Monday, June 30, 2008

NagaCorp Mulls Casino Rights Sale in Cambodia Capital

By Netty Ismail

June 30 (Bloomberg) -- NagaCorp Ltd., the monopoly casino operator in the Cambodian capital of Phnom Penh, said it may sell a license to foreign companies, giving them the right to develop a new gaming property in the city.

``NagaCorp may consider any subconcession proposal when the timing is right,'' Chief Executive Officer Chen Lip Keong, 60, said in an interview on June 27.

The company has a monopoly to operate casinos within a 200- kilometer (125-mile) radius of the capital until 2035, and isn't subject to any legal restriction on selling secondary licenses.

Cambodia's only publicly traded company is betting on growing wealth at home and in the neighboring countries of Thailand and Vietnam to increase its revenue base beyond gamblers from China, Malaysia and Singapore. Macau overtook the Las Vegas Strip as the world's biggest casino market after the city ended Hong Kong billionaire Stanley Ho's monopoly in 2002, spurring at least $25 billion of investment in the city by foreign operators including Las Vegas Sands Corp.

``As bigger regional players focus on the higher end, we expect NagaCorp will maintain its niche in the mass-end VIP segment,'' said Gavin Ho, a Hong Kong-based analyst at CLSA Ltd.

Singapore awarded bids for two casino resorts in 2006, cutting taxes on gaming revenue to the world's lowest for so- called high-rollers. Japan and Taiwan are also considering allowing casinos in an effort to boost tourism.

Shares Rise

Kuala Lumpur-based Genting Bhd., which will operate one of the two Singapore resorts, plans to build Southeast Asia's first Universal Studios theme-park at its property in the city. Genting is Asia's biggest publicly traded gaming operator.

NagaCorp rose 1.4 percent to HK$2.13 at the close in Hong Kong trading, the biggest gain in two weeks. The shares have fallen 16 percent this year, less than the 21 percent decline in the benchmark Hang Seng Index and a 31 percent drop in Galaxy Entertainment Group Ltd., a Hong Kong-listed Macau casino operator. Genting fell 29 percent.

NagaCorp is catering to ``regional mid-sized'' gamblers taken to its casino by junket operators, who provided about 45 percent of its gaming revenue last year, Chen said.

About 52 percent of revenue comes from the public casino floor. The operator's revenue rose 69 percent to $144 million in 2007.

``We are not competing head on with those high rollers in Macau,'' Chen, a Malaysian, said in Phnom Penh, where the company is based.

`Poor Man's VIP'

Citigroup Inc.'s Hong Kong-based analyst Anil Daswani, in a Feb. 18 report, said NagaCorp was part of the ``poor man's VIP'' market.

NagaCorp operated its casino on a barge moored along the banks of the Bassac River in Phnom Penh for eight years, before relocating in October 2003 to a permanent hotel and entertainment complex, NagaWorld, a few hundred meters away.

The company is expanding the complex to 700 hotel rooms and 300 gaming tables by next year. It had 508 hotel rooms and 176 gaming tables in June.

``They have done a good job attracting customers,'' said Billy Ng, a gaming analyst at JPMorgan Chase & Co. in Hong Kong. ``There will be more competition but I don't think we need to be concerned about it now.''

`Strong Perception Issue'

Visitors to Cambodia have risen to about 2 million from 118,183 in 1993, when Southeast Asia's second-poorest nation emerged from a two-decade civil war.

Chen owns 62 percent of NagaCorp after selling a 5 percent stake in the company in May for ``a small premium'' to Chicago- based Columbia Wanger Asset Management LP, he said.

The Cambodian operator is trading at 8 times its forecast earnings per share for 2009, compared with an average of 21 times for its regional peers, Ho at CLSA said in a report dated June 26.

Ho initiated coverage of the stock with a ``buy'' recommendation, setting a 12-month price target of HK$3.31. NagaCorp's profit is set to grow 37 percent to $77 million in 2009, according to the CLSA report.

``I am situated in a country like Cambodia, I have a strong perception issue,'' Chen said. ``If I don't produce earnings, I am invisible, nobody will notice me.''

