Ben Aris in Moscow -

The beauty of the free-market system is that if it collapses, then there's usually a of lot of money to be made from the ensuing mess. And making lots of money is the fastest way to fuel a recovery.

The 2008 global economic crisis was a boon for companies like Exotix, a fast growing brokerage that is targeting frontier markets and deals in, amongst other things, distressed debt.

Operating in markets around the world, the company has been very active in the former Soviet bloc over the last two years and found the ground very uneven: all the countries in the region were hurt, but their ability to bounce back varied enormously.

Different strokes

Kazakhstan's banking sector was probably hardest hit of all the countries in the region and came close to destruction, only being saved from total meltdown by a $4bn bailout from the state. Exotix was heavily involved with some of the most dramatic stories and a big investor into the restructuring of BTA Bank and Alliance Bank, previously two of the country's four biggest bank, both of which were eventually nationalised.

The assets of Kazakh banks had been growing by over 200% a year for several years and most borrowed heavily on the international debt markets. Despite the problems, there were always hedge funds willing to buy these banks' debt - if the price was right - even as the sector began to stabilize. "Post the restructuring of the Kazakh banks, some original holders are still looking to exit and we are a big player in trading Kazakh banks' bonds that came out of the restructuring," says Andre Andrijanovs, corporate strategist at Exotix.

Ukraine also took a drubbing in the crisis, creating lots of opportunities for outfits like Exotix, although the story there was as much about corporates as banks.

For example, the Industrial Union of Donbas (IUD) is a big steel producer, but the company had borrowed to the hilt to fund its expansion and got caught with its trousers down when the financial tsunami hit. "Ukraine's economy is highly dependent on commodities, especially steel. IUD borrowed heavily at the peak of steel prices and had huge debts when the cycle turned," says Andrijanovs.

"Most of the Ukrainian corporates and banks were forced to restructure their debt in 2009 and 2010, as they could not refinance," explains Andrijanovs. "While Ukraine's access to the debt capital market improved in the second half of 2010 as both sovereign and several tier-one corporates were able to place Eurobonds, access for second-tier corporate or companies without credit history in the international market continue to have difficulties placing debt at lower rates."

In fact, the whole Ukraine story was a lot more dramatic than it had appeared during the depths of the crisis, as the former prime minister Yulia Tymoshenko, who lost the presidential election to President Viktor Yanukovych in 2010, had all but bankrupted the country during her campaign: she began 2008 promising the IMF a zero budget deficit, but ended the year as the crisis hit with a deficit in double digits, according to some reports. Yanukovych's deal with the International Monetary Fund (IMF) for a new $15bn standby loan was key to stabilising public finances. "People underestimate how insolvent the Ukrainian government was in 2008. It was on the brink and would have fallen if it had not been for the IMF money and the use of carbon credits [from several countries] to pay pensions," says Andrijanovs.

Ukraine's government was (and still is) unable to bail out its leading banks or companies in the way that the Kremlin has helped its own, but they've had a lot of help from Russian investors. Andrijanovs says that Russian banks were very opportunistic and brought a lot of money into the country during the worst of the crisis, buying up problem debts.

Still, now the crisis is passing and with commodity prices recovering on the back of strong growth in Asia, Ukraine's economy is in much better shape.

Ukraine's economic growth started to accelerate in January, pushing the current account into surplus in the first quarter, according to Valeriy Lytvytsky, head of the group of advisors to the governor of the National Bank of Ukraine (NBU). "The data on the balance of payments exceeded all expectations. The net inflow on the current account is $282m," he told Interfax-Ukraine on February 25. "The current account is seeing a surplus thanks to the acceleration of the pace of economic growth... The start [of this year] is very good, but we shouldn't relax."

Less than zero

Russia was maybe the most surprising market. The headlines told a story of an economy in freefall and a 14-percentage-point about face in GDP growth in the space of a few months. The stock market lost three-quarters of its value as investors were forced to sell shares to meet margin calls. Ideal conditions for distressed debt specialists - right?

Not in reality. "Currently, there are not a lot of distressed opportunities in Russia," says Andrijanovs. "It was different, as there was extensive restructuring and no pressure [on the debt issuer] to sell. Local banks and investors have plenty of liquidity and have been able to refinance local corporates."

That's not to say Russian banks didn't struggle, as most of them were following a "delay-and-pretend" policy of simply extending the terms of bad loans and preventing them from being classified as "bad debt." In the spring of 2009, bne met with S&P banking analyst Ekaterina Novikova, who argued that if you included "troubled debt" (the restructured debt not technically counted as bad debt), the Russian bank sector's non-performing loans were closer to 40% of total loans, not the circa 6% the central bank was reporting.

Despite the state support, Russian banks are not entirely out of the woods. Sergei Nazarov, manager of Renaissance Asset Managers' financial institutions fund, says that banks are still carrying problem debts on their books, although this is nowhere near the levels of two years ago. "The banks still have non-performing loans that are not reported as such and they are still trying to restructure them. This means trying to convert the collateral into cash. They won't take these debts on as bad loans until they have exhausted all the alternatives and that could take another two years," says Nazarov.