Leopard Capital, which we profiled in the past, will take to the road in March to raise funds for both of its Sri Lankan-oriented funds–the Sri Lankan Fund LP, “a 10 year private equity fund targeting US$100 million [that] will primarily take minority positions in unlisted companies, targeting post-war growth sectors such as tourism, food processing, fisheries, consumer products, and retailing,” as well as a Value Fund, which will hold “both a core portfolio of smaller, overlooked ‘deep value’ stocks, and a trading portfolio of blue chips.” Both funds will be run by its newly formed Sri Lankan division. The firm also recently announced that Jim Rogers, the Singapore-based investor, author and commodity permabull, will join Marc Faber on the firm’s advisory council. That’s a pretty nice duo to headline your pitchbook.
Following the resounding reelection of President Mahinda Rajapaksa in late January–a surprising affair to many observers both in its relative peacefulness and its marked decisiveness–optimism is abundant for the long-time, civil war plagued island. As The Economist noted:
The economy, buffeted by a slump in garment exports and tourism because of the war, is perking up. This year the country is expected to see some 600,000 foreign tourists, compared with 500,000 last year. The New York Times has named Sri Lanka its top tourist destination for 2010. Annual remittances, mostly from hardworking Sri Lankans in Arab countries, have rebounded from a minor slump to around $3 billion. Last year the Sri Lankan stockmarket more than doubled in value, making it one of the best-performing in the world. Food prices remain punishingly high, yet inflation is down. The economy is expected to grow by around 6% this year.
Leopard, writing in its latest newsletter, agrees.
The [election’s] decisive outcome assures policy continuity for the numerous important infrastructure projects underway across Sri Lanka, including deep sea ports, power plants, dams, highways, railroads and airports. Most of these projects are being funded on concessionary terms by external donors such as China, India, Japan, and the ADB, providing billions of dollars of assistance for a country of just 20 million people.
Unnoticed by most global investors, this mini “Marshall Plan” will turbo-charge Sri Lanka’s economic efficiency and productivity, powering top-quartile economic growth for the next couple decades. Other domestic growth catalysts include the reintegration of the cut-off North and East provinces into the national economy, the return of tourists, the sharp decline of local interest rates and the reawakening of Sri Lanka’s hibernating capital markets. A massive private investment cycle is gathering force as business confidence ratchets higher and boardroom priorities shift from controlling costs to capturing fresh opportunities. We encourage you all to visit Colombo and sense the local optimism first-hand; it may be Winter in the West but it is Spring in Sri Lanka.
Long-term, two seemingly perpetual problems remain, however, which investors should factor in to whatever return they might seek on any capital they may invest. One, the ethnic divisions between Tamils and Sinhalese remain. Two, executive power remains separate from parliament and should (arguably) be returned, an outcome that rests on Mr. Rajapaksa’s desire to subvert his own power. To that extent, future division between political and ethnic parties may well reside on the strength and relevance of a main opposition party, which in and of itself will likely be a factor of how well Tamil and Muslim factions can negotiate and compromise. That said, there is little standing in the way of short term market acceleration, especially with a central bank committed to facilitating the President’s desire to see 7% growth in 2010. The country’s exports rose 6.4% in December to $723.4 million after a yearlong decline, while the central bank kept key benchmark rates unchanged and at a five-year low.