To contact the reporter on this story: Netty Ismail in Singapore

Sunday, June 29, 2008

Managing risk catches on in Cambodia

Written by Post staff
Friday, 27 June 2008

Despite the current stability of the Cambodian business sector, insurance against uncertainty has never been a more profitable business.

In the Kingdom’s current climate of economic dynamism, a new group of insurance companies have positioned themselves as a safety-net for adventurous investments, risky financial commitments and – even for the less entrepreneurially inclined – simple misfortune.

“Insurance is all about risk management,” said Charles Cheo, deputy managing director of Forte Insurance, one of Cambodia’s leading insurance firms.

“Branching out or taking risks is commonplace in all businesses, so having the assurance and support of the right insurance company makes exploring the unknown less of an anxiety. Insurance adds to your confidence to tackle greater and more promising challenges.”

According to Cheo, Forte Insurance has grown by more than 25 percent each year since arriving in Cambodia in 1999.

Insurance companies have also seen a steady growth in personal insurance plans, and as the personal wealth of Cambodians increases, more and more are choosing to purchase insurance as a guarantee against unforeseen circumstances, said Seng Someak, sales manager of Infinity Insurance.

Someak said that affordable motorbike insurance has been a popular area of growth for Infinity, which has been operating in Cambodia since February 2007 in partnership with Infinity Financial Solutions.

According to Someak, a client can purchase third-party insurance on a $1,500 motorbike for just $40, and can add insurance for their own bike for an extra $37.

Youk Chamroeunrith, Forte’s director, said insurance companies have faced challenges convincing Cambodians that insurance can be a useful, and necessary, long-term financial investment.

“In developing countries such as Cambodia and Laos, people do not really think about insurance. They are thinking of what is necessary for their day-to-day lives,” said Chamroeunrith. “People in developed countries think of insurance because they know they need financial protection.”

But Chan Sophal, president of the Cambodian Economic Association, says that the Kingdom’s recent political stability and economic development has created a predictable business environment which will lead to the future expansion of the insurance sector here, explaining the recent influx of new insurance companies into the Cambodian market.

“They see that Cambodia will grow more and more in the future. Insurance companies anticipate a much bigger market in the future,” he said.

While insurance companies profit by insuring businesses and individuals against uncertainty, extreme instability in Cambodia throughout the 1990s stunted the industry’s growth.

“I think Cambodia is now politically stable and enough people have stable jobs. There’s a good deal of certainty and more people have reason to use insurance,” Sophal said. “Some uncertainty will always exist.”

Equity funds find a new frontier in Cambodia

Written by Cat Barton
Friday, 27 June 2008
As international interest in emerging markets surges, Cambodia’s profile is rising as a key frontier for private equity, with three major funds looking to pour upwards of $450 million into the Kingdom’s economy.

Cambodia stands out as a rare safe haven from the global credit crunch, due to it un-leveraged economy and bountiful natural resources, said Douglas Clayton, a managing partner of Leopard Cambodia, which is raising $100 million for its Cambodia fund.

“Cambodia offers the best reward to risk profile in the region now, as competition is still low and the country has such vast potential,” he said.

Leopard Cambodia was the first fund to launch in April after raising around a tenth of its targeted $100 million. It is looking for investments of between $5 million and $15 million and its first project is a tourism property development in the Angkor temple town of Siem Reap.

“We are very bullish on tourism growth there, and expect a robust return on this project,” said Clayton.

Leopard was followed into Cambodia’s investment-hungry economy by Frontier Investment & Development Partners (FIDP), a $250 million fund that launched three weeks ago and has so far had strong interest from investors, said its CFA Marvin Yeo.

“Cambodia has untapped oil and gas reserves, large amounts of fertile agricultural land, low labor costs, a stable democratic political system and a dollarized economy with no capital controls where companies can be 100 percent foreign owned,” he said, explaining why so many investors are now flocking to the Kingdom.

“The highest growth levels are found in resource rich frontier economies,” he added.

Yeo said he could not disclose the exact amount of money raised until the fund had achieved its first close. The fund sets a $10 million minimum investment per institution.

