Super Fund's toxic loan court docs released, Portuguese case lodged

UPDATE: The New Zealand Superannuation Fund filed legal proceedings in the Portuguese courts against the Bank of Portugal this morning.

The super fund challenges the validity of a Bank of Portugal decision to transfer an Oak Finance loan from Banco Espirito Santo to Novo Banco.

These proceedings are in addition to the English debt recovery action launched in February against Novo Banco; in which court documents were released yesterday (see below).

EARLIER: English court documents relating to the Banco Espirito Santo saga, in which the NZ Super Fund is trying to recover about $US150 million, have been released this afternoon.

The NZ taxpayer-funded super scheme’s loan to the Bank of Portugal was arranged last July by investment bank Goldman Sachs through an investment vehicle it created called Oak Finance Luxembourg.

Along with the super fund, there were 11 other investors including from the Cayman Islands, Bermuda and Guernsey, which lent the bank more than $US784 million to help it bail out ailing Banco Espirito Santo.

Just weeks after the loan was made, Banco Espirito collapsed amid allegations of fraud, money laundering and tax evasion, and the super fund was forced to write down its investment to zero.

The Super Fund’s credit insurance on the loan was nullified after the loans were placed by the Bank of Portugal in a so-called “bad bank" instead of with Novo Banco, which was carved out of Banco Espirito Santo after its bail-out in August. However, Novo Banco still has use of the funds.

The $29 billion super fund and 11 other investors filed debt recovery proceedings in the English courts against Novo Banco on February 27. The case is being heard there as it was the jurisdiction governing the loan and facility agreement.

The court documents, published this afternoon on the Super Fund website, show the super fund lost the greatest amount, with others losing between $US1-100 million.

The claimants are seeking $US612 million, as well as interest, damages and costs. The parties are arguing the Portuguese central bank’s decision to place the loan into Novo Banco was unlawful, done in a retrospective law change.

Super Fund chief executive Adrian Orr said in January that Bank of Portugal's decision was wrong, and he believed the fund has a good legal case to get the ruling overturned.