Libya wealth fund to finance reconstruction

2011-11-11 11:15

Dubai - Some of the over-large cash component of Libya's $65bn sovereign wealth fund will be put to work financing post-Gaddafi reconstruction, leaving time for a full review of its less liquid investments.

"I expect an immediate shrinkage of the size of the fund," Rafik Nayed, acting chief executive of the Libyan Investment Authority (LIA), told Reuters in an interview on Wednesday.

"My feeling is that there will be large investments required in the near future and international reserves will be used to do that, especially as the oil production has not fully recovered."

He gave no details of how much of the fund would be used for infrastructure, education, health and rehabilitation projects. To access the cash - about $29.5bn of the fund - Libya will need sanctions on its total foreign assets of $170bn to be lifted.

"Cash and equities and fixed income products... make up about 77% of the total assets under management," said Nayed, who is leading a team of Libyan financial experts tasked by the ruling National Transitional Council with a review of the fund's investments made under the Gaddafi regime.

"As at the end of June 2011, (the fund) was $64.9bn," he said. "We will come up with recommendations after our work with the World Bank and the IMF (International Monetary Fund) on the most ideal size for a Libyan sovereign wealth fund."

According to end-June unaudited figures shown to Reuters by Nayed and his team, 45.5% of the fund is in cash.

The fund also includes, according to a document obtained by Reuters, $10.8bn in equities, $9.7bn in bonds, $8.3bn in strategic shareholdings, $4bn in hedge funds, structured products and derivatives, and the remainder in other investments.

This is the first time the LIA released detailed figures on its investments, in what Nayed described as a transparency drive by the new Libyan leaders to handle public funds.

Nayed said since the fund was created in 2006 to manage the country's oil revenues, it has received $62.9bn from the government.

"It is hard to imagine how you could make much more with half of your portfolio in cash, generating the lowest type of returns," he said.

No investment decisions are expected to be made before a new management takes over. The fund's board of directors and chairperson would be appointed by the new cabinet, which has yet to be named.

Among LIA's assets are stakes in Italian bank Unicredit, British publisher Pearson and Juventus Football Club in Italy.

Africa portfolio

There has been speculation that Libya will sell off its assets in the rest of Africa to help fund reconstruction, but Nayed said no decision on divestment would be made until his team has finished its valuation exercise.

Nayed said that of $8.3bn invested in strategic shareholdings, $5bn sit in a fund known as Libyan African Investment Portfolio (LAP).

LAP Green Network, a telecom company operating in six African countries, is the fund's weakest link, he said. Hit by UN sanctions, the nearly $1bn investment is in default with some creditors and its assets are frozen by some countries, including Zambia.

"This one company is right now the top priority in terms of concern," he said. "We do expect a haircut on it and we hope it can be minimised... I expect a loss here of at least 20%."