“I’m absolutely in no doubt that it [raising the necessary capital] will happen over the next few months,” he said, citing the fund’s investment platform and deals already in the pipeline as key factors in its future success.

The Kingdom’s other major new fund, Cambodia Emerald Limited Partnership, which is looking to raise $100 million to invest in a range of sectors, most importantly agri-business, tourism and real estate, closed its seed round of financing in late April when two investors agreed to back the fund and provide an unspecified amount of capital. The company is now set up and operating and actively looking to do deals.

“We are not in a position at this time to discuss our first projects or targeted returns,” said Peter Brimble, managing director of Cambodia Emerald. “In general, we expect our returns to be consistent with international investors’ expectations for a market like Cambodia.”

Both Leopard and FIDP are expecting returns of least 25 percent on each investment they make.

High rates of return coupled with a business-friendly environment and emerging political stability help explain the record levels of attendance at the Cambodia Investment, Trade and Infrastructure 2007 last November as well as a conference in Siem Reap last month – organized by Leopard Capital – at which 22 mainly US fund managers met assess future opportunities.

“The double-digit economic growth rates of the past few years and indications of relatively high economic growth in the future suggests strong potential for capital gains in Cambodia,” said Brimble.

The recent flurry of high finance activity belies the fact that Malaysian interests have been active in the Kingdom for years and South Koreans have long been investing in banking and property, with a $2 billion satellite city on the outskirts of Phnom Penh and a city-center skyscraper now under construction.

Much to the chagrin of the longstanding expatriate business community in Cambodia, the Kingdom still suffers from something of an image problem – another legacy of the devastation wrought by the 1970s Khmer Rouge regime and the ensuing years of civil strife.

Moreover, rampant corruption – the Berlin-based Transparency International ranked Cambodia the 14th most corrupt out of 179 nations in its 2007 study – and a weak legislative framework have served as a deterrent to large-scale FDI for years.

Despite all the media discussion of these issues in Cambodia, most foreign investors who have been here a while are seeking to expand their Cambodia businesses, not sell them, said Leopard’s Clayton.

“I think that says a lot,” he said. “We expect the emergence of a stock exchange in Cambodia will increase business transparency here, as has been the pattern throughout Southeast Asia.”

For Emerald’s Brimble, there has been a “significant misunderstanding of the Cambodian situation.”

Major improvements in the regulatory and legal environment for business have been quietly inspiring substantial increases in FDI in recent years, he said.

“Ongoing improvements in levels of corruption and the business environment will enable FDI to grow and to thrive,” he said.

Finding enough suitable opportunities to absorb hundreds of millions of dollars of private-equity capital may be another issue for the fund pioneers to grapple with in the not too distant future.

FIDP’s Yeo is confident that it is possible due to the potential of key sectors such as agriculture, infrastructure, oil & gas and real estate which are largely private sector driven.

“Cambodia needs very conservatively at least $5 billion of investment over the next three years,” he said.

“Given that the domestic debt markets are still in their infancy (and that the international debt markets have been largely closed off to Cambodia) and the lack of any domestic public capital market to raise funds, private equity funds and direct investments ... are pretty much the only ways for projects to get funded.”

Cambodia's banks see credit cards as key to retail market

Written by Sebastian Strangio and Cheang Sokha
Friday, 27 June 2008
VAR2008028D010.jpgVandy Rattana
Automatic teller machines (ATMs) and the planned launch of domestic credit cards mark a turning point for retail banking in Cambodia, as money becomes more readily available – and not necessarily in cash.

On the back of rising personal wealth and economic growth, Cambodia’s small retail banking industry is taking off, fueled by rising trust, access and confidence in the stability of the Kingdom’s financial sector.

“The number of people coming into the Cambodian banking system far exceeds population growth,” said Steve Higgins, CEO of ANZ Royal.

According to Higgins, the outlook for Cambodia’s retail financial sector is overwhelmingly positive, and he expects it to continue growing steadily in the coming years.

“If you look at the proportion of credit to GDP in Cambodia, it’s still far lower than other Asian markets, so there’s plenty of scope for natural growth,” he said.

