Evil Diaries: Political Risk Revisited

Looking back I was astonished when New Star was promoting its central African unit trust getting on for twenty years ago. Amongst the holdings were a transport company originated by Phil Edmonds but which included commercial interests in the Congo, now typically referred to as the DRC. As anybody but an idiot knew this was a massive extension of credit by investors in a territory which has generally been a total disaster. It took a year or two for the eternal truth shone through that the DRC is where one should never invest.

Two territories which should be alright since they take a reasonably serious view of commercial law in practice are Bangladesh, the home of Beximco Pharma (BXP), and Indonesia, where REA (RE.) has a massive long term investment in palm oil plantations. However, even these governments can behave very curiously.

Take BXP: a few months ago, a dividend was paid by it several weeks late since although BXP was generating offshore currency through exports the central bank would not let them immediately remit sterling to London holders. This is very foolish.

Further, there is political turmoil in Bangladesh right now which needs to settle if investors are to be reassured.

Over at RE. their profits were restricted by an export tax on palm oil. This entailed RE. selling to local domestic parties who then got the stuff out of Indonesia by being aware that those who were paid to check that the export tax bill was settled in full and at the proper time it was due could be gently persuaded to ease back on their efforts.

Put another way, political risk is now very much back on the investors’ list of aspects to check.

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As it happens, a couple of days ago RE. announced a reconstruction of its finances which comprises big new money coming in from a local partner. This means that the preference arrears will be paid off on completion of the deal. That date happens to be 7th April 2024 which of course falls in the new tax year. Selling special cum div before that date might suit some investors.

Panmure have set a target price of 250p rather than the current 70p. For the time being somewhere in between is the sensible price.

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Finally, the Melbourne Cup, where I won £220,000 in 2020, is run at 4.00 a.m. London time on Tuesday morning. I would place more than £10 on Soulcombe at 12/1 and oppose Vauban at 3/1.