SETTLING  USSR TRADE  DEBT

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**July 1997**
by Matthew Edwards
When the Soviet Union collapsed in 1991, many Soviet state-owned foreign trade organizations(FTOs)--previously reliable customers--defaulted on uninsured credit purchases of goods orservices from Western suppliers.  As a result, from 1991-1995, the U.S. Department ofCommerce received reports from more than 50 U.S. companies owed a total of over $200 millionby former Soviet FTOs (out of an estimated $7 billion of such arrears owed to firmsworldwide).
Russia formally assumed responsibility for most Soviet trade debt in October 1994 and advisedprivate-sector creditors to form national "trade creditor groups" (TCGs) in order to negotiate thesettlement of claims associated with this debt.  TCGs were organized in 11 European countriesand in Japan.  Some U.S. creditors considered this approach, but ultimately were unable to agreeon formation of an American TCG.  Representatives of the 12 TCGs negotiated rescheduling ofuninsured trade debts, culminating in a December 1996 agreement.  While some smallercompanies may consider the terms of this settlement too lengthy, several U.S. firms have chosento pursue their claims through the Forum of Trade Creditor Groups, and  it still may be a viableoption for some.
Companies holding USSR trade debt have attempted to settle claims in several ways.  Underterms of the December 1996 agreement, well-documented smaller claims (i.e., under $75,000 andnot resulting from sale of a stake in a larger claim) may be purchased for cash by the RussianFinance Ministry or its authorized bank, at the prevailing market price for eligible debt.  Othercompanies have attempted, with mixed results, to settle larger claims by negotiating directly withthe Russian Government.  The Finance Ministry's Department for International Creditand External Debt is responsible for such negotiations.  According to anecdotal reports,negotiated settlements of Soviet FTO debt have returned between 19 and 50 cents per dollar ofdebt for successful creditors.
Rather than negotiate with the Russian Government, many creditors have opted to sell theirclaims to firms that purchase debt on secondary markets.  Reportedly, companies have sold claimsin this way at prices ranging from 80 cents per dollar for large, well-documented claims, to aslittle as 8 cents per dollar.  Creditors weighing this option should shop around when choosing abuyer for USSR trade debt, since prices vary with time and according to the size of the claim andthe strength of supporting documentation.  In general, market prices for Russian FTO debt haverisen since late 1996, when Russia received a better-than-expected report from global creditagencies and when the TCG accord was announced.
Firms holding Soviet-era trade claims have several options, which they should consider carefully. 
*The Department of Commerce does not endorse any particular settlement option, butprovides the following information to assist U.S. creditors, based on the best informationavailable to the Department.  For more information on  the Forum of Trade Creditor Groups,which is coordinated by  Deutsche Morgan Grenfell, contact Mr. Ken Thomas in London, at011 44 (171) 545-8000 (voice).  For information on secondary markets, contact Mr. RobertSmith of Turan Corp., at 617-439-7614 (fax); Ms. Leisa Little of  Lazard Bros., at 212-632-6673(voice); Mr. Dmitri Efimov of Bank of America, at 212-836-5206 (voice); or Mr. AlexKirzhnev of New Alliance Corp., at 203-695-7000 (voice).  To pursue claims directly with theRussian Government, contact the Economic Section of the Russian Embassy in Washington,D.C., at 202-298-5741 (voice), or the Russian Ministry of Finance (Mr. Alexei Smirnov) at 011-7-095- 921-0642 (voice).
Matthew Edwards is Senior Russia Desk Officer for the Market Access and Compliance unit ofthe International Trade Administration.  Desk Officer Inga Litvinsky also contributed to thisarticle.
***This report is provided courtesy of the Business Information Service for the NewlyIndependent States (BISNIS)****