“A hallmark of developing economies is that financial services increase far more rapidly than the general economy. It’s happened everywhere, and it’s happening in Cambodia.”

ANZ Royal, established in 2005 as a joint venture between Australia-based ANZ and the local Royal Group, has pioneered electronic and internet banking in Cambodia.

In addition to its suite of personal accounts, ANZ Royal was the first bank to install ATMs – it now has 120 across the country – and plans to soon launch its first Cambodian credit card.

Acleda Bank president and CEO In Channy has also witnessed a rapid expansion in retail banking since Acleda was first licensed in December 2003.

“We’ve built from being an NGO with five offices to having 213 offices across the country,” he said.

By April this year, Acleda was opening 770 new bank accounts per day, and the growth shows no signs of abating.

According to Channy, Acleda plans to double the number of ATMs from 30 to 60 in the coming year, and build on the 300 point-of-sale systems already present throughout the Kingdom.

Personal loans and credit cards are also seen as a strong potential growth area. Of the $438.8 million wrapped up in Acleda loans, only $10.5 million were personal, Channy said.

“This is a very small amount but in the future this [sector] will be part of our growth,” he said, adding that the bank also plans to introduce credit cards as its retail services expand.

“In Cambodia, there are few banks that issue real credit cards,” he added.

Paul Guymon, general manager of local market research firm Indochina Research, said that this growth has been underpinned by a sharp increase in the trust shown by Cambodians in the domestic banking sector.

“There is now a lot more trust in the banking system, and consumers are willing to put more of their money in banks,” he said. “Even just four years ago, there was an ingrained distrust of banks.”

According to Guymon, this confidence is reflected by the rise in the number of ATMs in Cambodia since the first ANZ Royal unit was installed in 2005.

“The key thing in terms of the use of banking and financial services is the increasing number of ATMs,” he said. “ATMs are a major spur to the use of retail banking [since] money is readily available, yet secure .”

One challenge to the further expansion of retail banking is the large proportion of the rural population either too poor to afford traditional banking services or who live too far from bank branches.

“Lower income groups are locked outside the banking industry, not only because of distrust, but also because their money is being spent on a day to day basis,” Guymon said.

Channy foresees the entire retail banking sector eventually embracing greater competition.

“We are trying to provide a convenient infrastructure to all of our customers,” he said. “Acleda and the other banks are each doing this, which will further improve the trust in the banking industry.”

Cambodia's banking sector emerges from financial wilderness

Written by Sebastian Strangio
Friday, 27 June 2008
3-overview.jpgTracey Shelton
Acleda Bank’s sparkling headquarters in Phnom Penh reflects the rapid growth of financial services in Cambodia, where 24 commercial banks now compete to fund the Kingdom’s development and provide a safe haven for personal wealth away from the traditional hoarding of gold and jewelry.

Out of the rouge,
into the black

Bational Bank of Cambodia established following independence from France. Begins printing riels.

Ultra -communist Khmer Rouge takes Phnom Penh and blows up the National Bank building. Money is outlawed for the next three-and-a-half years.

Vietnamese-backed government begins massive challenge of rebuilding Cambodia’s financial services. It many ways, the rebuilding remains a work in progress.

Government renounces communism; turns to market economics.

Foreign banks are guaranteed rights and obligations equal to local banks. There are no restrictions on foreign ownership of banks.

November 2000
A restructuring initiative by the National Bank leads to the de-licensing and liquidation of 12 banks that fail to increase their paid-up capital from $5 million to a new minimum of $13 million.

Outstanding personal and business loans reach $893.6 million, having increased almost 90 percent over two years from $471.6 million in 2004.

Bank deposits account for 18 percent of gross domestic product, meaning Cambodia remains an overwhelmingly cash-based society.

Cambodia welcomes arrival of 24th commercial bank with the launch of Japan’s Maruhan bank in Phnom Penh.

After decades in the wilderness, Cambodia’s financial sector is finally starting to make inroads into the country’s vast, largely unregulated cash-based economy. But despite recent progress, there is still a long way to go in reform and transparency if growth is to be maintained long-term, say economic analysts and industry experts.

