March 23, 2023

Navigating Sanctions: Sova Capital Seeks Court Approval to Sell Illiquid Assets Amidst Geopolitical Tensions

Russian asset owners have faced numerous challenges in navigating the war-related sanctions imposed on them in 2022 by Western governments in response to their invasion of Ukraine. The impact of these sanctions has been severe, with many Russian-owned businesses abroad finding it difficult to operate or sell their assets.

One such example is Sova Capital, a London-based brokerage firm controlled by Roman Avdeev, which has now collapsed.

Sova Capital Seeks UK Court Approval to Sell Illiquid Assets

Sova Capital is seeking court approval in the UK to sell a section of its illiquid assets to address this issue. This move is part of a bigger effort by Russian asset owners to offload assets that have become difficult to sell or maintain in the current geopolitical environment.

The legal maneuverings involve a credit claim against the broker of over $280 million, which Avdeev is willing to swap for a discounted price while simultaneously purchasing the Russian securities. The action is seen as an attempt to unlock the value of the securities currently trapped inside Sova.

While Avdeev is not subject to the sanctions, he has not been available for questioning and does not have permission to comment on the proceedings. However, Mark Philips, one of the lawyers involved in the case, explains that the Russian securities were part of Sova’s efforts to offer investors global access to the Russian markets.

Still, the company’s collapse has left investors with few options for recovery. Despite efforts to sell off some of the securities, Sova Capital needed to garner sufficient interest from major players in the finance industry, including Goldman Sachs and JP Morgan.

According to Mark Philips, the lack of interest from these parties may be due to the stigma associated with Russian investments amidst the ongoing sanctions and concerns about illiquidity and other risks.

Russian financial institutions may have been the most likely buyers of these securities, but they, too, were under growing pressure from the same sanctions. With the challenging economic and political climate surrounding Russian investments, it is no surprise that selling these securities has proven difficult.

Legal Obstacles

In the face of these legal and financial obstacles, the path forward for Sova and its creditors remains uncertain. Moreover, Boris Zilbermints’ objection to the court, citing legal concerns over the proposed transaction, could further complicate the situation. The potential rejection of the transaction could result in a prolonged legal battle over the future of Sova’s assets.

Moreover, the ongoing impact of the 2022 sanctions on Russian-owned assets abroad and the finance industry continues to create a challenging business environment. As Paul Feldberg noted, it may be necessary for those affected to adjust and live with the rules under these sanctions for the foreseeable future.

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