Khmer Rouge leaves, Jim Rogers Enters. Will Private Equity Investments Boost the Economy of One of Asia’s Minnows?

Private-equity investors are venturing into Cambodia, as the nation that three decades ago abolished money under the Khmer Rouge seeks more than $6 billion to rebuild itself.

Leopard Capital and Cambodia Investment & Development Fund are among those planning to put more than $450 million in the second-poorest of 10 Southeast Asian nations. Cambodia Investment is getting advice from Jim Rogers, who predicted the start of the commodities boom in 1999, and Marc Faber, who forecast Asian assets would decline before the regional financial crisis in 1997.

“It's a country that's changed a lot and investors are finally waking up to that,” said Douglas Clayton, founder of Leopard Capital, who is based in Phnom Penh and is seeking to raise $100 million. “Most people have an outdated perception of Cambodia; clearly the country has made significant progress.”

Prime Minister Hun Sen is relying on the country's oil and mineral resources to attract foreign investments and reduce Cambodia's dependence on clothing exports and tourism for growth as he prepares for an election in July. The funds will move money into banks, office buildings, luxury hotels, ports and other projects.

“Cambodia does have a lot of natural resources, it does have an ambitious population, and it does have some assets,” said Singapore-based Rogers, who co-founded the Quantum hedge fund with George Soros during the 1970s, and is now chairman of Rogers Holdings. “Most countries that come out of something like they have are inclined to be pretty safe for a while because they're trying to get money in.”

Economic Growth


Leopard Capital's first planned investment, a housing project in Siem Reap, probably will generate a return of more than 60 percent a year, about three times the internal target for private-equity investments, said Clayton, who moved to Phnom Penh from Bangkok last June.

Clayton was a hedge fund manager at Knight Asia Group and head of CLSA Securities in Thailand before setting up Leopard Capital in 2007. Faber, publisher of the Gloom, Boom & Doom report, is a director at Leopard Capital.

Peter Brimble and Bradley Gordon, Clayton's former partners at Leopard Capital, are starting the $100 million Cambodia Emerald fund this year to invest in tourism, agriculture, financial institutions, infrastructure and real estate.

The fund plans to close at least one deal before the end of the year, said Brimble, who's based in Phnom Penh. LR Global Partners in New York and London-based Kazimir Partners are investors in Cambodia Emerald, he said.

‘Growth Era’

Cambodia's economy expanded 9.6 percent in 2007, after growing by at least 10 percent during the previous three years, according to data compiled by the World Bank. About a third of the population live on less than 50 cents a day and 90 percent are in rural areas.

“Cambodia's in the beginning of a growth era,” said Julien Kinic, investment officer at Proparco, the private financing arm of the French Development Agency in Paris. “It's like Bangkok 20 years ago or Ho Chi Minh City 10 years ago,” he said, adding that Proparco plans to invest in one of the funds.

More than $6 billion may be invested in Cambodia in the next three years mainly in oil and natural gas, infrastructure projects, real-estate development and agriculture, according to Cambodia Investment, which is run by Frontier Investment & Development Partners. Melbourne-based BHP Billiton, the world's largest miner, is among companies vying for exploration rights for iron ore, gold and other minerals.

‘Seriously Lacking’

“Cambodia is seriously lacking in human and investment capital,” said Marvin Yeo, co-founder of Frontier Investment, who will oversee the fund from Phnom Penh and Bangkok.

Yeo left his job as a financing specialist at the Manila- based Asian Development Bank this month to set up the fund, which plans to invest as much as $100 million in hospitality, telecommunications, infrastructure, banks and agriculture in the next three months.

The nation has pitfalls, according to Transparency International, a private monitoring agency based in Berlin, which ranked Cambodia 162nd of 179 countries in its annual report on perceptions of corruption last year. Cambodia also doesn't have a stock exchange, though one is planned to open in 2009.

July Elections

The funds will need to compensate investors for the risks, said Kelvin Chan, a Singapore-based senior vice president at Partners Group, a manager of private equity and hedge funds. Private-equity investors in Asia made a return of about 67.5 percent last year, according to the Centre for Asia Private Equity Research in Hong Kong.

