aos economy has maintained consistently high GDP rates over the past two decades in large part

due
to strong growth among its main trading partners in the region, particularly China. The governments
initiatives to decentralize control of the economy and encourage private enterprise have also been a
boon to economic development in recent years. Laos can expect to experience continued growth
throughout the decade and beyond if it continues to capitalize on its strategic advantages.
Pro-business government

Enhancing overall business environment

Strengthening public finances

Improving foreign investment climate

Revitalizing the services sector

Prime Minister has taken a strong stance against corruption

Firstly, from geography or location standpoint, the country sits at the crossroads of the Greater
Mekong Sub-region (GMS), which has a population of over 300 million people. It is neighbored by China,
Vietnam and Thailand, three of the largest and fastest growing economies in the region. In addition, it
is the home to world-renowned tourist destinations.
Secondly, the country has favorable Investment Climate with regulation allowing 100% foreign
ownership, foreign land lease of up to 50 years. It also attractive tax incentives for foreign companies.
Open capital account also allows easy repatriation of profits.
Low-cost of Energy is another tailwind. It offers the lowest electricity cost in the region, at US$ .04 - .
14 kw/hr depending on business activity.

Thirdly, increasing Trade Integration

Reduced quota restrictions and import tariffs

Lowering tariffs on a wide variety of products to below 5%

Signatory of a bilateral trade accord with the US

Joined membership to the WTO in 2013

ASEAN Free-Trade Area (Expected 2015)

Advantageous Labor Conditions

Among Asias lowest-cost workforce

Median age of 21 (lowest in the region), with 60% of the population of working age
between 15-64

Unleveraged Financial Position

Relatively low levels of sovereign, corporate, and consumer debt

Well capitalized, conservative banking system

Improving Transport Connectivity

North-South Corridor of Asian Highway Network will connect China, Myanmar, Laos,
Vietnam, Thailand and Cambodia

Mekong river facilitates over 260,000 tons of cargo between China and Thailand
through Laos

Untapped Natural Resources

Diverse mineral resources including copper, gypsum, tin, gold and gemstones

Abundant water for irrigation and hydropower

Excess fertile farmland for agricultural development

Copious amounts of timber

Underpenetrated, Growing Domestic Consumer Market

China-Laos Railway to connect the cities of Kunming and Vientiane

Exceptionally youthful demographics ensures rising domestic demand (median age: 21)
Workforce participation, household formation, and urbanization will all create robust
growth over the next decade

Growing Securities Market

Lao Securities Exchange opened in 2010

Currently lists three companies, more expected IPOs in

2012-13

Listed companies are given tax incentives under new proposed tax legislation

The Role of Private Equity

Over the past decade, the Laotian government has made strides toward creating an investor friendly
business environment. Unfortunately, many of the projects foreign firms have invested in have not
benefited the people of Laos as many of the jobs were given to foreigners and goods exported. Private
equity can address this. Through investments in SMEs and entrepreneurs in Laos, private equity can
help ensure that foreign investment benefits Laotians by creating local jobs, providing technical knowhow and stimulating the transfer of technology from abroad, all while institutionalizing to
internationally recognized business practices. Through its investments, Leopard intends to help Laos
cultivate its competitive advantages as it prepares to become fully integrated into the ASEAN Economic
Community by 2015.

In 30 years Cambodia could be a wealthy country. People tend to forget that when they look at the
poverty. This county is on track to be a successful economy and it will someday be an advanced economy.
Nothing is stopping Cambodia from continuing its above average growth. It will catch up and, like
Singapore, may go further than people expect. At some point Cambodia will be relevant and could even be
a model for other countries on how to escape poverty.
Most of the analysis of Cambodia focuses on its shortcomings, but the real untold story here is the
unusual strengths that it has in terms of its postwar structure. Its done certain things, like having a very
open economy and [carrying out] democratic reform the sort of things that havent fully paid off yet, but
will eventually become decisive differences.
As a whole, global investors are still unfamiliar with private equity in frontier markets like Cambodia.
Even though weve done it before, its a daunting task to try to raise another investment fund here.

