Letter Of Credit In Thailand

[importford]

My wife has a company in Thailand.

We exported already 3 containers of recycled plastic from Thailand.

We have a credit line with the import and export bank in Thailand for the L/C that our clients opened.

Now we have a big order from a client in Europe.

The order is so big that we have to order in China in order to supply our client.

Our client will open an irrevocable, confirmed L/C, issued by Prime World Bank in our favor.

But the amount is too big for our credit line with the Import export bank in Thailand.

I Think we have to do a back to back L/C with a Bank here in Thailand.

Do you know what bank will do this and how much will they charge?

[Maestro]

Our client will open an irrevocable, confirmed L/C, issued by Prime World Bank in our favor...

I Think we have to do a back to back L/C with a Bank here in Thailand.

Do you know what bank will do this and how much will they charge?

“confirmed L/C” means that the negotiating bank in Thailand will add its confirmation. The Thai bank will pay you even if it cannot collect from the foreign bank.

Step 1: Ask your European client to ask his bank, the Prime World Bank (never heard of this bank), which bank in Thailand the Prime World Bank uses as its correspondent bank in Thailand.

Step 2: When you get the name of the correspondent bank in Thailand, ask this bank if it will add its confirmation to an L/C issued by the Prime World Bank.

In the meantime, make no financial commitments, order nothing from China, based on that promise of an irrevocable and confirmed L/C issued by Prime World Bank until you have that L/C in you hands. I suspect a possible attempt at fraud.

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Maestro

[p_brownstone]

Our client will open an irrevocable, confirmed L/C, issued by Prime World Bank in our favor...

I Think we have to do a back to back L/C with a Bank here in Thailand.

Do you know what bank will do this and how much will they charge?

“confirmed L/C” means that the negotiating bank in Thailand will add its confirmation. The Thai bank will pay you even if it cannot collect from the foreign bank.

Step 1: Ask your European client to ask his bank, the Prime World Bank (never heard of this bank), which bank in Thailand the Prime World Bank uses as its correspondent bank in Thailand.

Step 2: When you get the name of the correspondent bank in Thailand, ask this bank if it will add its confirmation to an L/C issued by the Prime World Bank.

In the meantime, make no financial commitments, order nothing from China, based on that promise of an irrevocable and confirmed L/C issued by Prime World Bank until you have that L/C in you hands. I suspect a possible attempt at fraud.

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Maestro

I don't think that's what the OP is asking Maestro.

He wants to use the Confirmned Irrevocable Letter of Credit he gets from his Customer in Europe as Security to open another Letter of Credit to his Supplier in China.

I am not aware of any Bank which will do this in Thailand, and I am fairly sure no Bank will allow you to walk in and conduct this transaction "cold" as it were, you would have to have a previous history with the Bank - and even then they usually insist that you keep all transactions within the Credit Limit they have already given you, and for which they have physical Security in Thailand - House, Land or other Assets.

Patrick

[importford]

Patrick, you are spot on,

That is indeed the problem I have here in Thailand.

In Europe, you will have no problem to make a back to back L/C with a bank,

especially when it is a confirmed L/C issued by a Prime World Bank (For example HSBC, ABNAMRO,...).

But Thai Banks don't do this although when a Prime world bank gives them a confirmed L/C, they are 100% sure that they will collect the money from the Bank of my client.

Still Thai banks don't want to open a back to back L/C and use the L/C as a security, which is in fact a 100% confirmed security issued by a Prime World Bank!!!!!!!

I don't understand why Thai banks don't do this. It is 100% secure for them. I negotiated hard with my clients to obtain this kind of L/C, normally in Europe my bank would be extremely happy with this kind of L/C, but the Thai banks over here??????

[Old Man River]

Patrick, you are spot on,

That is indeed the problem I have here in Thailand.

In Europe, you will have no problem to make a back to back L/C with a bank,

especially when it is a confirmed L/C issued by a Prime World Bank (For example HSBC, ABNAMRO,...).

But Thai Banks don't do this although when a Prime world bank gives them a confirmed L/C, they are 100% sure that they will collect the money from the Bank of my client.

Still Thai banks don't want to open a back to back L/C and use the L/C as a security, which is in fact a 100% confirmed security issued by a Prime World Bank!!!!!!!

I don't understand why Thai banks don't do this. It is 100% secure for them. I negotiated hard with my clients to obtain this kind of L/C, normally in Europe my bank would be extremely happy with this kind of L/C, but the Thai banks over here??????

This is hard to explain to someone without offending them and that is not my intention.

The way it works with a confirmed L/C is that the Thai bank would only be paid if they can present the shipping documents to the European bank once your company has shipped the goods to Europe. This is a totally separate transaction from the Chinese transaction. Therefore, if the Thai bank pays the Chinese bank on the first leg of the transaction and for some reason your company cannot perform the second leg (even if it is beyond your control), the Thai bank will not be able to draft on the European L/C. Hence, a bank won't issue a back to back L/C unless they know their customer well (your company) and you show the ability to pay if, for some reason, shipment to Europe doesn't take place.

The confirmation only guarantees that the prime European bank will make the payment if the issuing European bank doesn't. No payment by any bank in Europe will be owed if for some reason you can't produce valid shipping documents to the bank in Europe.

The only way around this, and few want to do this, is for the European bank to issue a transferable L/C. You would get the L/C and that would be assigned over to the Chinese bank. The problem with this is that the Chinese customer learns who your customer is, and they may well bypass you and deal directly with your European customer.

By the way, your predicament is not uncommon. To do the deal, you have to get a local bank comfortable that you can repay them if something happens where you cannot ship. I know, it is not easy and very frustrating.

[Maestro]

I don't think that's what the OP is asking Maestro.

The capital letters in “Prime World Bank” had me fooled.

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Maestro

[A_Traveller]

The ongoing issue here is simply one of risk. Also from a European perspective you seem to be describing a Bank Guarantee, rather than a SBLC or L/C. In most cases here a bank will not enter into a L/C transaction. Indeed a BG may be the only way that the local institution will be able to work unless the banks involved are US and they have a correspondent relationship with them. They do use these documents as a matter of course, but as is always the case they will only enter into a transaction if they have a positive view of the client. {History etc.} One common problem is the too rapid growth issue and the truth that banks have been subject to loss owing to spurious transactions.

Please note that functionally a BG and a L/C are identical but are structured differently. In many cases the client may not even know they are using a BG process. This is mainly because under US law, US credit institutions are forbidden from assuming guarantee obligations vis-à-vis third parties.

The OP might find the very descriptive UBS site worth a visit to explore options. http://www.ubs.com/1/e/ubs_ch/bb_ch/financ...nkgarantie.html

By the by, like others, the term World Prime Bank caused me to flinch as well.

Regards