“Cambodia is too early for most investors,” said Chan, who declined invitations to invest in the funds. “Political stability, the rules and regulations must be in place.”

Cambodia has a non-investment grade rating of B+ from Standard & Poor's, two levels below neighboring Vietnam.

“I don't believe private equity will take off rapidly in Cambodia until there are very strong indications that private equity is a bankable model in Vietnam, which holds the key to investors' confidence in the Indochina region,” said Kathleen Ng, managing director at the Centre for Asia Private Equity Research in Hong Kong.

The government will continue its ‘market-oriented reforms’ after general elections in July, S&P said in an April 4 report. The ruling Cambodian People's Party and the main opposition Sam Rainsy Party are ‘committed to the same pro-business, pro-growth policy platform,’ according to Cambodia Investment.


Will the Foreign Investors Trust the Fact that The Cambodian Government Is Cleaning Up its Act? Will They Place Their Funds into Cambodia?

Isn’t It About Time That India Realise That Overly Tight Regulation Will Not Do Their Economy Any Good?
India's government will try to win agreement from coalition allies to ease restrictions on foreign investments in insurance, banking and pensions in its final year in office, Finance Minister Palaniappan Chidambaram said.

“Financial sector reform is our unfinished agenda,” Chidambaram said in an interview. “We failed to convince our partners that sectors which are closed or partly closed be opened for domestic private and foreign investors.”

The four communist parties that support Prime Minister Manmohan Singh's United Progressive Alliance have blocked plans to increase foreign ownership of insurers, now restricted to 26 percent, and remove a 10 percent cap on the voting rights of investors in local non-state banks such as HDFC Bank India's pension business is not open to foreign investors.

Financial reforms, including development of a corporate bond market, pensions and insurance will spur investment and add as much as 1.5 percentage points to India's economic growth, according Lehman Brothers. Eighty percent of the country's 1.1 billion people have no insurance cover and 88 percent of the workforce doesn't contribute to pension schemes, according to Lehman Brothers.

India's $912 billion economy, Asia's third-largest, has expanded at a record average pace of 8.7 percent each year since 2003. Singh's government, which is entering its fifth year in office this month, wants to accelerate the rate of growth to as much as 10 percent by 2012 to create new jobs and reduce poverty.



Financial Muscle



That will require greater financial muscle in banks to help fund local companies expand capacity and buy assets abroad. The combined assets of all Indian banks is less than the Industrial & Commercial Bank of China, China's biggest lender.

Singh's trade and investment panel recommended last month that India, which has over $300 billion of foreign exchange, the world's sixth-largest, must consider using part of the money to create a fund that will help companies buy assets abroad.

“The only argument in favour of a sovereign wealth fund is that since we have huge reserves that yield modest returns, you could use part of that reserve to enhance your return,” Chidambaram said. “There are great risks in that strategy - how are you going to manage it? How are you going to be accountable to it? I don't think it will come through anytime quickly.”

That means India needs more foreign investment to increase the size of its financial services industry.



Insurance Companies



India in 2000 opened up its insurance industry to overseas investment by dismantling the 44-year monopoly of state-owned Life Insurance of India and its non-life counterparts.

Though their stake in Indian insurers is limited, companies including New York Life Insurance and Prudential have entered the market, which has since more than doubled to $22 billion in annual premiums.

Singh's coalition government hasn't succeeded in implementing its promise to raise the foreign ownership limit in insurance companies to 49 percent as the bill does not have majority support in parliament.

Small private Indian banks are strapped for capital and unable to find investors because of the cap on voting rights.

India has been seeking to attract overseas investment to the nation's 31 non-state lenders, many of which are constrained by capital shortages and limited geographical reach, and need funds to compete with bigger rivals.

Foreign banks have cited the cap on voting rights as a disincentive to investment. Private banks typically have about 200 branches and are attractive to overseas banks seeking to tap rising demand for personal loans, mortgages and credit cards.

Indian now allows foreign banks controlling stakes only in private banks deemed to be weak and in need of capital, a rule it will start loosening in 2009.

“If the legislations that underpin financial sector reforms are passed within a year, then that would be satisfying,” Chidambaram said.


Is It Too Late For India To Implement The New Regulations? Will Their Banks Ever Catch Up With Rivals From China?