September 20, 2020

Mexico wants in on Cuba market


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banderas_cuba_mexico_cubarte.cuBy Nacha Cattan Bloomberg News From The Journal Gazetter

From cola to cement, neighbors set to deal

– U.S. cruise lines and hoteliers aren’t the only potential beneficiaries from a thaw in relations with . Onboard sodas and materials to build resorts could come from Mexican providers.

Coca-Cola Femsa and Cemex are among the Mexican companies poised to capture a slice of the expansion of the Cuba market, according to ING Groep. Herzfeld Caribbean Basin Fund says after the U.S., Mexico has the most businesses that would get a boost from the end of the Cold War freeze.

“Cuba is next door,” Eric Conrads, an ING money manager based in New York, said in a phone interview. “It’s a natural market. The Cuba Libre cocktail uses Coke. And the libre represents freedom, so it’s an interesting mix.”

Cuba’s possible transition into desirable Caribbean destination from pariah status under the 1960 U.S. trade embargo was set in motion this month when President Barack Obama moved to restore diplomatic ties. Even with the embargo still in effect, Obama’s moves would make it easier for companies to export construction, telecommunications and farm products.

A well-developed Latin American distribution chain puts Coca-Cola Femsa, the biggest franchised Coke bottler, in better position to take advantage of an eventual opening to Cuba than Atlanta-based Coca-Cola, said Ryan Paylor, a Herzfeld fund senior trader.

Coca-Cola Femsa is set up “to easily make the transition,” Paylor said in a phone interview from Miami. As for Monterrey-based Cemex, Cuba’s decades-long lack of capital investment could be a boost for the cement producer if U.S. spending triggers a construction boom, Paylor said.

“The infrastructure of Cuba is pretty dilapidated since the embargo went into place,” Paylor said.

Consumer goods and building supplies have been an early focus as investors search for possible winners under a U.S.-Cuba rapprochement, in part because of the potential of the island nation of 11 million to flourish again as a tourist venue.

According to a Nov. 24 Securities and Exchange Commission filing, the Herzfeld fund’s major stakes also include Carlos Slim’s , Wal-Mart de Mexico and the soft-drink company and convenience-store operator Fomento Economico Mexicano, which controls Coca-Cola Femsa.

Fifty percent of the holdings of the fund, which bets on an easing of U.S.-Cuba ties, were in U.S. companies as of June 30, based on data compiled by Bloomberg, followed by 22 percent in Mexico and 11 percent in Panama.

Coca-Cola Femsa accounted for 6.6 percent of the fund’s assets, the No. 2 stake after Panamanian airline , the data show. Paylor said Cemex accounted for about 2 percent of the Herzfeld fund.

Cemex says it would be interested in Cuba if U.S. restrictions are lifted.

“We’re definitely the biggest cement producer and trader in the Caribbean,” said Maher Al-Haffar, Cemex’s vice president of investor relations. “To the extent that Cuba becomes a bona fide market for our products, of course we’re going to be doing our best to participate in that growth.”

America Movil could stand to benefit from the Cuban public’s lack of mobile phones, said Jose Otero, director of Latin America and the Caribbean for trade group 4G Americas.

“In telecoms, the low penetration level in all types of services makes it one of the most attractive places to invest,” Otero said in a phone interview. “In terms of population, it’s equivalent to a Chile, for example.”

America Movil, Cemex and Coca-Cola Femsa all have rallied at least 5 percent since Obama’s announcement, part of a 6.6 percent advance through Monday for Mexico’s benchmark IPC Index. Herzfeld Caribbean Basin Fund soared 81 percent in the same period, to $12.34, and was valued at $68.7 million.

Walmex, America Movil and Coca-Cola Femsa declined to discuss any Cuba ties. Monterrey-based Femsa said it was focused on countries with existing operations while remaining “permanently alert to opportunities and to favorable conditions that could present themselves in other markets.”

With the U.S. embargo still in place, it’s too soon to focus on Mexican companies that could benefit from the policy shift, said Luis Willard, an analyst at Corporativo GBM SAB in Mexico City.

“It’s a very, very initial step,” Willard said. “Lots of time would need to pass before thinking about how this will translate into a positive impact for any specific company.”

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