Recently, the High Court of London decided the fate of almost £270 million worth of securities blocked in Sova Capital, for which Avdeev’s structure fought with the former Gazprom Neft top manager Boris Zilberminets.
On March 2, London High Court Judge Robert Miles ruled in a dispute between Russian businessman Boris Zilberminets and lawyers from Teneo Financial Advisory, which manages the investment brokerage company Sova Capital. Its main shareholder is the billionaire and founder of the Rossium Concern Roman Avdeev.
Less than a week after the start of the Russian “special operation” * in Ukraine, Sova Capital and its clients found themselves in a virtual stalemate: due to regulatory and sanctions restrictions, most of the securities were stuck on the company’s balance sheet as a dead weight. As early as March 3, Teneo representatives were appointed interim managers.
By the end of the year, they agreed to transfer part of the portfolio worth 274 million pounds (about $ 323 million) to another Avdeev company, Dominant, through which the businessman, along with another billionaire Sergei Sudarikov, owns Rossium. One of the creditors of Sova Capital, Boris Zilbermints, spoke out against it – a person with that name and surname in the past was Deputy General Director for Exploration and Production at Gazprom Neft. It was not possible to contact him. The fact that this is the same person, Forbes was confirmed by a source close to Rossium. Together with the consortium, Zilbermints entered the fray for a blocked portfolio of securities. But he lost – the High Court sided with the interim administration.
Last year, when calculating the fortune of Roman Avdeev, Forbes valued Sova Capital at $404 million. How did a multimillion-dollar international business end up on the verge of bankruptcy, and why can Avdeev’s structures still make money on it?
How Avdeev bought Sova Capital and lost control of it
Billionaire Roman Avdeev entered the investment business at the suggestion of Nikolai Katorzhnov, the former head of Otkritie Capital International Limited (OCIL), which was the core of the Otkritie group’s investment business. In June 2017, when the first signs of financial problems appeared at the FC Otkritie bank, Katorzhnov, who at that time was no longer working in the group, offered Avdeev to buy out OCIL. Avdeev agreed. It is OCIL that currently operates under the Sova Capital brand
Katorzhnov, together with the billionaire, participated in the additional issue of Rossium for 26 billion rubles, investing 10 billion rubles. With this money, OCIL was bought. Part of this amount was lent to Katorzhnov under personal guarantees by his longtime acquaintance, the main beneficiary of the Region Group, Sergey Sudarikov. Katorzhnov not only became Avdeev’s partner, but also headed the investment direction within Rossium. And Sudarikov and Avdeev announced a business merger in 2019.
The former shareholders of Otkritie received approximately $330 million for OCIL. The deal took place a week after FC Otkritie took over temporary administration on August 29, 2017. A couple of years later, claims to the deal arose from the manager of the troubled assets of Otkritie Bank Trust, but not to buyers, but to sellers. The money from the sale of OCIL, as a result of a complex scheme, was transferred to the Trend company, known for the fact that Sudarikov was once one of its co-founders. “Trust” tried to sue “Trend”, but soon, for unknown reasons, abandoned the claims.
Renamed Sova Capital, OCIL did not stay long in the structure of Rossium and soon became the direct property of Avdeev and Katorzhnov. While part of Otkritie, OCIL specialized in providing foreign clients with direct access to the Russian stock market. Sova, according to the documents of the High Court of London, was doing the same. By the beginning of 2022, Sova Capital had 72 employees in the London office and 248 more in the Moscow branch. The company managed more than 1.5 billion pounds of client assets and 50 million pounds of client money.
After the start of the “special operation” in Ukraine, the quotes of Russian securities collapsed, and the Moscow Exchange suspended trading. Cut off from liquidity and facing bankruptcy, Sova Capital was forced to go into external management. This was not an isolated case. For example, the Russian gold miner Petropavlovsk with a residence permit in the UK came under external management. It was the external administration that in 2022, through the High Court of London, coordinated the sale of the main assets of Petropavlovsk to the Ural Mining and Metallurgical Company. Teneo lawyers in the case of Sova Capital found themselves in a more difficult position. When trading on the Moscow Exchange was resumed, investors from the so-called unfriendly countries, including the UK, were not allowed to trade.
