Muammar Gaddafi: the wise investor

Muammar Gaddafi is known world-wide for being the leader of the Libyan nation, for his subversive ideologies, recently toned down in a bid to relieve the Libyan economy from UN and US sanctions, as well as for his shrewdness and intellect. However, another side to the man was recently detailed by his financial manager, Ali El Huwej. The Malta Financial and Business Times reports on how Malta’s southern neighbour’s financial acumen has been directed at turning a profit for the nation in the face of stiff sanctions

Mohamed Ali El Huwej, Gaddafi’s money manager, last September told the US’s Bloomberg News how the Libyan leader has developed a system for making global investments by using minority stakes, shell companies and interlocking share holdings in such a way as to not attract the attention of US authorities. He refers to the activities as "financial engineering."
In a series of interviews held with Bloomberg in Tripoli last September, Mr Huwej detailed Libya's investment strategy.
Libya's US$8 billion
Mr Huwej explains that Libya as a nation holds a total portfolio of US$8 billion (Lm3.6 billion). The portfolio includes a five per cent stake in Banca di Roma SpA – Italy's fourth-largest bank – US$1 billion in British real estate and stakes in 72 companies in more than 45 countries.
Libya also has stakes in more than 100 banks with offices ranging from New York to Hong Kong. The complex web of shareholdings that Gaddafi has created and nurtured over the past 15 years shows how easy it is to evade embargoes and sanctions by moving money around the globe.
Since the Libyan revolution, Colonel Gaddafi the investor has successfully played cat and mouse with the US Treasury Department – responsible foe enforcing financial sanctions on the country – by amassing scores of stakes in companies around the world.
Many of the largest are in Italy, Libya's former colonial power, and elsewhere in Europe, while only about US$800 million of Gaddafi’s money is invested in Africa and the Arab world.
Mr Huwej, the 52-year-old chairman of Libyan Arab Foreign Investment Co., – otherwise known as Lafico – and the Libyan Consulting Board for Foreign Investment, is the man who plots the strategy for the Libyan leader. Lafico was also recently reported to have been considering bailing Malta’s Price Club out of its fiscal difficulties.
A European welcome
Even though sanctions imposed by the UN had ordered Libya's assets frozen, many European countries had nevertheless welcomed Libyan investments. In fact some 90 per cent of what Mr Huwej refers to as Lafico's liquid holdings, a total of US$6 billion, are in European companies, while an additional US$1 billion is made up of interests in overseas banks held primarily by Lafico's sister company, Libyan Arab Foreign Bank.
Libyan-connected banks with offices in New York include Arab Banking Corp. and Spain's Banco Atlantico SA. However, the US Treasury Department doesn't include these banks in its banned list because the stakes Libya holds are small.
Now Mr Huwej wants to invest directly in the US, where all of Gaddafi’s assets, a total of about US$1 billion - largely deposits belonging to Libyan Arab Foreign Bank -have been frozen since 1985. "Merrill Lynch, we are ready for you," Mr Huwej said to Bloomberg, only half-joking.
Gaddafi had been investing in Europe for several years when the US included Libya in its first list of terrorist countries, published in 1979. In 1981, US President Ronald Reagan banned most US travel to Libya, citing assassination threats on US officials.
It was in that very year that Gaddafi created Lafico with a capital investment of US$1.5 billion. Then in 1982, Reagan banned Libyan oil imports and required licenses for most US exports to Libya.
Gaddafi the liability
By the mid-1980s, Gaddafi had become a liability for his European investment partners. Chief among them was Fiat SpA in Italy. Gaddafi had spent US$415 million in 1976 for almost 10 per cent of the struggling carmaker, after Chairman Giovanni Agnelli visited Libya to propose the investment, Mr Huwej explains.
In 1986, Ronald Reagan blocked Fiat, which by then had two Libyans on its board representing a stake that had grown to 14 per cent from bidding on US government contracts. The same year, Libya agreed to leave, for a price. Fiat's parent and investors had paid $3.1 billion to buy out Libya’s stake in the carmaker.
Investing in Metropole
Gaddafi and Huwej, meanwhile, were expanding their reach. The same year the UN imposed sanctions, they paid GBP 177 million for a third of British company Lonrho Plc's Metropole hotel chain.
However, the Libyan stake caused Lonrho's board to ousted Chairman Roland Rowland in 1994, in part because the company's shares fell after he did business with Gaddafi. In June 1996, Lonrho bought back the stake, paying the Libyans US$389 million, which was double the market value at the time.
In November 1997, the Libyan Arab Foreign Bank, a unit of Libya's central bank, bought the stake in Banca di Roma in a sale of state-owned shares, paying US$400 million. "Chairman Cesare Geronzi met with Gaddafi, and he offered it," Mr Huwej recalls.
Asked more recently whether the sale contravened sanctions on Libya, Banca di Roma Chief Executive Officer Giorgio Brambilla said, "We had absolutely no concerns about this."
The legal conduit
Banca di Roma didn't violate economic sanctions, because the stake was sold through Libyan companies rather than the Libyan government, Mr Brambilla said.
Though they were sporadically enforced, the sanctions nevertheless limited Libya's room for manoeuvring in some countries. For example, Libya's UK bank accounts were frozen and funds such as dividends from the Metropole stake could not be transferred to Libya.
