Trading and Recovery of Distressed Emerging Markets Trade Debt.

"The most beautiful flowers grow nearest the edge of the cliff." These are survival skills you should learn, to gather them with the least risk.

The quote above, an analogy for the relationship between risk and reward, came from an adventurous Dutch banker. His is not a happy story; he eventually wandered too close to the precipice and vanished, with his bank, over the edge.

Everyone who does business with buyers in emerging markets often finds himself more or less at the edge of a similar cliff. Most of us have invested substantially in survival gear: taking collateral, credit and political risk insurance, etc.

Unfortunately, even with this impressive array of equipment, one cannot entirely rule out the possibility of an occasional mishap. It is interesting to note that, as a general rule, not nearly as much is invested in developing contingency plans to be used when things go seriously wrong.

This article intends to identify the tools that can help you to salvage what you can once a promising transaction with a buyer in an emerging market country has resulted in a loss/default. Just as important, it stresses the importance of factoring potential recovery options into the risk equation when structuring new transactions.

The first question one needs to ask in a default situation is "What caused this?" The possible causes can be divided into two general categories, "can't pay" and ''won't pay":

In the case of "won't pay," we often see the debtor claiming that goods or services delivered did not meet specifications.