ferent sectors. But, ultimately our portfolio is focused on three main

themes.
Firstly, bringing financial services to the rural areas, because that is
where theres minimal competition and the margins are the best. This
also provides a nice social benefit, giving poor people access to
finance. Both rural banking and micro-finance, and these have been
good investments.
Even though theres a lot of banks here, theres scope to expand
banking services into areas like trade finance, auto loans, leasing, and
other things beyond property-based lending.
The second theme has been bringing basic utilities to rural areas.
Weve found theres more affordability in the countryside than most
people would expect. Theres a large underground economy, and

being a farmer in the last few years has not been the worst profession,
due to the higher crop prices.
Around 80% of Cambodians live in the countryside, and many are
willing customers. They want electricity, cellphones, and bank
accounts. Weve invested in all these areas and are happy with the
returns so far.
The third area has been the whole food production value chain, all the
way from agriculture to producing branded food and beverage
products.
That is an area that still has a lot of opportunity for growth, because
when you go to a grocery store in Cambodia many of the labels are
written either in Thai or Vietnamese since the products are being
imported. Most of the local Cambodian consumers cannot read those
languages, so theyre not really sure what theyre buying. It seemed to
us that creating high-quality local products, with labels written in the
local language, would be a good concept to invest in.
So far weve focused on beer, mineral water and shrimp. As for
agriculture, you can see in the countryside that a lot of people are still
farming the same way their ancestors did a thousand years ago, with
cows pulling wooden plows on small lots.

Cambodia's mobile carrier market has delivered double digit growth for 13
consecutive years. Growth will remain robust however as customer penetration
remains low at 29%. Under a liberal licensing policy, Cambodia now has nine mobile
phone operators fighting over its 14 million consumers. From 1996 - 2007 there
were only three operators, who served a few hundred thousand users and charged
them very high prices. However over the past two years demand growth
accelerated and six new players charged into the market, most bringing deep
pockets and years of marketing experience.
The aggressive new entrants have already carved off a combined 12% share of the
market through massive pricing promotions that the earlier players were forced to
match, slashing call charges up to 85%. This pressure on operators' margins is
unlikely to ease, with two more future entrants reportedly on the sidelines. Price
deflation has substantially boosted service affordability, underpinning further rapid
demand growth and overseas telecom investor interest. Cambodia's
telecommunications history is unique.
In 1992 when peace was restored Cambodia had only 4,000 fixed lines and no
money, so its telecom industry was thrown open to foreign investment. The timing
fortuitously coincided with the birth of GSM networks elsewhere. Rather than
cabling the country with costly copper, Cambodia leapfrogged directly into the
wireless age, becoming the first country in the world with more mobile than fixed
line users. As technology advanced and handset costs fell, cell phone popularity
soared, and now the country's mobile subscribers outnumber fixed lines nearly 100
to1.
Most of the 4.2 million mobile subscribers live in Phnom Penh, which has a
population of just 2 million, however many people subscribe to two or three
operators since some networks block calls to others.
Cambodia's nine cellular operators are all 100% or majority owned by foreigners,
most of which are multi-national operators eager to expand their global footprint
and tap into a virgin market where the market pioneers have been earning excellent
returns. Cambodia is one of the world's cheapest places to get a license and start
operations, and has a youthful population eager to embrace new products, provided
they can afford them.
GSM remains the dominant service for seven operators, but five operators now offer
3G or 3.5G service, including two entrants who came straight in with CDMA
networks. Operators' market shares mostly reflect their timing of entry into the
market:

