Libyan investments, connections turn toxic

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The push to oust Libyan leader Moammar Gadhafi has left many companies and institutions scrambling to distance themselves from a regime they had embraced until just a few weeks ago.

On Thursday the head of the London School of Economics resigned because of a growing controversy over the university's two-year relationship with Libya and a charity run by Colonel Gadhafi's son, Saif. "The short point is that I am responsible for the school's reputation, and that has suffered," LSE director Sir Howard Davies told the BBC in announcing his resignation.

His departure came two days after Pearson PLC, publisher of the Financial Times newspaper, said it would stop paying dividends on the 26.5 million shares owned by a Libyan investment fund, representing about 3 per cent of the company. "We're in a terrible position," Pearson's chief executive officer, Marjorie Scardino, told reporters. Referring to Col. Gadhafi's brutal crackdown on protesters, she added: "This is pretty abhorrent to everyone who is working at Pearson."

And last week the World Economic Forum in Davos, Switzerland, suspended Saif Gadhafi from its list of "Young Global Leaders," a designation it gave him in 2005. The organization said recent events in Libya show Saif's potential as a world leader "has not been fulfilled and that it is impossible for him to continue as a member of our community."

Those moves, along with government freezes on Libyan assets, represent a remarkable change in attitude toward Libya. Western leaders and business people had been warming up to the country and Col. Gadhafi ever since he renounced weapons of mass destruction in 2002. That led to a big push into Libya by multinational companies, including SNC-Lavalin Group Inc., Petro-Canada and many others.

Libya and Col. Gadhafi also began investing abroad, mainly through a $70-billion (U.S.) sovereign wealth fund set up 2006 called the Libyan Investment Authority. The LIA now holds stakes in dozens of public companies including Italy's Juventus soccer club, Italian bank UniCredit, Russian aluminum giant Rusal and Fiat SpA, which owns Chrysler Group LLC.

The fund and the Gadhafi family also have substantial private investments that include stakes in a luxury European hotel chain, a London-based hedge fund and a Hollywood movie studio called Natural Selection which is making a film called The Ice Man: Confessions of a Mafia Contract Killer. And a charitable foundation set up by Col. Gadhafi's son, Saif, has doled out millions of dollars to institutions across Africa and universities in Britain, including the LSE.

It's not clear what holdings, if any, the LIA has in Canada, although the federal government says it has frozen $2.3-billion in Libyan assets. The LIA did acquire Calgary-based Verenex Energy Inc. a couple of years ago through a controversial arrangement. Verenex, which operated in Libya, had received a takeover bid from China's CNPC International Ltd. worth more than $400-million. Libyan officials held up the deal for months, claiming a right of first refusal. The Chinese eventually pulled out and the LIA bought Verenex for about $300-million.

Walid Hejazi, an associate professor of international business at the University of Toronto, says the corporate backtracking on Libya looks hypocritical. "When [Libya]invested $2-billion in Canada and $30-billion in the United States, no one said we don't want your money," Prof. Hejazi noted. "But now that it's political, everybody is on the bandwagon."

The London School of Economics' turnaround is among the most striking. The university received a $2.5-million pledge two years ago from the Gadhafi International Charity and Development Foundation. The foundation is headed by Saif, an LSE graduate, who earmarked the pledge to the university's Centre for the Study of Global Governance. The gift was hailed at the time by the centre's co-director who called it "a generous donation from an [non-government organization]committed to human rights and the promotion of civil society." The LSE furthered its contacts with Libya through a program to train hundreds of young Libyans.

This week, the school backtracked amid mounting public pressure. It said it had received roughly $500,000 so far under the foundation's pledge and vowed to cancel any further donations. In a statement, the university's council said it regretted the "reputational damage for the school caused by the association with the Gadhafi name." The LSE also said it was investigating allegations Saif plagiarized parts of his doctoral thesis.

Another British university with ties to Libya has taken a different stand. Officials at the Liverpool John Moores University said they had "nothing to be ashamed of" about their involvement in a program to train Libyan doctors and health care workers.

"We've nothing to be embarrassed of whatsoever and our work in Libya was about improving medical facilities which are woeful," Vice Chancellor Prof. Michael Brown told reporters. "You have to differentiate between a government you don't approve of and helping the people who need it."

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Mixed holdings

Some of the holdings of the Libyan Investment Authority and Gadhafi family:

7.5 per cent: Juventus Football Club SpA, a soccer club in the elite Italian league.

7.5 per cent: UniCredit SpA, Italy's largest bank.

1.43 per cent: Russian aluminum giant Rusal.

1 per cent: ENI, Italy's largest oil company.

2 per cent: Finmeccanica SpA, Italy's largest defence company.

2 per cent: Fiat SpA.

15 per cent: Retelit SpA, an Italian telecommunications company.

10 per cent: Quinta Communications, a Paris-based film maker that is also partly owned by a company connected to Italian Prime Minister Silvio Berlusconi.

35 per cent: International Hotel Investments PLC, a British company that owns luxury hotels in London, Russia, Portugal, Libya and Budapest.

13 per cent: Zara Investment Holding Co., Jordan-based company involved in hotels and resorts.

OTHERS

Mediterranean Investments Holdings: a joint venture involved in residential and commercial real estate in Tripoli, including a 400-house complex called Palm City and a 40-storey office tower.

Natural Selection: Hollywood movie company received $100-million investment from Col. Gadhafi's son, Saadi.

Real estate: Several commercial properties in London including a retail complex on Oxford Street.

Hedge funds: millions invested with London-based FM Capital Partners, run by Frederic Marino, formerly a trader at both Merrill Lynch and Bear Stearns.