Sovereign Wealth Fund Takes Legal Action Against Banco de Portugal Over Costly Debt Transfer

Adrian Orr, CEO of the New Zealand Superannuation Fund

Adrian Orr, CEO of the New Zealand Superannuation Fund

On July 3, 2014, New Zealand Superannuation Fund (NZSF) invested US$ 150 million in notes issued by Oak Finance Luxembourg SA. The vehicle Oak Finance was arranged by Goldman Sachs as an independent entity to assist in the financing of trade transactions being made by Lisbon-based Banco Espírito Santo. For example, one trade deal was Banco Espírito Santo’s backing of a financing agreement between Venezuela’s state-owned oil firm Petróleos de Venezuela SA and China-based Wison Engineering Services Co. Banco Espírito Santo provided letters of credit to Petróleos de Venezuela SA with regard to an oil refinery project in Puerto la Cruz.

Oak Finance lent US$ 784.6 million to Banco Espírito Santo in the form of senior debt. Bad news in the press trickled out regarding allegations of fraud, money-laundering and document falsification at Banco Espírito Santo. On August 3, 2014, Banco Espírito Santo failed and the Oak Finance loans, along with other senior loans, were moved to a successor bank Novo Banco. Here is where it gets interesting.

Losing Out

On December 22, 2014, Banco de Portugal, Portugal’s central bank, moved the loan back to Banco Espírito Santo – essentially an entity where the sovereign wealth fund has virtually no shot of being repaid. A law brought on August 1, 2014, made it so any shareholder that owns more than 2% of the insolvent bank would be prohibited from transferring liabilities to the new bank. Banco de Portugal moved the loans back because it saw Oak Finance as a vehicle for Goldman Sachs, the loan arranger. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

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