By Euan Rocha and Deepa Seetharaman | Reuters
Investors in companies with Cuban assets, or the potential to expand into the country, cheered on Monday after the White House said it would ease some of the restrictions it has imposed on the Communist-run island.
Shares of one of the island’s large players, Canada’s Sherritt, surged, as the mining and energy company has assets in Cuba it may choose to monetize. Cruise ship operator Royal Caribbean and rival Carnival Corp also closed higher as investors bet the Obama administration’s move would eventually pave the way for more extensive travel.
The White House said it will allow US telecommunications companies to seek licenses in Cuba, a move that could open up a new and largely untapped market for US operators, which are facing slowing growth at home.
But shares of the major US telecommunications companies failed to react as analysts voiced skepticism about Cuba opening up its telecom markets.
The announcement signaled a change in Washington’s attitude toward Cuba and raised hopes that the US government might take further steps and even lift its trade embargo on Cuba. It follows a long history of US sanctions against Cuba after Fidel Castro took power on Jan. 1, 1959.
News of the eased restrictions on US telecommunications companies sent Sherritt shares soaring on hopes that the US might make similar concessions for companies in the energy and mining sectors. Sherritt’s stock closed up 24.5 percent.
“Every time (there’s been a rumor) that (Fidel) Castro has died, which has been half a dozen times in the last 10 or 15 years, Sherritt’s shares go up about 3 percent, so clearly the market thinks that an easing of US restrictions on Cuba is good for Sherritt,” said Salman Partners analyst Raymond Goldie.
“What’s backing that up is ... that Sherritt may find buyers for some of their Cuban assets, particularly the oil and gas ones,” added Goldie.
Fidel Castro was president of Cuba until last year, when poor health forced him to cede power to his brother Raul.
The easing of travel restrictions boosted the shares of cruise operators as investors bet the measure would eventually pave the way for their ships to dock in Cuban ports.
The travel industry has long seen Cuba, just 90 miles from the United States, as an ideal destination for American tourists. A Cuban port could breathe new life into the Caribbean—the largest market for both Carnival and Royal Caribbean, which sail to the Bahamas, Jamaica and Puerto Rico.
“There hasn’t been much new in the Caribbean markets so you can add it as something new to make it more attractive,” said Raymond James cruise analyst Joseph Hovorka.
Royal Caribbean shares closed up 11.4 percent at $11.23 on the New York Stock Exchange, while those of Carnival edged up 2.3 percent to $26.20.
Still, analysts remained cautious about the prospects of expanded travel, as the measures so far apply only to families with ties to Cuba and infrastructure to receive ships at Cuban ports may take years to develop.
Despite US telecommunications companies appearing to be the ones with the most to gain in the near term, shares of US telecom majors were unmoved by the Obama government’s announcement.
“First of all, Cuba has to open up the communications market, which is a bigger hurdle,” said Stifel Nicolaus analyst Chris King.
King also said that US telecommunications companies would likely face stiff competition if any Cuban licenses came on the market as it is a largely untapped cellphone market, where private citizens were only very recently allowed to own cellphones.
“This gives (US companies) the option, but they’re not going to be the only ones applying for the licenses,” he said.
US companies that would likely look at expanding to Cuba could include US market leader Verizon Wireless, owned by Verizon Communications and Vodafone Group Plc, as well as its next biggest wireless rival, AT&T Inc.
Smaller operator Clearwire Corp may also be interested if it were to get funding, said King.
Other bidders would most likely include companies such as Mexico’s America Movil, Latin America’s top cellphone operator, and Digicel Group, an Irish-owned operator with a strong presence in the Caribbean.
“Clearly, if the Obama administration is taking the first step and lightening up restrictions, the hope is this will provide the Cuban government with the opportunity to take steps in the openness direction,” said King.
By Leah Schnurr | Reuters
The relaxation of some restrictions between the United States and Cuba on Monday is a step toward a policy shift that would benefit companies from cruise lines to freight operators, said the founder of a fund that bets on such companies.
For the past 15 years, Thomas Herzfeld’s Herzfeld Caribbean Basin Fund has been investing in companies in the Caribbean that stood to see a gain in business if the 47-year-old trade embargo with Cuba was lifted.
Shares of the fund surged 41.1 percent to $7.97 after U.S. President Barack Obama lifted limits on family travel and money transfers by Cuban Americans in the United States to Cuba.
“I think everyone wants the embargo lifted, but it’s not going to happen unless Cuba takes the positions the U.S. has requested,” said Herzfeld, president and founder of Thomas J. Herzfeld Advisors, Inc, which runs the fund.
Herzfeld said he expects the travel restrictions on all Americans to be lifted shortly, which would particularly benefit cruise operators.
Indeed, Monday’s news drove shares of Miami-based cruise operator Royal Caribbean up 11.4 percent to $11.23 in New York, while the stock of Carnival Corp, the world’s largest cruise ship operator, rose 2.3 percent to $26.20.
Herzfeld said Royal Caribbean and Carnival could see a double benefit if they were allowed to set sail for Cuba.
“Half of the revenues of Royal and Carnival come from the Caribbean. We believe the opening of Cuba could actually double their business in the Caribbean because not only will people travel to Cuba, but they’ll combine it with a trip to the eastern Caribbean or western Caribbean,” Herzfeld said.
The fund has its largest investment in Seaboard Corporation which, along with a large pork business, runs a containerized shipping service between the United States, the Caribbean Basin and Central and South America.
HOLA, WESTERN UNION!
Western Union, the world’s largest payment transfer company, could also benefit from an easing of limits on money transfers as Cuban Americans send more money home to their families.
Herzfeld said the fund originally invested in companies that would do well regardless of whether the trade embargo was scrapped. But the gathering feeling of a policy change from Washington has prompted the fund to invest in companies that may not be making money now, but have a business plan for Cuba.
“With the election of President Obama, it seemed to many of us there was a much greater opportunity now than under any other U.S. president for the embargo to be lifted,” Herzfeld said.
However, Herzfeld noted that Cuba is going to have to make efforts to implement long-demanded democratic reforms before the trade embargo is banished altogether.
“The first major announcement from Cuba I would like to see would be the release of political prisoners. That would really break the logjam.” (Editing by Jan Paschal)
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Havana Journal Inc. recently started the Cuba Stock Index highlighting a variety of businesses that are expected to enjoy an increase in revenues as the US relaxes trade and/or travel restrictions on American citizens.