MobiTel: The sector's trailblazer launched its GSM 900 service back in 1996, and has
since added 3G/UMTS. MobiTel still commands 55% market share with over 2.17
million users. MobiTel is operated by CamGSM, a joint venture between 58% holder
Millicom International Cellular (a frontier market cellular operator with Swedish
roots) and local conglomerate Royal Group. MobiTel is currently "in play" as Millicom
revealed they wish to sell their cellular interests in Cambodia, Laos and Sri Lanka,
and several competitors seem eager to swoop in.
MFone: Thailand's second biggest operator with an 18% share, MFone has operated
its GSM 1800 service since in 1998 and has added 3G/UMTS. It is 51% owned by
Thaicom (a satellite operator in Thailand); the other 49% is held by a joint venture
of ST Telemedia (owner of Starhub, one of Singapore's largest operators) and Qatar
Telecom. MFone was previously known as CamShin when it was controlled by
Thailand's Shinawatra Group. MFone reported 50% revenue growth and a healthy
25% ROE in 2008.
Hello: In 2007, TMIC (Malaysia's largest operator) acquired a GSM 900/1800 which
had been launched in 1999 by Thailand's Samart Group, and rebranded it Hello. As
a major regional player, TMIC is unhappy with its local 15% market share and
announced aspirations to be the biggest operator. TMIC is discussing a bid for
Millicom's Asian assets; acquiring MobiTel which would give them a combined 70%
share and rock the market. In the meantime Hello has invested in 3G/UMTS and
launched the first 3G Blackberry service in Cambodia. The other six players joined
the fray over the past two years, in this approximate sequence: Star-Cell: Visor
Group, a Kazakhstan investment group, created Applifone Co. which launched
StarCell 1800 GSM service in 2007. The following year, TeliaSonera (Sweden's
biggest operator) acquired 51% from Visor and took management control. qb: In
2008, Cambodia Advance Communications (CADCOMMS), a local company backed
by Middle East investors, launched its qb service with a huge free pop concert and
Sim card handout. qb's management team of ex-Telenor staff took a bold approach
by offering the country's most advanced data services on a 3.5G HSPA network.
Cambodians can now watch television on their cellphones. Excell: Owned by GT-TELL
(Cambodia) Investment Co., a company rumored to be owned by an Uzbekistan
investor, Excell launched in 2008 a 3G, CDMA 2000 service, offering voice and
mobile broadband in Phnom Penh on 800 MHz. It reported plans to roll out to some
provinces in the future. This company has spent little on advertising, and attracted
few subscribers. MetFone: Viettel (Vietnam's second largest operator, and owned by
its military) launched its GSM 900/1800 service in 2009 and has invested $100
million in building a network that covers 90% of Cambodia and links into a 5,000 km
fibre optic network through Vietnam. To kick-start its business MetFone simply gave
away 500,000 Sim cards and three free months of service. It seems to us that
MetFone could be the first newcomer to displace one of the "Big 3"; since Viettel
may view its Cambodia foray as almost an extension of its core domestic business,
and spend whatever it takes to succeed. Smart Mobile: Timeturns Holdings, based in
Cypress, launched its GSM 1800 service in 2009 through its Latelz subsidiary.
Russian-backed Timeturns is a new name in the global telecoms industry, focusing
on underpenetrated frontier markets. Beeline: VimpelCom (Russia's second largest

operator) launched its Beeline brand in Cambodia in 2009 after buying 90% of
Sotelco, which holds a GSM 900/1800 license. The launch featured a savvy and
expensive bee-colored ad campaign which blanketed Phnom Penh. VimpelCom
announced they plan to invest $200 million in Cambodia over the next 3-4 years,
and subsequently talked of bidding for MobiTel.
Future Outlook
Firstly, insufficient regulation remains the sector's core problem. A Telecoms Law
has been under development since 2000 and still awaits approval from the Council
of Ministers. Enactment of this law would hopefully bring more planning and
consistency to the murky licensing process, and force operators to readily
interconnect rather than selfishly block calls to rival networks.
In the meantime, ongoing price wars will continue to restrict service quality; it is
already difficult to make calls at peak hours. The number of operators may continue
to rise, given that two more licenses have been issued, including a CDMA license to
SLD Telecom (owned by Korea's SK Telecom and LG Electronics). Eventually, an
industry consolidation will occur as 9-11 operators is an unsustainable number for a
small country like Cambodia. In a shakeout, operators without strong global telecom
parents, (i.e. Excell, qb, and Smart Mobile) could become the next M&A targets after
MobiTel.
Consumers in the core urban upper and middle class markets will gradually migrate
from GSM to 3G and beyond, to enjoy better data services, and will make increasing
use of cheap VOIP for international calling as Cambodia's overseas call rates remain
ridiculously high.
Concurrently, operators will make greater efforts to tap the lower-income and rural
consumer segments, where telephone ownership remains a novelty. This will require
significant capital expenditure in network expansion as most of Cambodia's
population is widely scattered around the countryside. Leading this charge, MobiTel
recently secured a $100 mn syndicated loan led by the World Bank's IFC s part of a
$141 network expansion into rural areas, seeking to reach 75% of Cambodia's
population. Hello is investing $150 million for provincial and rural expansion.
MetFone appears to have a similar strategy with their immediate heavy network
investment, and Beeline plans to go nationwide as well. Mobile payment services
such as ANZ Bank's WING money transfer services will help stimulate demand in
rural areas where banking access is limited.
Leopard Cambodia Fund is unlikely to invest in a cellular operator due to the
overcrowded market, not to mention the amount of investment required. However,
there are other emerging segments of the telecommunications industry of potential
interest to the Fund, and we will highlight these in future newsletters.