LONDON(Reuters) – Administrators of Sova Capital, a failed London broker that was once run by Russian banker Roman Avdeev, are trying to get permission from a UK court to sell a bunch of Russian securities to Avdeev. This is a complicated and unique way to get rid of Russian assets that are hard to sell.
A year after the start of the war, this case shows how Russian and foreign owners of assets that are almost impossible to trade because of war-related sanctions are looking for ways out.
Lawyers for Sova’s administrators, Teneo, told Britain’s High Court on Monday that Avdeev, the broker’s former controlling shareholder, plans to swap a 233 million pound ($280.30 million) creditor claim he has against Sova for a discounted purchase of its portfolio of Russian securities, which is valued in court documents at a notional 274 million pounds.
Avdeev is not facing sanctions, so his lawyers at Dominanta, the company through which he is bidding, couldn’t get in touch with him to get his opinion. They said they were not allowed to comment on the live court proceedings.
Mark Phillips, an attorney for Teneo, told the court that the portfolio of Russian stocks had become “trapped” inside Sova, which gave foreign investors access to Russian markets. It was put under special management after a lot of sanctions were put on businesses with ties to Russia last year.
Phillips said, “There is a large portfolio of Russian securities, and legal restrictions and sanctions from around the world have a big effect on it.”
Phillips said that Teneo couldn’t sell Sova’s Russian securities on the Russian exchange because of rules like Moscow’s ban on institutions from countries that have put sanctions on Russia from trading on the country’s stock market.
Teneo tried to sell the securities to Goldman Sachs (NYSE:GS), JP Morgan (NYSE:JPM), Citigroup (NYSE:C), and distressed debt investment funds last year, but they weren’t interested enough, he said.
On the other hand, Philips said that most Russian financial institutions were “subject to sanctions or asset freezes,” which severely limited the “universe of potential buyers.”
This meant that Avdeev’s offer, which was made by a company that the Russian banker controlled, was “the only other choice,” Phillips said.
Another Russian creditor of Sova filed an objection to the court, saying that Avdeev’s credit bid should not be allowed under UK insolvency laws. This made it hard for Avdeev’s plan to go through.
Boris Zilbermints, a Russian businessman, has made a competing cash offer of 125 million pounds to the administrators. He asked the court not to approve the Dominanta deal.
Zilbermints said that the proposed deal would violate creditors’ rights to equal treatment in a way that had never been done before. He asked Teneo to keep looking into the possibility of selling the Russian securities for cash, according to court documents.
When Russian stocks and bonds were free to trade, international investors were stuck with tens of billions of dollars worth of them.
Lawyers think that wealthy people and institutions will keep asking the courts for ways to get out of their investments in Russia without breaking the rules.
Paul Feldberg, a partner and sanctions expert at the law firm Jenner & Block, said, “People are going to start pushing the limits of what is legal.”
“The sanctions won’t go away, and people and institutions whose assets have been written down to nothing aren’t going to take it lying down.”
Tuesday, the hearing will go on.
(1 dollar = 0.8326 pounds)
