Castro news reminds investors of Cuban potential
NEW YORK (Reuters) - The formal resignation on Tuesday of Fidel Castro from power in Cuba reminded investors of the windfall that could be realized should U.S.-Cuban relations ever normalize.
Possibilities range from companies doing business there such as hotel group Sol Melia and tobacco firm Altadis of Spain, to U.S. firms hoping to reclaim assets seized by the Communists after the 1959 revolution.
Risk-takers can buy debt instruments the Cuban government defaulted on in hopes they one day may be honored, or they can buy into firms that stand to gain should the U.S. trade embargo with Cuba ever be lifted.
Stock in Canada's Sherritt International, the largest foreign investor in Cuba with nickel mining and oil and gas operations, rose as much as 6 percent to C$15.57 on Tuesday.
One investment company that has already bet heavily on a post-embargo Cuba, the Herzfeld Caribbean Basin Fund, saw its stock soar on Tuesday more than 20 percent to an intraday high of $9.50.
Otherwise the market impact was largely muted. That's because there is wide expectation that the Cuban leadership will name Raul Castro as his brother's successor, formalizing the provisional transfer of power of July 2006 when Fidel Castro, now 81, underwent intestinal surgery.
"Today's event has been fully priced by financial markets. It's a notable political headline, but for the near term it's a financial non-event," said Francisco Diez, director for emerging markets trading at RBC Capital Markets in Toronto.
Still, niche players with an eye on Cuban tourism, tobacco, sugar, mining, infrastructure and utilities could not help but imagine what Castro's resignation could mean in the future.
Nickel was Cuba's top foreign exchange earner in 2007 at $2.7 billion, surpassing the traditional leader tourism, which brought in more than $2.1 billion, a state television commentator said in January.
WILL YOUTH EMERGE?
Their attention will be focused on the Cuban legislature when it meets on Sunday to ratify a new head of state. Most Cuba-watchers expect Raul Castro, 76, to be named, but some wonder if a younger leader could emerge.
"Will the parliament just embrace Raul or will perhaps some of the younger people emerge, and that's unpredictable," said Thomas Herzfeld, whose Caribbean Basin Fund has invested in companies he expects to benefit from normalized trade relations.
Herzfeld said two major U.S. cruise line operators -- Royal Caribbean and Carnival, which cannot now stop in Cuba -- could double their Caribbean business with normalized relations.
The fund also owns stock in maritime freight and transportation companies including Trailer Bridge, which moves tractor-trailers aboard ships between the United States and the Caribbean and rose 6 percent on Tuesday.
The fund also owns stock in Cuban Electric Co., the pre-Castro utility, and so-called "Batista Bonds" from the pre-Castro government that came due in 1977 and have 19 years of coupons attached. Continued...
