Dear sir,
We have received a letter of credit which has the following clause
'a performance guarantee issued in favor of the issuing bank is to send to to us within 15 days and a copy of it is to presented at the time of negotiation'
We found this total confusing. Is this lc workable?
LC calls for performance guarantee
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cristiand969
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Dear jabra
Usually, a performance guarantee under LC is to cover the good performance of services after an equipment has been delivered or part of the contract is payable under LC. And such a performance guarantee is usually to be issued by order of LC beneficiary f/o LC applicant. My best quess it that issuaing bank gave applicant a credit line facility against LC issuance and seek to cover wherever it can (in your case from bank quarantee) otherwise cannot see it as beneficiary of such guarantee .However you have a tricky situation here were a performance guarantee is issued before any LC utilization you even don't know whether or not credit will be utilized before expiry while guarantee is executed.
To overcome such situation I suggest you to issue the guarantee in the form required but to add within its content. This bank guarantee enter into force upon full payment under LC no... has been effected. Then ...puff... you catched issuing bank
Unless the credit has entering into force prevention clause, this guarantee will be subject to check within LC under art 14 f
To overcome such situation I suggest you to issue the guarantee in the form required but to add within its content. This bank guarantee enter into force upon full payment under LC no... has been effected. Then ...puff... you catched issuing bank
Unless the credit has entering into force prevention clause, this guarantee will be subject to check within LC under art 14 f
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ajoy
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cristiand969, Jabra
Hi
Does not make much sense does it?
Why a performance guarantee in favour of Issing bank? What kind of performance is being guaranteed here by bene of LC to IB??? If IB is bene of guarantee they alone can claim against it right ? Question again is under what circumstances can they claim ? how will this protect them if as cristian says they are trying to cover against the risk of issuing the Lc in the first place..? Remember they dont use the goods/services under the LC
Or Is the IB issuing the LC on its own behalf?
Unless IB is asking for a counter guarantee against which the Issuing bank will then issue a performance guarantee favouring the applicant of LC. If so then it is doable. I would check with the bene what does thier contract with applicant say? Or just ask the IB for clarification?
Cristain,
Cant guess how IB would be able to cover the risk of issuing this LC through a performance guarantee as you guess? But I guess we are all guessing here.
Do like your idea for ' catching the IB ' though... nice one.
Cheers
Ajoy
Does not make much sense does it?
Why a performance guarantee in favour of Issing bank? What kind of performance is being guaranteed here by bene of LC to IB??? If IB is bene of guarantee they alone can claim against it right ? Question again is under what circumstances can they claim ? how will this protect them if as cristian says they are trying to cover against the risk of issuing the Lc in the first place..? Remember they dont use the goods/services under the LC
Or Is the IB issuing the LC on its own behalf?
Unless IB is asking for a counter guarantee against which the Issuing bank will then issue a performance guarantee favouring the applicant of LC. If so then it is doable. I would check with the bene what does thier contract with applicant say? Or just ask the IB for clarification?
Cristain,
Cant guess how IB would be able to cover the risk of issuing this LC through a performance guarantee as you guess? But I guess we are all guessing here.
Do like your idea for ' catching the IB ' though... nice one.
Cheers
Ajoy