Cuba looks better from London


Chloe Hayward
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Ceiba Investments, a closed-end fund that invests solely in Cuban assets, is set to list its shares on London junior market AIM this month.

Ceiba, the only fund that invests exclusively in Cuba, has already raised its capital to $137.3 million in a share placing in March in the Channel Islands that was 70% oversubscribed despite market turmoil.

"A placing on AIM will improve our liquidity both for those invested in us and to ease our access to the financial markets," says Sebastiaan Berger, fund manager of Ceiba Investments. "The moment an interesting investment opportunity comes up it will be fast and easy to raise money with this London listing. Also, we thought it would be good to broaden our investor base."

The fund is yet another example of the growing interest investors have in Cuba. Since Raul Castro took over power from his brother Fidel on February 24 there has been renewed hope that economic restrictions on the Caribbean island will be relaxed. "The fact that our present capital is relatively small results from the past shortage of opportunities, not from a lack of investor appetite," says Berger.

Change in the air

Since Raul Castro became president, a series of economic reforms have been implemented. Elizabeth Stevens, political risk analysts at insurance broker Jardine Lloyd Thompson, says: "There is a real need to provide flexibility to economic institutions in order to allow changes to take place."

Some change is evident already. "The Cuban central bank has increased the autonomy of Cuban firms to undertake operations in foreign exchange without authorization from the government," says Stevens. Cuban businesses can perform FX trades up to a maximum of $5,400 in volume. Once the reform is implemented, the threshold will be increased to $10,800. Although limited, this is the first step towards a gradual shift away from central control of the currency market.

Raul Castro has also launched the Agricultural Leap programme. It will implement the recommendations of 30 experts who are analysing the agricultural system. "The new model aims to set incentives that will boost agricultural production. In 2008, Cuba will have to spend $1.9 billion on food imports; that is over 27% more than imports in 2006," says Stevens, whose insurance firm is one of eight that underwrite Cuban risk.

"There is a growing appreciation for the Cuba story. More people are interested in the country and this has translated into a slight increase in trading activity already," says Stuart Culverhouse, chief economist at Exotix.

Balancing act

He adds: "Any Cuban paper is very tightly held because there isn’t much of it, and those that hold it have held it for a long time, waiting for the market to change. Now they are happy to wait a bit longer in order to get the price they want. This is balanced against higher demand from potential buyers who are cautious about paying too much."

In 2006 and 2007, Cuba issued one-year euro denominated bonds that were privately sold. The 2006 bonds were paid on time and in full and the same is expected of the 2007 issue. "Given that Cuba has now done a few of these bond issues, it wouldn’t surprise me if it chose to do it again. It’s not clear what its financing needs are but it is trying to re-establish a name for itself in the marketplace," says Culverhouse.

Cuba also struck a deal with Mexico in February 2008 to restructure $400 million of debt that the island owes – a move that it hopes will restore economic collaboration between the two nations after six years of dispute.

"Overall it looks as though Cuba is moving in the reformist direction but it is very early days. Sanctions and high commodity prices are damaging the economy," says Stevens.

Ceiba plans to focus its investments on tourism and real estate. One planned project is a $36 million, 290-room beach hotel near Cuba’s west coast town of Trinidad.