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An update from our investment manager, Sebastiaan Berger

2 May 2022

 Sebastiaan Berger, Investment Manager, CEIBA Investments Limited

If there are two things that I have in my DNA, they are positivism and looking at a brighter future instead of looking back.

After another difficult year, during which the country faced extremely challenging conditions, by November 2021 Cuba had demonstrated to the world that its home-grown Abdala and Soberana 2 vaccines were indeed effective in the fight against Covid-19 and that its country-wide vaccination program had been diligently implemented and resulted in rapidly falling numbers of new cases and fatalities, and once again these qualities took the upper hand and I thought that the Cuban economy had hit bottom and would begin rising to a brighter future.

But at the start of Cuba’s high tourism season, just as Cuba was reopening its international borders and welcoming international travellers back to the island, the Omicron variant of the Covid-19 virus emerged in South Africa and rapidly spread throughout the world, causing a new wave of restrictive travel measures aimed at slowing the swift pace of infections produced by the new variant. These measures resulted in many travel cancellations from Canada (historically Cuba’s most important source of tourists during the very important period from December to April each year). Despite this obvious setback, tourist numbers began to improve, with Russia joining Canada as one of the principal source markets. All of our hotels re-opened, occupancy levels and profitability started to increase, and I hoped that Cuba’s precarious liquidity position would soon start to show signs of improvement!

However, once again positive momentum was short-lived.

When on 24 February 2022 Russia invaded Ukraine, all Russian (and Ukrainian) travel came to an abrupt halt and Cuba once again found itself facing the prospect of a difficult high season.

The general lack of liquidity within Cuba’s economy during 2021, the continuation under the Biden administration of the strengthened Trump sanctions against Cuba and the present uncertainty regarding the timing of a tourism recovery have all taken their toll and have forced CEIBA to make downward adjustments to our asset valuations.

This has triggered that the 2021 year-end result of the Company is a net loss attributable to the shareholders of US$28,811,901. The outlook for 2022 will largely depend on how long the Russia-Ukraine conflict will last, how it will impact world politics and Cuba’s important relationships, and its effect on international travel patterns and the recovery of Cuba’s tourism industry. To a lesser extent, the coming year could also be further affected by the rise of any new variant of the Covid-19 virus.

In addition, starting in the final months of 2021 and continuing through to today, the Cuban banking system has experienced significant delays in the execution of payments instructed, even where such payments are made with the required “liquidity” in accordance with the new financial autonomy rules. This shows that the Cuban liquidity position is precarious, and this may make it more challenging to continue implementing its program of monetary reforms.

Discrete performance – Annual returns % (GBP)

  30/04/18 30/04/19 30/04/20 30/04/21 30/04/22
Price - -26.04 19.01 -24.26 -17.19
NAV - 1.65 -9.34 -16.76 11.30

Past performance is not a guide to future results.

The Company’s investment objective is to provide a regular level of income and substantial capital growth from investing in Cuban realestate and other assets directly related to Cuba, with a focus on the tourism-related and commercial property sectors.

WARNINGS, DISCLAIMERS AND OTHER IMPORTANT INFORMATION

Special Investor Warnings

The U.S. Cuban embargo legislation presently in force prohibits U.S. Persons from investing in, owning or otherwise holding Ordinary Shares in CEIBA Investments Limited. U.S. banks, custodians, depositories and other intermediaries may reject or block payments, the transfer of securities, and the distribution of dividends. Shareholders should ensure that they do not directly or indirectly use U.S. banks, custodians, depositories or other intermediaries, in any capacity, to hold Ordinary Shares in the Company or to receive dividend distributions or other payments.

Key Risks

General: The value of investments and the income from them can go down as well as up and investors may get back less than the amount invested. Past performance is not a guide to future results.

Country: Cuba remains subject to a very high degree of control over economic matters by the Cuban government (extensive regulations that impact business and the ownership and operation of assets and properties, such as the hotel and office properties in which the Company is invested). Any changes in government policy may adversely affect the Company or its investments in Cuba.

