Firms to stop dividends, repayments in Libya freeze

Reuters News
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Posted: Mar 18, 2011 4:46 PM
Firms to stop dividends, repayments in Libya freeze

By Natsuko Waki

LONDON (Reuters) - Companies affected by sanctions on Libya's investment vehicle are scrambling to find ways to comply that could involve blocking dividends, freezing deposits and suspending repayment on loans.

European Union member states agreed to extend sanctions on Libya to include the secretive $70 billion Libyan Investment Authority, which holds stakes in Western bluechips such as Pearson and UniCredit.

The latest sanctions, designed to punish the regime of Muammar Gaddafi, are also likely to hit companies in sectors ranging from banks to construction, part of the $1.5 billion in publicly listed equities globally that LIA controls, according to Thomson Reuters data.

But the process of freezing assets is complicated and there's no written rule on how to comply. EU officials have said it's the responsibility of individuals and the companies to read the legislation and act accordingly.

Sources at the affected firms say they are under pressure to freeze the "right" assets, or those where they can clearly demonstrate a link to the Libyan regime, otherwise they will risk facing legal action from related parties.

This uncertainty is prompting companies to take diverse measures. Pearson, for instance, has frozen the LIA's 3.2-percent stake and said the firm and its nominees will not register any transfer or pay any dividend until further notice.

Morgan Stanley and Exxon Mobil have stopped trading crude and refined products with Libya to comply with U.S. sanctions. Trading sources told Reuters Libyan oil trade has been paralyzed as banks decline to clear payments in dollars.

"Sanctions will obviously make things difficult in the short term with those oil companies which are heavily dependent on Libyan oil suffering short-term production losses. (And) companies such as Pearson and UniCredit are no doubt embarrassed by the Libyan connection," said Charles Gurdon, managing director of London-based risk consultancy Menas Associates.

"I doubt that dividends will or could be sent to Gaddafi and rent from tenants in LIA-owned properties will presumably be held in escrow accounts until sanctions are lifted."

Japan, which joined the Libya sanctions on Tuesday, said payments and capital transactions, including deposit, trust and money loan contracts to Gaddafi and his affiliates must be placed under the obligation to obtain permission or approval.

Luxembourg has also frozen accounts of the Libyan Central Bank and the Libyan Investment Authority.

At the EU level, sanctions are published in the Official Journal and detail what limits, restrictions or other conditions are imposed on a wide range of transactions, dealings or other interactions with proscribed firms, organizations and people.

But EU officials have said it's not their responsibility to explain the rules.

"It's not straightforward. There may be interpretation on how to freeze assets but there's no argument about individuals who are the targets of asset freezes. It's completely clear," said Andrew Stroehlein, communications director at the International Crisis Group in Brussels.

ICG has recommended targeted sanctions including an asset freeze against Gaddafi, his family members and others involved.

"The exact manner on how that's done may depend on individual states," Stroehlein said.

CORPORATE IMPACT

LIA's public holdings, mainly concentrated in Europe, are largely minority stakes and asset freezes are unlikely to impact "free float," or shares available to the general public, which are required for listing.

Companies listed on the London Stock Exchange, for instance, are required to have 25 percent of its shares as free float.

The UK Listing Authority, part of the Financial Services Authority and LSE regulator, confirmed on Tuesday it was working with affected firms to look at the options available to them.

In the unlikely event of the freeze pushing companies below the 25 percent free float, they could be forced to raise additional capital.

The UKLA also has power to step in and stop them being able to do regulated business if a majority of the firm's board is affected by sanctions.

Circle Oil, 17.5-percent owned by state-run Libya Oil Holdings, said on Tuesday it was seeking to comply with EU regulations. Circle is listed on the LSE's Alternative Investment Market, which does not require a specific free float.

"Circle is seeking to comply and presently following due process and taking legal advice," a company spokesman said.

UniCredit said on Tuesday it was ready to freeze the voting rights on shares held by Libya if required. Libya's central bank owns nearly 5 percent of UniCredit and its governor Farhat Bengdara is vice chairman of the Italian bank. LIA owns 2.6 percent of UniCredit.

Banks have yet to disclose their links to LIA, but in a confidential diplomatic cable obtained by WikiLeaks, LIA head Mohamed Layas has said several U.S. banks are each managing up to $500 million of the fund's money.

The cable also said that LIA controlled at least seven subsidiary operations.

(Additional reporting by Luke Baker and Kylie MacLellan, Editing by Sitaraman Shankar)