I found a couple of very strange companies on the pink sheets and I’ll use this post to collect some of my thoughts on them. The companies in question are Francisco Industries (OTCMKTS:FRAZ) and Manati Industries (OTCMKTS:MNII). They are both US corporations that had operations in Cuba and that had their property seized by Cuba in 1960. More about the background of the Cuban nationalization of American-owned property and the resulting embargo imposed by the U.S. can be found on Wikipedia.
I’ll only discuss Francisco in this post, but I believe the story for Manati Industries is very similar. I just haven’t looked into that company as much.
Francisco Industries had land, two sugar mills and buildings & equipment in Cuba that was seized. The situation becomes interesting from an investment standpoint because a claim (PDF) for a total amount of $52.6m has been awarded in 1971 to Francisco Industries for the damages that have been suffered. Additionally, 6% interest per annum has been accruing on this amount since the date of the loss (1960, so 56 years).
The claim mentions there are 350,301 shares outstanding in 1967 and that 348,102 were owned by US nationals. There is a post on a ADVFN message board that claims the company has stated that there are now 574,484 shares outstanding.
Now, let me just say right here that I consider the ADVFN message boards to be a peculiar gathering place of tin foil hat wearing, ALL CAPS TYPING speculators. The people posting there make the inhabitants of the old Yahoo message boards look like pensive scholars. There are many posts that just serve to pump certain stocks. That said, for some very obscure stocks this message board is literally the only source of online information. This also seems to be the case for Francisco Industries and Manati Industries. Most of this post is based on documents found on this message board.
I would therefore not rely on any of the information presented there or here, but I think it can be of help for those of you who want to unearth source documents and other information about these two companies. For example this document provides information about Francisco Industries from a New Jersey business directory and it looks legitimate to me. It shows that Francisco Sugar Industries is an associated name of Francisco Industries and that Nicolas Gutierrez is listed as a principal of the company. Gutierrez is a Miami lawyer of Cuban descent who is pursuing lawsuits against people who try to “traffic” in property confiscated by the Castro regime. More information about him can be found in this article from 2007.
As far as I know, Francisco Industries does not have any operations or other assets at this point. As a shareholder you basically hold this huge claim against the Cuban government. If there are indeed 574k shares outstanding then the claim amount (excluding interest) would total to almost $92 per Francisco share. Shares are currently trading for $0.30. I think it is very unlikely that shareholders will ultimately get anything even close to that amount though. Cuba can negotiate with the U.S. about these claims if it does decide to try to settle them (there are many other claims besides Francisco’s). For example, I read somewhere that the deaths and damages caused in the Bay of Pigs invasion could be used to offset these claims.
Just as important a question is: when will this settlement happen? The clock has been ticking for more than 50 years already. Who is to say it doesn’t take another 50 years for this conflict to resolve? There has been some positive news in this regard, because the relations between Cuba and the U.S. have seen some improvement under president Obama. Earlier this year, Obama visited Cuba and was the first U.S. president to do so in 90 years. Both he and Raul Castro called for the removal of the embargo. The claims could become a part of the negotiations. The stocks of Francisco and Manati have gone up substantially this year and that’s probably a result of the slightly improved relationship between the U.S. and Cuba.
That said, these seem like very small steps to me and a lot has to happen before shareholders of Francisco will actually receive compensation. This could all take decades. If the outstanding shares number is indeed 574k then the market cap of Francisco would currently be only $172k. That leaves a great deal of room compared to the total amount of the claim. This is why I actually like Francisco Industries as an extremely speculative investment idea. It could be a fun investment for a microscopic part of a portfolio and I’m talking much less than 1%. Chances are only your kids or grandkids can possibly reap the rewards, but even in a scenario where they’re left empty-handed, it will make for an interesting story after you’ve kicked the bucket. That much is for sure!
I don’t own Francisco Industries myself and don’t think I’ll buy it. As a non-American, I’m not sure that I’d receive anything even if a deal is eventually reached. The claim document mentions shares owned by American citizens. I think any deal that is reached could exclude foreign owners of these shares.
- US-Cuba thaw could bring Staples a windfall (July 2015): Staples now owns a ~$1 billion claim as well, because it has become the owner of Cuban Electric Co. which until fairly recently also traded on the pink sheets with the ticker CGAR. The journey of Cuban Electric Co. into the hands of Staples is a fascinating story in itself.
- A Cuba Optimist Keeps on Waiting (March 2012): story about Thomas J. Herzfeld who manages a mutual fund called Herzfeld Caribbean Basin (NASDAQ:CUBA) that invests in companies that have a connection to Cuba. The fund owns 700 shares in Cuban Electric Co. (acquired in 2005). They are valued at zero in their reports.
- Manati Industries message board
- Francisco Industries message board
Disclosure: no position in Francisco Industries or Manati Industries at the time of publication.