LONDON--Fallout from Banco Espírito Santo SA's August collapse
hit New Zealand Thursday, as the country's state retirement fund
said it lost $150 million and is suing Portugal's central bank over
an investment linked to the Portuguese lender.
The New Zealand Superannuation Fund in July invested $150
million in notes issued by Oak Finance Luxembourg SA, a vehicle
arranged by Goldman Sachs to make a $835 million loan to Banco
Espírito Santo. The Oak Finance loan was placed in a good bank
called Novo Banco when Banco Espírito Santo failed a month later,
but in December was moved by the Bank of Portugal to the rump bad
bank of the lender, where it has virtually no chance of being
repaid.
Adrian Orr, chief executive of the NZ Superannuation Fund, said
the Bank of Portugal's decision over the loan, which the central
bank affirmed earlier this week, was wrong and disappointing.
"Novo Banco continues to have the benefit of the money that we
lent," Mr. Orr said. "We have been treated unequally and
unlawfully."
The NZ Superannuation Fund, New Zealand's sovereign-wealth fund
for state pension payments, is one of at least eight Oak Finance
noteholders seeking to recoup their money through legal action in
the Portuguese and English courts. Goldman Sachs earlier this week
said it would pursue "all appropriate legal remedies without
delay."
The announcement, made in Auckland late on Thursday, threatens
to spark a political row in New Zealand over the fund's investment
practices. Mr. Orr said the Oak Finance holding was part of a
credit strategy run by the fund that has been operating
successfully for years, and represents only a small proportion of
the fund's roughly $20 billion in assets.
The Oak Finance transaction had already raised questions over
its timing and purpose since The Wall Street Journal first reported
on the deal in September.
Goldman Sachs set up Oak Finance to help Banco Espírito Santo
cover a financing agreement with China's Wison Engineering and
Venezuela state energy monopoly Petróleos de Venezuela SA, or
PdVSA. Wison Engineering had been hired by PdVSA for an
oil-refinery project in Puerto la Cruz on Venezuela's coast, and
Banco Espírito Santo had provided PdVSA with letters of credit,
according to the prospectus for the Oak Finance notes.
The deal came about after a concerted, monthslong effort by
senior Goldman officials to win business with Banco Espírito Santo,
according to people familiar with the matter.
But by the time the loan was released to BES in early July, the
Portuguese bank's shares were plummeting and it was struggling for
survival amid broader problems in the Espirito Santo group of
companies. The NZ Superannuation Fund on Thursday said its purchase
of the Oak Finance notes, on July 3, came just days after the Bank
of Portugal said BES had a solid solvency position.
For several months, the investment appeared to be likely to be
repaid since it sat in Novo Banco along with senior bonds issued
directly by Banco Espírito Santo. But in late December, as Novo
Banco was due to make its first repayment, the loan was moved into
the bad bank.
The central bank said it had determined that Oak Finance was a
vehicle of Goldman Sachs, and a 2% shareholding by Goldman in Banco
Espírito Santo shares in July meant its claims against the bank
would only be repaid after other creditors. That decision was based
on a provision written into Portuguese law in August around
shareholdings in rescued banks that was applied retroactively.
Goldman Sachs says it only ever held 1.6% of BES's voting rights
and that Oak Finance is an independent entity.
"We have a very strong legal case and a high level of confidence
of success," Mr. Orr said.
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