NZ Super Fund tries to claw back lost $200m

Banco Espirito Santo collapsed last August. Photo / Getty

Court documents filed in England reveal the New Zealand Superannuation Fund has lined up alongside vulture funds and an Indian steel billionaire in a bid to extract itself from a bad $200 million bet on a toxic Portuguese bank.

In February the NZSF admitted it had written off a $200 million investment in Oak Finance, a loan vehicle arranged by Goldman Sachs, after Portuguese bank Banco Espirito Santo - the ultimate recipient of the loans - imploded.

The NZSF advanced funds in early July 2014, but only weeks later BES had disclosed billions of euros in losses, its founder and president had been arrested on suspicion of white-collar malfeasance, and a run on deposits saw it broken up in August.

A subsequent decision by the Bank of Portugal that the Oak Finance loan was related-party stranded the debt in the husk of BES, effectively wiping out the investment.

The state-run bailout and restructuring of the bank also voided the NZSF's insurance, in the form of a credit default swap, that could have covered such a collapse.

The claim documents show Goldman Sachs created the scheme in order to allow BES to finance a refinery project in Venezuela, leading to the investment bank forming Oak - a Luxembourg vehicle - which raised US$730 million from investors and passed this on to BES.

The claim argues the Bank of Portugal's decision to conclude Oak Finance was under the control or ownership of Goldman Sachs, and therefore meet the definition of related-party, was incorrect, and the failure to pay interest since also entitled it to US$123 million in default fees.

The filings also reveal the NZSF was the first investor to buy into Oak Finance, and is also the investor with the most at stake in the action, seeking US$155 million out of the group's total claim of $US613 million.

Other investors, other than Danish pension fun TDC Pensionkasse, are mainly financial institution or specialised distressed-asset vehicles who bought Oak Finance debt at a discount after BES collapsed.

The vulture fund contingent includes Elliot International (claiming US$82.7 million) and Olifant Fund (US$1.2 million), who both speculatively bought Argentine government debt that was defaulted on in 2002 and used the paper notes to undertake aggressive legal action around the global to press for payment.

In 2012 in Ghana, Elliot successfully detained the Fragata Libertad, a 103m-long sailing ship operated by the Argentine navy, as part of debt-recovery action.

Karrick, a vehicle for Indian steel billionaire Lakshmi Mittal, is also a co-plantiff in the Oak Finance action and is seeing US$5.2 million.

NZSF chief executive Adrian Orr has talked up the prospects of legal action against the Bank of Portugal, and said in January writing off the entire $200 million investment was only done as a "conservative precaution".