London Firm picks up Russian clients in the midst of war

Bloomberg Article

Two-Man London Firm Scoops Up Russia Work Dumped by Big Banks

i2 becomes debt-market middleman for Gazprom, Polyus, Lukoil

Limerick-based firm takes up discarded shell companies

16 September 2022 at 16:54 GMT+5:30

Beaming from behind laptops in the shadows of a lounge bar, Sanjay Jobanputra and Mark Brescacin strike a casual pose in the sole photo on an Instagram account linked to their company.

The former employees of BNY Mellon and advisory firm D.F. King are the founders of London–based firm i2 Capital Markets Ltd. You might not guess it from the informal snapshot and i2’s bare corporate website, but this summer they quietly took over the role of debt-market middlemen to the biggest companies in Russia.

As providers of trust services, they’re responsible for playing intermediary between the Russian companies that issue bonds abroad and the investors who hold them, making sure payments are made, bond terms are adhered to, and votes go ahead on any changes to documentation. It’s an unglamorous yet vital capital-market cog.

The work, which covers about $25 billion of bonds sold before Russian President Vladimir Putin’s February invasion of Ukraine, was discarded by established bond service providers like BNY Mellon, Deutsche Bank AG and Citigroup Inc. after the war broke out. The big players largely follow European Union and US sanctions, which bar trustees from doing business with Russian companies. The UK hasn’t yet followed suit on implementing that restriction, opening up a lucrative opportunity for anyone willing to stomach the risks.

“You’d always expect someone to fill the gap,” said Alper Kara, a finance professor at the University of Huddersfield, UK. “It seems the larger trustees may think that sanctions and being attached to the Russian market may dent their reputation so they’re backing off.”

i2's Flourishing Business

London firm got trustee roles dropped by big banks

Note: Some trustee appointments still need to be approved by bondholders. Data as of Sept. 16.

It’s a sign of the chaos created by Putin’s war that the work is being conducted by tiny companies. Some of the world’s biggest money managers still hold Russian corporate debt either because they can’t find a buyer due to sanctions or they don’t want to take the hit from selling at a loss.

Previous work undertaken by i2, which was founded in 2016, has included acting as tabulation agent in Libor transactions. They were also an administration agent in a share-pledge deal for Mindgeek Sarl, owner of adult content platform Pornhub, according to filings. Now their client roster reads like a who’s who of Russia Inc., including natural-gas giant Gazprom PJSC, the country’s biggest private oil company Lukoil PJSC, and fertilizer-maker PhosAgro PJSC.

The company’s registered address is a basement of a red-brick office block just north of London’s financial center, but administrative staff in the building said the address is mostly used for incoming mail. Previous addresses include various residential properties around London and the neighboring county of Kent.

Brescacin declined to comment on transactions with Russian firms, citing client confidentiality. The company isn’t involved directly with Mindgeek or Pornhub, he said. Shortly after Bloomberg spoke to Brescacin, a list of deals with Russian clients was removed from public view on the firm’s website and photos of the founders were taken down.

Russian companies doing business with i2 didn’t respond to questions about how they were introduced to the firm. Mindgeek representatives didn’t respond to emails and calls seeking comment on the share pledge agreement.

Russian corporations with foreign debt also rely on companies to provide directors and accounts for the special-purpose vehicles set up to sell the bonds. A tiny Limerick, Ireland-based firm called Chern & Co has scooped up the contracts for those shell companies after they were ditched by service providers Cafico International, Vistra Group and TMF group earlier this year.

Chern & Co is run by Alex Chernenko, a native of the Ukrainian port-city of Odessa, who also runs a translation company called Translit, which has been offering free translation help to Ukrainian refugees. Cherneko didn’t respond to multiple requests for comment.

The work of both companies could be short lived if sanctions are extended. The UK has said it will bar trustees from doing business with Russian companies, though it’s not clear when and how that will impact outstanding debt. The Foreign, Commonwealth and Development Office didn’t respond to a request for more information.

And while the roles are largely passive, sanctions have made the job more complex. A consent solicitation prepared by i2 for Polyus PJSC, Russia’s largest gold miner, proposed amendments that allow direct transfers to Russian investors, and the use of rubles instead of dollars for payments when servicing the company’s $2 billion of bonds. In addition, the tweaks let the issuer buy back Russian holders’ bonds at a discount and cancel them, as well as extending the grace period before default.

There’s no reason why companies shouldn’t fulfill this gap in the market if it doesn’t go against sanctions, according to Frank Flanagan, who specializes in commercial litigation as a partner at Dublin-based law firm Mason Hayes & Curran LLP. However, it has to be done “on foot of painstaking due diligence and carefully considered and detailed legal advice,” he said.

— With assistance by Yuliya Fedorinova, and Philippe Roubert