Joint Ventures: All of the Company’s investments in Cuban real estate assets are made through Cuban joint venture companies in which Cuban government entities hold an equity interest. Due to present Cuban government policy, the Company is not able to obtain majority control over these Cuban joint venture companies and therefore does not exercise control over the joint ventures or the underlying assets.

Currency: Currency exchange rate fluctuations may have a positive or negative impact on the value of your investment (the Company is exposed to risk associated with currency fluctuations, particularly between Pounds Sterling, Euros, the U.S. Dollar, and potentially the Cuban Convertible Peso (CUC) or the Cuban Peso (CUP)). Liquidity of investments: All direct investments in Cuban joint venture companies and other foreign investment vehicles are generally illiquid investments.

Dependence on tourism: The Company holds significant interests in Cuban joint venture companies that own hotel properties, which are highly dependent on tourism in Cuba (operations and properties are subject to operating risks inherent to the tourism industry).

U.S. Cuban Embargo: U.S. government restrictions relating to Cuba have a negative impact on the Cuban economy and, as a result, also have a negative impact on the business of the Company, as well as its access to capital and finance and limiting the extent to which third parties will deal or transact with the Company.

Property investments in Cuba: U.S law penalizes foreign persons allegedly “trafficking” in property formerly owned by U.S. citizens but confiscated by Cuba after the Cuban revolution. Although, due diligence has been carried out and no notice of alleged “trafficking” has been received by the Company, given the broad definitions and terms of the law, there is no certain way for the Company to diligently verify whether any future litigation may arise in respect of a particular property.

Projections & Estimations: All projections, estimations, target returns, indicative terms and the like in this document are illustrative and involve significant elements of judgement and analysis using certain assumptions described herein, which assumptions, judgements and analyses may or may not prove to be correct.

Discount: Ordinary Shares of the Company may trade at a discount, the market price of the Ordinary Shares may rise or fall rapidly - general movement in local and international stock markets, prevailing and anticipated economic conditions and interest rates in, and investor sentiment towards, Cuba and general economic conditions may all affect the market price of the ZDPs and Shares. To optimise returns, holders of Ordinary Shares may need to hold the shares for the long term. Advice: Investors in the Company are expected to be institutional investors, professional investors, high net worth investors and professionally advised and knowledgeable investors who understand the risks involved in investing in the Company and/or who have received advice from their fund manager or broker regarding investment in the Company.

For limited Professional Use Only

The views expressed in this document should not be construed as advice on how to construct a portfolio or whether to buy, retain or sell a particular investment. The information is being given only to persons who have received this document directly from Aberdeen Standard Fund Managers Limited (ASFML) and must not be acted or relied upon by persons receiving a copy of this document other than directly from ASFML.

No part of this material may be copied or duplicated in any form or by any means or redistributed without the written consent of ASFML. Issued by Aberdeen Asset Investments Limited, a company authorised and regulated by the Financial Conduct Authority in the United Kingdom. Aberdeen Standard Investments is a brand of the investment businesses of Aberdeen Asset Management and Standard Life Investments. CEIBA Investments Limited is listed on the Specialist Fund Segment of the Main Market of the London Stock Exchange. The Company is a registered closed-ended collective investment scheme pursuant to the Protection of Investors (Bailiwick of Guernsey) Law, 1987, as amended and the Registered Collective Investment Schemes Rules 2015 as issued by the Commission. The AIFM: Under the terms of the Management Agreement, the Company has appointed Aberdeen Standard Fund Managers Limited, with effect from Initial Admission, as the Company’s alternative investment fund manager for the purposes of the AIFM Rules. The AIFM has delegated portfolio management to Aberdeen Asset Investments Limited as Investment Manager.

Risk Warning
Risk warning
The value of investments and the income from them can go down as well as up and you may get back less than the amount invested. Please refer to the relevant Key Information Document (KID) prior to making an investment decision. Please be aware of scams that can affect investors.