Shares in CEIBA Investments (CBA) have been suspended after the £48m Cuban commercial property fund fell foul of recently strengthened US sanctions against the Caribbean island.
In a statement on Friday afternoon, CEIBA, an investor in Cuba’s hotel and tourism sector, warned of the “severe immediate implications” of being placed on the US Department of State’s blacklist.
It believed its designation as a “blocked person” under an executive order (EO) signed by President Trump in May was an “error” which the company would immediately seek to correct although it said there were no set time limits on being removed from the sanctions list.
EO 14404 expanded the reach of existing US sanctions to foreign financial institutions that facilitate significant transactions for blocked Cuban entities.
Three of CEIBA’s seven directors have resigned in response to the company being sanctioned. They included Enrique Martinon Garcia who had only just joined the board following the acquisition last month by a Ceiba subsidiary of 51% of Monte Barreto, operator of the Miramar Trade Center in Havana, from Grupo de Administracion Empresarial (GAESA).
CEIBA said the US objected to the deal which was the result of lengthy negotiations that began in March 2017 and was finalised in an agreement on 22 April before GAESA was designated as a blocked person by the executive order.
Last week also saw Melia Hotels International, the operator of CEIBA’s five hotels, terminate its activities in Cuba in response to the island’s Ministry of Tourism being targeted by EO 14404. The hotels will be renamed while Ceiba considers its options and looks for a new operator.
CEIBA said it had always been “extremely careful” to mitigate the risks to its investments from US sanctions. On 4 June it had informed the Office of Foreign Assets Control of the US Department of the Treasury (OFAC) that it had “fully wound down its only business relationship with GAESA within the period specified to do so.”
It added: “the company is able to prove that the transaction to acquire shares in Monte Barreto had a valid and real purpose, with many positive aspects, and it was not carried out to shield assets and revenue streams belonging to GAESA from US sanctions.”
Launched in 2018, CEIBA has seen its shares lose more than half their value in the past five years with the intensification of US sanctions and the negative impact on Cuba’s economy a main factor in the stock sliding to a discount of 54% below asset value.
The US began its blockade at the height of the Cold War with Russia following the 1959 Cuban Revolution that saw the overthrow of the Washington-backed Batista regime with Fidel Castro establishing a socialist state and nationalising around $1bn of American-owned assets.
Our view
Matthew Read, senior analyst at QuotedData, said: “On the face of it, this looks unfair. CEIBA appears to have followed the relevant rules, completed the Monte Barreto transaction within the permitted wind-down period and made the necessary disclosures to the US authorities. However, the decision also highlights the inherent risk of doing business in Cuba, given the country’s fractious relationship with the US – a risk that is heightened by the current administration’s volatile approach to international affairs. Hopefully, the position surrounding Monte Barreto will be clarified quickly and CEIBA will be removed from the sanctions list. However, with no defined timetable for that process, the share suspension seems sensible while CEIBA seeks clarification.”
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