Goldman, Singer and Mittal Join $835 Million Espirito Loan Fight

Goldman Sachs Group Inc., Paul Singer’s Elliott Management Corp. and one of India’s richest men joined a legal battle over who should repay an $835 million structured loan made to Banco Espirito Santo SA weeks before its collapse last year.

The lawsuits relate to a special purpose vehicle, Oak Finance Luxembourg SA, set up by Goldman Sachs to raise funds for Banco Espirito Santo so the Portuguese bank could finance an oil refinery in Venezuela. The case is one of the first over the division of the lender’s assets between a good and bad bank.

The Bank of Portugal’s 4.9 billion-euro ($5.2 billion) rescue of Banco Espirito Santo in August split the stricken bank in two, with depositors and healthy assets joining Novo Banco SA and bad loans and junior creditors staying with the old bank until it is shut down. Creditors of the old bank will probably face significant losses.

Bank of Portugal said in December it won’t transfer Oak Finance’s debts to Novo Banco. Oak Finance investors, including Elliott, New Zealand’s $22 billion state pension fund and a trust owned by billionaire Lakshmi Mittal’s family, said in the London lawsuit that that Novo Banco should have to repay them about $613 million.

Bank of Portugal initially transferred Oak Finance’s debts to Novo Banco before reversing its decision in December, the 12 investors said in court documents dated March 10 and released earlier this week.

Novo Banco

“We are firmly of the view that Novo Banco is the borrower under this loan and will ultimately be ordered by the court to meet its liabilities,” the investors said in a statement released by their law firm, Quinn Emanuel Urquhart & Sullivan.

The Portuguese central bank said in a February statement that the loan vehicle wasn’t eligible to be transferred because Goldman Sachs held a 2 percent stake in Banco Espirito Santo, citing rules ensuring that creditors and investors share losses after the failure of financial institutions.

Goldman Sachs, which has filed a separate lawsuit against Novo Banco, didn’t have a stake in Banco Espirito Santo that reached the 2 percent threshold, according to Fiona Laffan, the bank’s spokeswoman.

Due Process

“The Bank of Portugal’s decision not to restore Oak Finance’s obligations to Novo Banco was based on factual errors and violates basic principles of due process and fairness,” she said.

Details about the Goldman Sachs suit, which was filed the same day as the investors’ case, haven’t been released by the London court.

A spokesman for Bank of Portugal declined to comment beyond referring to the February statement. Novo Banco declined to immediately comment.

Spokesmen for Elliott Management, the hedge fund manager founded by Singer, and for ArcelorMittal, the steel company where Mittal is the largest shareholder, declined to comment.

The cases are: Guardians of New Zealand Superannuation as manager and administrator of the New Zealand Superannuation Fund & Ors v. Novo Banco S.A., High Court of Justice, Queen’s Bench Division, Commercial Court, 15-213; and

Goldman Sachs International v. Novo Banco S.A., High Court of Justice, Queen’s Bench Division, Commercial Court, 15-215

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