TDC Pensionfund, the Danish telecommunications pension scheme, is among a group of investors suing Novo Banco, the successor bank to the failed Banco Espirito Santo (BES), for the recovery of a $785m (€701m) loan made to BES before it went bust last August.
The loan was made to BES in July last year to finance a refinery project for the Venezuelan state oil company.
The money was lent by Oak Finance Luxembourg, a vehicle set up by Goldman Sachs (GS), which raised funds from investors, issuing them with fixed rate notes.
After its collapse, the bank was bailed out by the Banco de Portugal (BDP), the country’s central bank.
Assets and senior debt were transferred to a new bank, Novo Banco – the so-called ‘good bank’ – leaving other items in BES, now the ‘bad bank’, to be liquidated.
The debt transferred to Novo Banco included the Oak Finance loan.
Given that the bank is now operating as a going concern, the loan was expected to be serviced and repaid.
However, on 22 December 2014, the BDP announced it was reversing the transfer of the loan because it regarded the original deal as a related party transaction.
It considered the loan to have been made by GS itself, which it regarded as a (then) associate of BES because of a small shareholding in the bank.
Related party assets and liabilities are being kept within the ‘bad bank’, so there is little chance of repayment.
The investors argue that the loan was made by Oak Finance and not GS, and that GS’s shareholding in BES was never more than 2%, the threshold for consideration as a ‘related party’.
In February this year, the BDP reaffirmed its decision to return the loan to BES, prompting the lawsuits on behalf of Oak Finance investors.
TDC Pension, the New Zealand Superannuation fund (NZSF) – whose own exposure to the loan is $150m – and a number of investment funds including Avenue Capital Group, Silver Point Capital and FFI Fund, have now filed debt recovery proceedings against Novo Banco in the English courts.
They have also filed a similar action against BDP in the Portuguese courts, which will seek to reverse the BDP’s purported 22 December decision to transfer the loan obligation retrospectively from Novo Banco to BES.
GS itself has also filed proceedings against Novo Banco in the English courts.
The action in the English courts is being taken because the loan documentation is governed by English law, and is subject to an exclusive jurisdiction clause in favour of the English courts.
Flemming Jacobsen, CIO at TDC Pensionfund, told IPE: “The Oak Finance investment is part of our credit investments, which constitute about 75% of our investment portfolio of around €5bn. It was done directly by us in a basis trade at – for us – attractive returns.”
Jacobsen added: “This event will not result in changes to our investment strategy but will, of course, make future investments in Portugal less attractive.”
Adrian Orr, chief executive at the NZSF, said the Oak Finance investment was part of a credit strategy that had been operating successfully at the fund for a number of years.
While significant in dollar terms, it represents a small proportion of the overall NZD27bn fund.
He added: “We have a very strong legal case and a high level of confidence of success.”
However, the legal action is likely to be a lengthy process.
Meanwhile, legal action has been filed in Portugal by DECO, the Portuguese consumer association, on behalf of small shareholders in the bank.
It is suing the Portuguese government, BDP and the Portuguese stock market regulator for compensation for financial losses.
DECO has also taken out a civil case against BES, its auditors and investment advisers, as well as former members of the BES executive board.