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An update from our investment manager, Sebastiaan Berger

September 2021

 Sebastiaan Berger, Investment Manager, CEIBA Investments Limited

There seems to be light glimmering at the end of the tunnel for Cuba and by definition for CEIBA Investments Limited (“CEIBA” or the “Company”).

The announcement made by the Cuban government in August 2021 that it expects 90% of its population to be fully vaccinated by November and that the country will begin gradually reopening for tourism at scale from 15 November 2021 has been well received. And the indication that no tests on arrival or isolation periods will be required for travellers entering with a vaccination certificate or a negative pre-flight PCR test will indeed help to kick-start the reopening of Cuba’s tourism sector.

Miramar S.A., the Cuban joint venture company through which we hold our interests in the Meliá Habana, Meliá Las Americas, Meliá Varadero and Sol Palmeras hotels, has demonstrated its resilience by reporting (modest) profits in both years of the pandemic (2020 and the current year 2021). With the Meliá Las Americas hotel coming online as of 1 October 2021 and the Meliá Varadero expected to follow suit in Q1 2022 things will definitely start to improve for Miramar S.A. In addition, the largest asset of the Company, the office complex of the Miramar Trade Centre, has continued to show excellent returns by maintaining occupancy levels in the high nineties and benefitting from reduced costs of energy and labour that result from the Monetary Reforms that were implemented on 1 January 2021.

Nevertheless, there is also no reason to beat around the bush. CEIBA has had a difficult time. The Company just published its six months’ midterm financial statements and reported a drop in net asset value (in US$, the functional currency of the Company) of some 7.3%. And it is clear that Cuba presently finds itself in a very challenging environment.

  • The COVID-19 pandemic continues to have a severe adverse impact on tourism, with the majority of hotels remaining closed;
  • There has been no discernible move by the United States to ease its embargo; and
  • The recent implementation of monetary reform at a point when Cuba’s liquidity position is very weak.

The impact of these challenges has, unsurprisingly, caused some very difficult living conditions for many Cuban residents, which in turn has led to a high level of public frustration. The Cuban government has continued to take steps to ease the present predicament and, among other things, it has eliminated customs duties on the import of food products and medicine and has approved legislation that allows for and encourages private small and medium size enterprises.

With only a skeleton service by the airlines and the few hotels that are operational, the country has received some 164,000 tourists in the first eight months of 2021, representing less than 6% of pre-pandemic numbers. At present, it remains impossible to predict how quickly the Cuban tourism sector will recover from the worldwide disruption caused by the COVID-19 virus. It is hoped that with increasingly successful vaccination programmes, both in outbound markets and within Cuba, the tourism sector will restart in the autumn and gain strength across the coming high season from December 2021 to April 2022.

In the Investment Manager’s Review in the half yearly report of the Company I used the Spanish word Ánimo (noun: resolve, mettle, steadfastness, spirit, energy, encouragement, courage) to express in a single word my message to encourage, reassure and inspire my friends, colleagues and employees in Cuba, and also the stakeholders of CEIBA with respect to the future that lies ahead of us and the mindset we require to get there. By using this word, on the one hand I recognise the multiple challenges that Cuba and - by extension - the Company are presently facing, but on the other hand I also convey my firm belief and fervent wish that these challenges can, will, and are presently in the process of being overcome through resolve and sure handedness of action.

Sebastiaan A. C. Berger – Fund Manager


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.