Over the past few years, the country’s double-digit annual growth rates have led to a rapid expansion in retail and commercial banking, with outstanding personal and business loans rising from a total of $471.6 million in 2004 to $893.6 million two years later, according to figures from the International Finance Corporation (IFC).

In its latest annual Asian Banking Outlook report, global credit rating firm Moody’s has painted an optimistic picture of the Kingdom’s business sector, predicting economic growth of 7.2 percent in 2008 and financial stability over the next 12-18 months despite the recent global credit crunch.

“In Cambodia, public confidence in the banking system is recovering,” said the report, a development it put down to sustained economic growth, increasing personal wealth and a stable regulatory environment.

Since the restoration of private property rights in 1989, the National Bank of Cambodia has been leading the government effort to reform and develop the financial sector.

Acleda Bank president and CEO In Channy credited the sector’s increasing stability to the passing of the 1999 Laws on Banking and Financial Institutions, which created the transparency and predictability necessary to build trust in the financial sector.

“The level of trust in the banking industry has increased because of this law,” he said. “The public trusts banks more now because banks have to issue detailed financial statements.”

Channy said that this increase in trust was demonstrated by the rapid growth in Acleda’s domestic deposits, which climbed from $800 million in 2004 to $2.5 billion in April this year.

“More competition is coming. Investors now feel comfortable coming to Cambodia,” he added.

Cleaning house

In November 2000, a bank restructuring initiative by the National Bank led to the de-licensing and liquidation of 12 banks that had failed meet a new requirement that they increase their base capital from $5 million to $13 million.

According to the Asian Development Bank’s 2001-10 Financial Sector Blueprint from December 2001, the initiative underscored the government’s awareness of “improving the soundness and reliability of the banking system, which is crucial for confidence building.”

But Cambodia’s chaotic recent history, coupled with the country’s grinding poverty and chronic corruption, have inspired anything but financial confidence.

After marching into Phnom Penh in April 1975, the Maoist Khmer Rouge dynamited Cambodia’s then-new National Bank building, sending worthless banknotes blowing through the streets of the deserted capital. For the three-and-a-half years of Pol Pot’s rule, the use of money was outlawed and the economy crumbled.

The Vietnamese-backed government that toppled the Khmer Rouge in 1979 was then faced with the challenge of building a functioning financial system from the ground up, a development that is still, in many ways, a work-in-progress.

The banking sector is now growing very fast. Confidence and trust have been gained from the public. That’s our greatest achievement.
–Phan Ho, National Bank deputy director general

But National Bank deputy director general Phan Ho said that the government’s reforms have proven very successful in establishing a baseline of consumer and business confidence upon which future reforms can build.

“The banking sector is now growing very fast,” said Ho. “Confidence and trust have been gained from the public. That’s our greatest achievement.”

But despite steady growth and a more stable regulatory framework, Cambodia’s banking and financial sector remains a small part of an overwhelmingly cash-based economy, with bank deposits constituting just 18 percent of GDP in 2007, and even then concentrated mostly in the capital and larger provincial towns.

According to the Financial Sector Diagnostic report released by the IFC in June 2007, “a well-developed public infrastructure has not been established, [including] relevant business laws, an efficient and independent judiciary, regulation and supervision of other financial markets, and a secure and efficient payment and clearing system.”

Still, ADB economics and financial sector officer Vanndy Hem said that Cambodia has made great strides.

“If we look back from where the sector started, the achievements we see today are solid and fundamental to the future development of Cambodia. Key among those are the restored confidence of the public in the system [and] the steady shift from the informal to formal usage of the system,” he said.

“Cambodia should be applauded for its achievements in introducing some fundamental laws and regulations, [but] the real challenge is how we can ensure that they are carried out,” he said.

Raising standards

As Cambodia’s 24 commercial banks fiercely compete for increasingly savvy customers, they are raising standards of transparency beyond minimum government requirements.
According to Acleda Bank vice chairman John Brinsden, the arrival of foreign-owned banks in Cambodia has raised the bar beyond the formal regulatory framework.

