After years of economic uncertainty, Libya seems poised to re-emerge into the global financial community. The plan is to engage in a process of taking back control of investments that have been frozen since 2011’s revolution that toppled Muammar Gaddafi. If successful, it will allow the Libyan Investment Authority (LIA) to reinvest billions of dollars of assets that have been forced into dormancy during the last four years.
In total, the Libyan Investment Authority is applying to regain control of $67 billion of Libya’s national wealth fund, through license applications in a number of different international jurisdictions. If successful, these will kick start a process that will allow a partial management of the funds at stake.
The LIA was set up under Gaddafi’s government to ensure financial stability for Libya’s heavily oil-dependent economy. With Libya’s finances in turmoil since the revolution, these license applications, as well as high-profile court cases, will allow it to make a significant step back towards mainstream international acceptance.
The plans were revealed in an interview given by Hassan Bouhadi to the Telegraph (Arabic). where he discussed plans to sue Goldman Sachs and Societe Generale in the London Courts for what the LIA sees as actions that “squandered” the LIA’s funds. Their claim is that the two banks invested the fund’s assets in high-risk derivative transactions that were wiped out in 2008. The LIA is claiming billions of dollars in compensation in a strongly contested lawsuit.
The LIA is most concerned at present with a 30 percent portion of its $67 billion assets that are in a number of foreign equities, bonds and similar holdings. These assets were frozen under international sanctions in 2011, a status that the new Libyan government wishes to remain in place. At the same time however, these investments need managing to maintain their value – for example where bonds have matured, or the portfolio has become overexposed to risk due to commodity fluctuations.
Following visits to Washington and EU authorities and ambassadors, Mr Bouhadi has been pressing for a method of permitting the preservation of these Libyan investments to prevent the Libyan people’s funds being devalued. The hope is that deals and licenses can be arranged to allow reinvestment of matured bonds in a ring-fenced manner that doesn’t allow them to be cashed in. For example, equity assets, such as the LIA’s 3.2 percent stake in Pearson (owner of the Financial Times), might be allowed to reinvest coupon payments and dividends rather than those funds sitting inactive.
The LIA’s actions are the first steps in a longer process of unfreezing the affected assets, but that outcome is not expected to happen until political stability has been achieved in Libya. The country is still torn by civil war and complex power struggles that have been fought since Gaddafi was overthrown. The internationally-recognised government has been forced out of the nation’s capital, Tripoli, by Islamist militias, and areas of the country are under the control of the Islamic State of Iraq and the Levant (ISIL).
Even the LIA has been caught up in these turbulent politics, with the Tripoli-backed former chairman, Abdulmagid Breish, currently attempting to replace Mr Bouhadi. Among the fights currently underway has been Mr Breish’s hiring of law firm Stephenson Harwood in London for an attempt to take control of the lawsuits against Goldman Sacs and Societe Generale.