Libya rushes to aid troubled UniCredit

The former Italian colony Libya holds a 4.23 percent stake in the Italian bank UniCredit and will support its accelerated plans to raise capital by 6.6 billion euros (8.89 billion dollars), the Libyan central bank announced on Thursday.

The Libyan central bank, the state stabilization fund Libyan Investment Authority, and the Libyan Foreign Bank have purchased a 3.67 percent stake in UniCredit, which is added to the existing stake of 0.56 percent held by the Libyan Foreign Bank since 1997, the Libyan central bank’s statement further noted. UniCredit, affected by stock sales and thus pushed to second place among Italian banks, made a significant turnaround earlier this month and requested shareholder assistance in its efforts to strengthen its capital base. It is the first and so far the only Italian bank forced to take such measures due to losses in the stock market.

The Italian bank announced that it aims to raise 3.0 billion euros from investors through a capital increase program supported by convertible bonds. It would offer its shares instead of cash payments based on business results in 2008, achieving savings of 3.6 billion euros on its own funds. Libya will support the capital increase through bonds of up to 500 million euros.

Upon news of the Libyan authorities’ 4.2 percent stake in the Italian banking group, investors reacted positively, and UniCredit’s share prices jumped by 10 percent in Friday morning trading on European exchanges. UniCredit shares had previously mostly followed the price movements of European competitors after the capital increase was announced, resulting in a 30 percent wipeout of the bank’s market value.

Just on Wednesday, a little over a month after signing an agreement with Libya to resolve all disputes from the colonial period, Italian Prime Minister Silvio Berlusconi hinted at the possibility of investment, stating that oil-producing states have embarked on ‘extensive’ acquisitions across Europe. He also warned of the risk of hostile offers from foreign stabilization funds to take over Italian companies, and that Italy is now examining steps to support its industry with tools to fend off takeovers.

This year and last year, funds from Gulf states have invested billions of dollars through emergency investments in Western banks to help them raise capital. Libya already holds stakes in numerous Italian companies, ranging from the football club Juventus to the well-known car manufacturer Fiat, and in an official statement emphasized that UniCredit “shows unequivocal long-term potential and solid industrial opportunities.” Furthermore, any investment in an Italian bank above the level of five percent requires approval from the Italian central bank.  (H)