“In Cambodia the four largest foreign banks (Canadia Bank, Acleda, ANZ Royal and Campu Bank) dominate, then there’s a large gap before you come to the rest,” said Brinsden.

Although foreign-owned banks have been allowed to operate in Cambodia since the UNTAC period of the early 1990s, it’s only in the past five years that the arrival of large, consumer-oriented banks such as ANZ Royal has pushed up the standards of smaller local and regional institutions.

ANZ Royal CEO Stephen Higgins said that his bank has held itself to the same high standard in Cambodia as it does in Australia and New Zealand.

“We’ve brought some innovative banking practices here: the branches, the ATMs,” he said. “ANZ Royal was an international quality bank, coming into a country that was very much in need of it.”

Brinsden of Acleda agrees. “ANZ has really shaken things up here and has forced other banks to put in ATM networks,” he said. “In terms of customer service and transparency, they’ve caused some of the local banks to raise their game a little.”

Thursday, June 26, 2008

Good Morning Cambodia?

Vietnam, once the darling of international fund managers, is quickly losing its spot to another Asian nation probably best known by the West for political violence and poverty � Cambodia.

Cambodia�s young and inexpensive work force, rising productivity, a pro-business government, and 30 years of an isolating war have made the country "one of the best investor diversification plays around," says Cambodia Investment and Development Fund co-founder Marvin Yeo.

"Cambodia is where Vietnam was some eight to 10 years ago," Yeo says

Managers of at least four new private equity funds clearly agree. The funds are preparing to pour upwards of $500 million into Cambodia as investors flee the troubled Vietnamese bourse.

Marc Faber and Jim Rogers are among those expressing great enthusiasm about Cambodian investment prospects and both are advising some of the private equity firms that plan to invest there, in reports in the The New York Times and elsewhere.

"Cambodia offers an enormous potential for future capital gains," Faber recently wrote in an investment newsletter. The country, which plans to open stock and bond exchanges next year, also has the potential to produce two things the world now craves: rice and oil.

Twenty-two fund managers, most from the U.S., recently met in Cambodia to evaluate current investment opportunities there.

It's a struggle. The country posted a miniscule gross domestic product of $8.4 billion last year. The Cambodian economy would fit in the back pocket of a normal U.S. large-cap stock.

China, in comparison, raked in 10 times that amount in foreign investment alone last year.

"The general principle is to go after those countries and companies that are unpopular and bombed out, and that are good value in terms of price-to-earnings, price-to-book and dividend yield," says Mark Mobius, president of Templeton Emerging Markets.

Some fund managers believe the trick to succeeding in Cambodia lies in staying small to avoid headaches caused by the country�s notoriously corrupt government, weak laws, and business secrecy.

"We want the small and medium-sized investments below the political radar screen," says Douglas Clayton, a managing partner of Leopard Asia, which is raising $100 million for its Cambodia fund.

"Cambodia needs several billion dollars of investment," Clayton says. "The challenge will be to build the businesses. Most are early-stage investments."

Clayton�s fund � which opened to subscribers in April and sees opportunities in food processing, the garments industry, agribusiness, and property � is targeting investments between $5 million and $15 million.

The projected return for the Leopard Asia's initial Cambodian investment, a minority stake in a $2.5 million, 250-unit condominium, is 60 percent � well above its normal 25 percent return target.

"As we dig deeper into this country and connect with the entrepreneurial class we are finding a lot of opportunities," says Cambodia Emerald Fund manager Peter Brimble, who is aiming to raise $100 million.

"Five hundred million dollars is really just a few golf courses and hotels," Douglas Broderick, United Nations Development Program's resident representative in Cambodia, told The Wall Street Journal. "A lot more could be absorbed."

Emerging markets are expected to experience an average gross domestic product growth of 7 percent this year, says Mobius, while developed markets are expected to grow at an average of a little more than two percent.

However, even after their recent tanking, Vietnamese shares still aren't cheap enough for him to consider.

"If you're going to go there, you better think long-term," Mobius says. "Otherwise you can get stuck with a very illiquid security."