Bank Guarantees support Commodity Trading in Bulk

Bank Guarantees support Commodity Trading in Bulk

How to issue an SBLC to your commodities seller on a back to back basis!

There are many situations in which bank guarantee instruments are used and very helpful. A bank guarantee instrument can be sent by a collateral provider to the client’s own bank to directly trigger cash from a loan, and with this liquidity for the beneficiary. Or it can be sent to a monetizer or funder.

But it can also be used in back to back transactions at a client’s own bank to facilitate large or long term commodity transactions. Clients in the Oil and Gas industry or engaged in trading of agricultural commodities use such instruments to secure prices and annual contracts. If for any reason, the trader’s own bank does not issue an instrument for the importer to be sent to an exporter of refined or crude oil, cement, sugar, wheat or any other commodity, then a back to back transaction can be the solution.

On the basis of the (initial) bank guarantee instrument sent to the buyer’s own bank in the form of a Bank Guarantee or Standby Letter of Credit (SBLC), the receiving bank can issue its own fully cash backed, divisible and assignable BG or SBLC instrument for the client to any supplier, anywhere.

• Letters of credit are also financial promises on behalf of one party in a transaction and are especially significant in international trade.
• Bank guarantees are often used in real estate contracts and infrastructure projects, while letters of credit are primarily used in global transactions.

So if a client needs to secure a shipment through a financial instrument, the guarantee instrument can be sent directly to the supplier if the supplier is a part of the borrowing and lending transaction and complies with the lending terms. If such a Joint Venture between the seller and the buyer is not an option, the fully cash backed, divisible and assignable financial instrument can be sent to the buyer’s own bank on the regular borrowing and lending terms, and his bank will then issue an instrument on a back to back basis, to the seller’s bank, and this second guarantee instrument can even be without any conditions or restrictions.

A quick summary:
1. If there is a need to guarantee for your commodity trading, a BG or SBLC can be sent either directly to an exporter or supplier.
2. A second, back to back instrument can be issued to a seller on the back of the initial instrument sent to a buyer’s own bank and this second instrument sent to the seller can be unrestricted and without conditions.
3. An applicant will have to be of basic financial substance.
4. The receiving bank of the instrument will have to be prepared to issue or endorse a payment instrument for the borrowing and lending fees.
5. The receiving bank will have to confirm that it will return the financial instrument 15 days prior maturity, in case the service is not renewed on time.
6. If such confirmation is not available, the client can purchase a bond to compensate the potential risk of lending valid collateral.
7. If the receiving bank of the first instrument is not the client’s own bank, the seller, funder, or monetizer will have to become contractual partner of the borrowing and lending transaction.

We prefer to work with qualified clients. Chances to materialize a transaction can be very high. If you would like to discuss any of these options for your immediate business, please use the reply form, or call 00353860325153

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