Sova Capital held 741 securities with an estimated value of approximately $585.3 million. Of this amount, almost 87% were Russian securities. It turned out to be impossible to sell them through the Moscow Exchange. The court document says that Sova Capital employees approached dozens of potential buyers of the business. Among them were Citigroup, Goldman Sachs, JP Morgan, one of the largest Russian brokers, BCS, and seven distressed debt funds. No one was interested in the dead weight of illiquid stocks and bonds. Toward the end of the year, a scheme with Dominant appeared.
How Zilbermints fought for the assets of Sova Capital
The Dominanta company used to be called MKB Capital, through which Avdeev owned Rossium, the main asset of which was the Moscow Credit Bank (MKB). In 2019, Sudarikov appeared among the co-owners through a complex scheme using mutual funds. According to the latest open data, Avdeev owned 66.7% in Dominant, Sudarikov – 33.3%.
The High Court documents say that the total amount of claims of Sova Capital’s numerous clients is 862.4 million pounds. It is unlikely that they will receive their money in full. The interim administration estimates the amount that can be obtained from the sale of unblocked assets of Sova Capital at 316.4-390.8 million pounds.
Dominanta is one of the creditors of Sova Capital with a total amount of claims of 233.2 million pounds – it received the rights of claim through assignment agreements from four unnamed clients of the company. Another company under Western sanctions has transferred claims for $20 million to Dominanta, but this assignment, the court documents say, has not yet been approved.
In the fall of 2022, the interim administration agreed with Dominanta on the following. Avdeev and Sudarikov’s company agreed to waive its creditor claims for 233.2 million pounds in exchange for transferring to it a portfolio of securities of the same value, but subject to a 15% discount, that is, only 274.4 million pounds. This is a nominal value reflecting the amount that a company that is admitted to trading on the Moscow Stock Exchange without restrictions can receive from the sale of the portfolio.
In reality, “Dominant” can make good money. If the cost of Russian bonds actually returned to the levels before February 24, 2022, then the Moscow Exchange index is another 40% lower than at the very beginning of last year. This portfolio includes 89 securities, among them bonds of the Moscow Credit Bank and OFZ. As stated in the court decision, the deal has already been approved by a government commission in Russia.
The deal was opposed by Boris Zilbermints, whose claims against Sova Capital amount to just under £20 million. Back in October 2022, he sent Teneo representatives several offers to buy Russian securities. In January 2023, after teaming up with a number of investors, Zilbermints announced the final offer. For the portfolio of securities claimed by Dominant, it is willing to pay £125m in cash and waive £20m of claims on Sova.
In the High Court of London, Zilberminets’ lawyers insisted that the interim administration of Sova Capital did not do everything possible to receive a decent reward for the blocked securities, including not entrusting this work to large Russian brokers and banks that were not sanctioned, such as Aton, BCS, Zenit or Ak Bars. In addition, Zilberminets’ lawyers argue that the deal with Dominanta violates the pari passu principle (on an equal footing): Avdeev’s company receives a portfolio of securities that it can sell at a premium, the rest of Sova Capital’s creditors cannot count on reimbursement for more than 62% of their claims .
Teneo lawyers insisted that the deal was approved by a government commission in Russia. If you agree to Zilberminets’ proposal, problems may arise. Back in December 2022, the Ministry of Finance published a number of criteria that transactions for the sale of Russian assets by foreign investors must meet: among them, consent to a payment deferral of up to two years or voluntary payment to the Russian budget of 10% of the transaction amount. Finally, the court said that 97% of independent creditors voted for the deal with Dominanta. As a result, Judge Robert Miles sided with the interim administration of Sova Capital, giving the green light to the deal with Dominanta.
What can other creditors of the company expect? According to Teneo staff calculations, the post-transaction return rate ranges from 50.3% to 62.1%. And what awaits Sova Capital itself? The interim administration does not rule out that by getting rid of a significant part of the ballast from securities in assets, Sova may become an attractive asset for an outside investor who has decided to revive the company’s business. But for now, their task is to satisfy the requirements of creditors as much as possible. Sova Capital declined to comment on future plans.