• Home
• News Article

Investors nervous about legal status of Libya’s foreign assets

Sunday, Feb 27, 2011

Country’s wealth tied in holdings in several overseas entities

Dubai: After the UN yesterday slapped sanctions on the Libyan regime and froze assets of Muammar Gaddafi and his family abroad, it remains unclear what is going to happen to the foreign holdings of the Libyan sovereign wealth fund and its related entities.

“It’s hard to predict,” Fadi Al Said, Head of Equities, Middle East, ING Investment Management, told Gulf News. “It is a matter of international business law.”

The Libyan Investment Authority ( LIA ), set up in 2006 to manage the country’s oil revenues, has assets of around $70 billion (Dh257.46 billion), equivalent to nearly 75 per cent of the country’s economy, and reportedly $32 billion in liquidity. LIA is also seen as the major vehicle for Gaddafi and his family’s wealth and controls at least seven subsidiary operations. It holds stakes in Italy’s largest bank UniCredit, football club Juventus, British publishing house Pearson and carmaker Fiat.

A lot of assets in Africa are also managed by sub-funds, and international financial advisory firms such as Merrill Lynch and JP Morgan are involved.

Frozen funds

There is no precedent for what could happen to the Libyan stakes in foreign companies if the fund’s accounts remain frozen.

Nick O’Keefe, an expert at international law firm Latham and Watkins in Dubai, and his Washington-based colleague Bill McGlone told Gulf News that since US sanctions were imposed on Libya last Friday, “it is impossible for the fund and the Libyan Central Bank to deal with any US or US-related companies or release funds from US accounts.”

The UN sanctions, imposed yesterday, are only focused on the Gaddafi family’s private assets, he said. Technically Libya’s assets outside the US could still be touched by Gaddafi, but “it’s practically not viable as all transactions are running sooner or later via the US. And most of the international companies, banks and financial institutions are already in a freeze mode,” O’Keefe said.

EU sanctions, expected this week, will be “even more aggressive”, the lawyer said.

In fact, investors and advisers close to the funds have become nervous. For example, shares in UniCredit dropped more than 7 per cent since the outbreak of the Libyan crisis last week.

“The LIA is more a long-term oriented fund,” said O’Keefe. “What’s more important is what will happen to the smaller funds related to it.”

Basically there seem to be two scenarios for Libya’s assets. Either a new government takes over and manages to get the sanctions lifted. A new fund administration can then develop a new strategy.

The other option would be a sell-off of the financial assets and the use of the liquidity to rebuild Libya.

Some signals that the country would rather use part of its money to improve living conditions emerged yesterday.

Libya has allocated 2 billion dinars (Dh5.99 billion) to subsidise basic foodstuffs and 1 billion dinars for state housing loans, Libyan state television reported yesterday. The government also committed to give a 500-dinar cash handout to every family starting yesterday.

Following the US and UN sanctions, other accounts related to the Libyan government haven been frozen. Switzerland has locked all accounts that are related to Gaddafi and his family members. The UK is expected to follow shortly. Gaddafi’s deposits in London alone are estimated at $3 billion.

African investments

For Libya’s African investments the situation is becoming serious. Libya has used its wealth to invest in telecommunications in Uganda, Rwanda, Zambia, Sudan, Sierra Leone, Ivory Coast, Niger, Guinea and Benin, according to Kenya-based paper The East African. Libya has interests in hotels, textile manufacturing and food processing in Uganda, as well as oil engineering and retail in Kenya and Uganda.

The paper said that most of these businesses are currently balanced on a knife-edge or technically insolvent and doomed to collapse when Libyan money dries up.

The paper mentions that companies such as Uganda Telecom and Rwandatel are unable to continue their business without cash injections from Libya, and oil operations of Libya’s oil exploration firm OiLibya in Eastern Africa, especially Kenya, would be at stake as well.

By Arno Maierbrugger, Deputy Business Editor

© Gulf News 2011. All rights reserved.