Britain approved the transfer of VTB's frozen assets to a special trust

At the end of May 2024 , the Office of Financial Sanctions Implementation (OFSI) of the UK Treasury adjusted the license under which the assets of the former British subsidiary of VTB, the investment bank VTB Capital, can be sold. This is stated in the report of Teneo Financial Advisory Ltd - since the spring of 2022, it has been engaged in the external management of VTB Capital, after the Russian VTB lost control over the structure due to sanctions.

According to the document, OFSI allowed the administrators to begin implementing the previously proposed scheme of settlements with creditors (Scheme of Arrangement) of VTB Capital, including with the parent bank in RUSSIA. If the mechanism is approved, then the repayment of obligations will be carried out through a special trust - Holding Period Trust (HPT), RBC wrote.

Initially, the general license INT/2022/1280876 allowed VTB Capital to conduct a limited number of financial transactions - for example, paying employees or making insurance contributions. It was adjusted and extended, but did not previously regulate a special procedure for settlements with sanctioned creditors.

VTB Capital in London specialized in investment banking and stock market trading. After blocking sanctions against parent VTB, the structure lost the ability to service external obligations and lost access to funds in correspondent accounts.

Under these conditions, the board of directors of VTB Capital decided to transfer the bank under external management to Teneo Financial Advisory. The administrators, as stated in their previous reports, must sell VTB Capital's available assets, pay off the bank's creditors and liquidate it.

The essence of Teneo's proposed scheme boils down to the following: non-sanctioned creditors will be able to receive the funds due to them directly, and sanctioned payments will be made through a special purpose trust (HPT). This structure will operate for at least 15 years, the basis for settlements from HPT will be the lifting of sanctions or obtaining a special license.

As explained in a previous report, sanctioned creditors will also be able to obtain funds and assets of the UK's VTB Capital that are stuck in the sanctioned National Settlement Depository (NSD) in Russia, or satisfy their claims against the UK company's receivables to the VTB Group.

According to the plan, the next steps to implement the scheme will be:

• July 1, 2024 - a hearing in court, which will have to allow the convening of a meeting of VTB Capital creditors on the issue of agreeing on a settlement scheme;
• in case of a positive court decision, the managers of VTB Capital will send additional documents to the creditors - a direct description of the scheme and a number of agreements that will need to be signed for its implementation;
• A meeting of creditors is scheduled for September 5, 2024, where they will discuss the scheme and have the opportunity to vote for or against it. Previous reports have noted that the scheme must be approved by a simple majority of creditors, as well as creditors who hold more than 75% of the debt;
• There will be another court hearing on September 12, 2024, at which the court will have to consider whether or not to allow the scheme if creditors approve it.

The total liabilities of the British VTB Capital exceed £800 million. The bulk of this amount - £804 million - falls on 434 final creditors (including 164 employees). A significant part is debts to VTB structures: the group’s direct claims to its subsidiary amount to £262 million, RBC wrote.

Previously, the book value of the investment bank's assets was just over £1 billion, but managers considered it possible to recover only 34.5% of this amount, or £362.5 million. By the end of 2023, Teneo Financial Advisory managed to return approximately half of this amount (£142.2 million) due to the frozen funds of VTB Capital in the Belgian depository Euroclear, money from the accounts of the liquidated Singapore division of VTB Capital, as well as through insurance replacements and the closure of a number of derivatives transactions.

Over the five months of 2024, the managers returned a further £26.22 million. Of this, £22.5 million came from funds that were frozen in accounts with Euroclear. According to Teneo Financial Advisory calculations, it is highly likely that another £17.2 million will be recovered.

The most “unpromising” assets to be returned, according to VTB Capital managers, amount to £201.3 million, of which £117 million is the intra-group debt of the former British subsidiary to parent VTB. Its return is not expected, “given the current sanctions imposed on the Russian VTB Bank and certain of its affiliates,” as well as other legal and practical enforcement obstacles in Russia,” the report concluded.

Another £45.3 million comes from funds from the National Settlement Depository (NSD). They can be distributed after agreeing on the settlement scheme, notes Teneo Financial Advisory. But these funds cannot be paid to creditors directly, but will be “held for the benefit of creditors” in the HPD trust, the report states.

To receive another £26 million from accounts in the US JPMorgan and Citi, as well as £13 million, additional licenses are needed from the US Treasury Office of Foreign Assets Control (OFAC) , the report says. These permits have not yet been received.