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Оn recovery of Yantar Cisbaltic Shipyard's bad debt to Vneshtorgbank

24 March 2004

Next day, the Arbitration Court of the Kaliningrad Region will hear to what extent Vneshtorgbank`s claims against Yantar Cisbaltic Shipyard Inc. are qualified under the insolvency proceedings brought against that company.

In view of a failure by Yantar Cisbaltic Shipyard to meet its obligations under the credit agreement entered into in 1995, Vneshtorgbank brought an action before the Arbitration Court of the Kaliningrad Region, which on 28 December 1999 awarded to recover about US$20 million of bad debts from Yantar Cisbaltic Shipyard in favour of VTB.

A Composition arrangement was entered into on 12 September 2000 between Yantar Cisbaltic Shipyard and creditors in bankruptcy (where VTB is a party too) and approved by the Arbitration Court of the Kaliningrad Region. Yantar Cisbaltic Shipyard`s indebtedness to VTB fixed in the Composition Arrangement dated of 12 September 2000ounted to over 575 million roubles.

Over the life of that Arrangement, the debtor has been dodging in repaying its debt to the bank and opted, in contravention of applicable law of the Russian Federation, to repay its debts to other creditors.

In this connection, Vneshtorgbank submitted a petition before the Arbitration Court of the Kaliningrad Region to terminate the Composition Arrangement entered into with Yantar Cisbaltic Shipyard. By a ruling the Arbitration Court of the Kaliningrad Region awarded on 15 December 2003 that Composition Arrangement was abrogated and a supervision proceeding was imposed in respect of Yantar Cisbaltic Shipyard.

Vneshtorgbank hopes that after the insolvency proceedings have been completed, the enterprise will have a real opportunity to repay in full its payables owed to budgetary and non-budgetary funds, to the bank and other creditors. Such fact, no doubt, will have a positive effect on recuperation of functionality and financial soundness of the enterprise and give a new impetus to shipbuilding development in the Kaliningrad Region.

The deadline legally established for the supervision proceeding is going to expire in the short run, and upon its expiry a meeting of creditors will be held where the administrator`s report will be considered on the situation on Yantar Cisbaltic Shipyard. Results of the meeting will be submitted to the Arbitration Court of the Kaliningrad Region to decide what can be done in respect of the Shipyard.

Understanding the significance of the business Yantar Cisbaltic Shipyard conducts for the benefit of the defence capability of the Russian Federation and economy of the Kaliningrad Region, Vneshtorgbank will make every effort to ensure business continuity, preservation of workplaces, full scale operation of Yantar Cisbaltic Shipyard as an integrated technology-intensive complex.

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