Russian Banker’s London Broker Faces Collapse on Russia Ties

(Bloomberg) -- Sova Capital Limited, a London-based broker owned by banker Roman Avdeev, is facing collapse due to “severe liquidity problems,” the latest sign of the turmoil sweeping businesses with ties to Russia.

Sova should enter special administration, a form of insolvency that means the administrator ensures there is minimal disruption to financial markets as a result of a firm's collapse, a London judge ruled Thursday. Sova is an independent brokerage and investment bank with a focus on emerging markets.

Lawyers for Sova said at the hearing that the company, which has more than 1.5 billion pounds of client assets ($2 billion) and 50 million pounds of client money, is unable to pay its debts and has “significant exposure to Russian interests.” The firm was prevented from receiving a “substantial cash injection” from its shareholders due to sanctions on Russian financial institutions, attorney Mark Phillips said in a separate legal filing.

Sova Capital offers a broad range of investment banking services, trading in everything from stocks and bonds to commodities and foreign exchange. At the end of 2020, the firm had total assets on the balance sheet of its U.K. business of $2.59 billion, of which cash and cash equivalents made up $596 million, according to its annual report. Client deposits held in segregated accounts totaled $69 million, according to the filing.

The firm bought out a minority shareholder with a 9.9% stake for $40m, putting the valuation of the company as recently as 2021 at $400m.

While neither Sova or Avdeev have been sanctioned by the U.K., the developments reflect the broader impacts those policies are having on Russia-linked firms after Vladimir Putin's invasion of Ukraine. The movement of money between Russia and the U.K. has been made harder by international sanctions, particularly after Russia was cut out of the SWIFT system.

Lawyers for the firm said in the filing that Sova suffered “severe liquidity problems” since Russia's invasion of Ukraine last week. Funding lines from Russian counterparties have been reduced and its trades on Moscow's exchange can't be cleared.

Sova Capital said in a statement on its website that the administrators “will assist in the process of helping Sova Capital manage this difficult situation and fulfill its commitments to clients and counterparties.” Teneo has been appointed as the administrator.

Sova, which used to be called Otkritie Capital International Limited, has a large presence in Russia and was based there before moving its headquarters to London in 2015, according to the firm's website. The firm also has a subsidiary in Cyprus.

Avdeev's Concern Rossium bought Otkritie in 2018, having made his fortune by buying the Credit Bank of Moscow in 1994, when it had little more than a banking license. He is the owner of at least 75% of the company's shares, according to U.K.'s Companies House.