy and treats personal information provided by you as strictly confidential.  We retain certain personal information data (including your name, email address, contact number, fax number and/or postal address) in our records and may contact you with appropriate communications that could include event invitations, industry alerts or business updates.

Please do not reply to this email address. This is a pure outgoing mailbox and your replies will not be read. If you have any questions or comments, please write an email to  This email address is being protected from spambots. You need JavaScript enabled to view it..

Kind Regards,

Thomas Hugger
Fund Manager

Disclaimer:

This document does not constitute an offer to sell, or a solicitation of an offer to invest in AFC Asia Frontier Fund, AFC Asia Frontier Fund (non-US), AFC Vietnam Fund or any other funds sponsored by Asia Frontier Capital Ltd. or its affiliates. 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. © Asia Frontier Capital Ltd. All rights reserved.

The representative of the Fund in Switzerland is Hugo Fund Services SA, 6 Cours de Rive, 1204 Geneva. The distribution of Shares in Switzerland must exclusively be made to qualified investors. The place of performance and jurisdiction for Shares in the Fund distributed in Switzerland are at the registered office of the Representative.

By accessing information contained herein, users are deemed to be representing and warranting that they are either a Hong Kong Professional Investor or are observing the applicable laws and regulations of their relevant jurisdictions.