That is why Lafico works to avoid detection when it makes investments, Mr Huwej says, adding that in everything it does, Lafico is aware the US is watching.
As such Mr Huwej sometimes avoids doing business under Lafico's name. A farming company in Egypt owned by Lafico is registered there as simply Agriculture Investment Co., he says.
Small stakes
Another strategy employed by Libya is to keep stakes small or indirect, particularly in banking companies. Though bank investments are a small slice of Libya's holdings, they're among the most scrutinised by the authorities, as access to banks means access to money and the ability to move it around the world.
A US Treasury Department chart on Libya's international banking connections traces 103 firms and their partial or indirect ownership by the Central Bank of Libya.
Generally, these are companies that are more than a third owned by Libya, though the US Treasury Deparment doesn't have a specific threshold. It takes other factors, such as management, into consideration.
Only 28 of the 103 companies make the US blacklist. For instance, UBAE Arab Italian Bank SpA, based in Rome, isn't on the US blacklist. It's 44 percent owned by Libyan Arab Foreign Bank, but counting the 12 percent held by Banca di Roma, 56 percent is linked to Libya.
Park Avenue Connection
Another bank that doesn't make the blacklist is Arab Banking Corporation, which is 27 per cent owned by the Central Bank of Libya. The bank has offices on New York's prestigious Park Avenue and in Washington, it throws some of the biggest parties at meetings of the International Monetary Fund and the World Bank.
European bank partners
Libya has forged partnerships with some of Europe's biggest banks, including HSBC Holdings Plc. Libyan Arab Foreign Bank owns 25 percent of London-based British Arab Commercial Bank, which is 47 percent owned by HSBC, Britain's largest bank.
HSBC was a BACB founding shareholder in 1972, and HSBC executives and the chairman of Libyan Arab Foreign Bank sit on the board of BACB, which is a correspondent bank of Al-Shamal Islamic bank, founded by none other than Osama bin Laden.
"BACB is a UK-licensed bank and regulated by the UK authorities, who are aware of the share holding by the Libyan bank and satisfied with it," explains Richard Beck, an HSBC spokesman in London. BACB specialises in trade and project financing in the Arab Mediterranean area.
An unusual money manager
Mr Huwej, who joined Lafico as chairman in 1987 without any money management experience, doesn't behave like a typical investment manager. He declines to disclose Lafico's performance goals or average returns.
Mr Huwej also refuses to list Lafico's investments, saying the US Treasury Department doesn't need to know the details. Meanwhile, a Treasury spokeswoman says the department won't divulge US knowledge of Libya's investments, as the Treasury doesn't want Libya to know how much it knows.
Among the investments Mr Huwej was willing to name a 45 per cent interest in Oilinvest Group, whose main asset is Italy's Tamoil Italia SpA; six per cent of Groupe ONA SA, Morocco's largest company; 16 per cent of Olcese SpA, a century-old Italian cotton company; and 48 percent of Malta's Corinthia Palace Hotel Company Ltd.
Another long-standing investment is US$1 billion of UK real estate, most of which is in London's financial district. However, Mr Huwej declined to name properties. Experts on Libya say they were probably acquired in the 1970s, when many oil producers bought buildings in financial centres.
In September 1999, Lafico bought a 16 percent stake in Milan-based Olcese, which supplies cotton fabric to clothing makers Lacoste, Benetton Group SpA and Giorgio Armani SpA, according to Alessandro Viotti, a spokesman for Olcese, who declined to comment on the Libyan investment.
Lafico’s desert headquarters
Bloomberg reports that Lafico has 300 employees, with 100 working outside Libya in such places as Rome, Athens and Malta and most others at its headquarters in Gharyan, a desert town 85 kilometres south of Tripoli.
The headquarters is located on the 10th floor of one of five matching concrete towers that define the coastline and are featured in patriotic music videos on state TV.
The conference room at Lafico’s HQ, Bloomberg reports, is decorated with a model of an office complex Lafico owns in Casablanca and framed posters of Corinthia hotels.
Libya's investment strategies
Libya has two general investment strategies, Mr Huwej says. It buys shares of state companies sold off by European governments, and it buys into companies that Mr Huwej thinks he can turn around.
"Sometimes we enter in privatisations of strong companies, and sometimes we take over something we can improve," Huwej says, adding, "We concentrate now on Europe."
Banca di Roma is one such privatisation. The 1986 take-over of Amoco Italia, now Tamoil, was a turnaround. Libya gained a distribution network for its main export when it took over the bankrupt company, which last year had a profit of 3.69 million euros on revenue of 2.45 billion euros, according to Tamoil's audited annual report.
European refineries
Tamoil owns refineries in Geneva, Hamburg and Cremona, Italy, and has 1,700 retail outlets in Italy with a 5.2 per cent market share. It's the main subsidiary of Oilinvest Group, a Dutch corporation that's 45 per cent owned by Libya.
Lafico also buys stocks, bonds and options, Mr Huwej explains and trading is the method he uses most in his decentralised system to anonymously move money.
The money managers, working for the most part outside Libya, use "90 per cent of the big European banks" to manage investments, Mr Huwej says. Now Mr Huwej has to worry less about hiding his footsteps in Europe since Gaddafi repudiated terrorism. "The Libyan money now is more liquid," he says. "Now, we can invest in any European country. The only problem is the US."