Portugal's government said on Friday it would challenge in court several high-risk hedge contracts signed by public companies and banks JPMorgan and the local unit of Spain's Santander to avoid losses for the debt-ridden state.
Treasury Secretary Maria Luiz Albuquerque said the government had managed to renegotiate some swap contracts containing "highly speculative elements" with other banks, cutting by 20 percent potential liabilities from swaps that could total 3 billion euros ($3.9 billion).
It is awaiting responses next week from three other banks, which she did not identify.
Rising debts at public companies, especially in the transport sector, have hindered Portugal's fiscal adjustment program under its EU/IMF bailout, secured in mid-2011.
The companies most exposed to heavy interest payments from the swap contracts are the Lisbon Metro and the Porto Metro.
These and several other firms took out contracts between 2003 and 2010 from international banks, including Credit Suisse , Deutsche Bank , BBVA , and Merrill Lynch , and local lenders, to protect against any rise in Euribor interest rates.
The move backfired as Euribor rates slumped in the past few years, exacerbating the debts of the companies which are owned by the state or regional authorities.
"It was not possible to reach an agreement with Santander Totta and JPMorgan, so the state will proceed to defend its interests by resorting to competent courts," Albuquerque said, without saying how much the swaps were worth.
"Three other banks requested the first few days of next week to ponder on accepting the terms of the proposal made to them," she added, without giving further details.
The contracts already renegotiated will save public companies and the state 170 million euros in interest and around 600 million in potential liabilities.
The government will send all its findings to the Prosecutor General's office, which will decide whether to open criminal cases against managers who signed the deals. ($1 = 0.7676 euros)
(Reporting by Andrei Khalip; editing by Andrew Roche)