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TRADE FINANCE IN RUSSIA
Overview
The total value of Russia’s foreign trade in 2001 was $142 billion according to the State Customs Committee. Obviously, this volume of trade generates ample trade finance opportunities. The size of Russian banks, small by Western standards, and their high interest rates result in demand from local exporters and importers for less expensive western capital. However, from both a commercial and legal standpoint, Russia remains a high-risk environment for trade finance products.
As is common in many other emerging markets, the legal system of Russia imposes stringent currency exchange controls upon its residents. A limited number of transactions (e.g., payments for exports or imports of goods, including those involving commercial credits of up to 90 days) may be carried out without a license from the Bank of Russia.
Pre-Export Loans
In this legal environment, pre-export loans, secured by export receivables, remain a major tool for financing Russian commodity exports. A typical pre-export finance transaction would involve a syndicate of banks, the borrower (either a producer or its affiliate), an off-shore trading company controlled by the borrower, and final off-taker(s). A 180-day limitation on the term of loans that may be obtained without a currency license has recently been lifted; however, financings are still affected by the requirement that export proceeds be repatriated and partially sold for Rubles in the local currency market.
Factoring and Forfeiting
The use of factoring and forfeiting as export finance vehicles is also hindered by currency regulations. The Bank of Russia has traditionally viewed an assignment of export receivables as a transaction involving the movement of capital and, thus, a licensable transaction. Similarly, a forfeiting structure requires a Russian exporter to obtain a license for receiving and endorsing a foreign currency-denominated note.
Letter of Credit
Import finance is primarily based on financings provided by Russian banks. Sometimes a financing takes the form of a letter of credit facility, whereby a western advising bank defers reimbursement from a Russian issuing bank, with recourse against a policy from a western export credit agency. Given the immaturity of Russian commercial legislation and unclear prospects of enforcement through Russian courts, western financiers are normally reluctant to take the direct credit risk of a Russian importer in substantial amounts relying solely on collateral that is located in Russia. The absence of registration systems for most types of collateral as well as controversial laws on security interests often detract from the value and effectiveness of security in Russia generally.
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