The term “leasing” of a Bank Guarantee (BG) or Standby Letter of Credit (SBLC) is widely used but is a misnomer as there is no reference to a lease in the contract between a Provider and client. What is meant is that the client has the unrestricted ownership of the bank instrument for a period of 1 year (but has to return it to the issuing bank before expiry).
As far as the receiving (monetising) bank is concerned, the BG/ SBLC is cash backed and is delivered to the beneficiary account for which a loan or credit line is granted.
The Provider agrees to use his assets for the benefit of a third party, the Beneficiary. This is achieved through a Collateral Transfer Agreement whereby the Provider pledges assets to the the issuing bank and instructs the issue of a Bank Guarantee or Standby Letter of Credit to the Beneficiary and his receiving bank. The underlying assets pledged to the issuing Bank may be in the form of cash, bonds, stocks, gold or other assets.
A Provider receives the assets in the main through private funds set up for the purpose, or from hedge funds, pension funds or high net worth individuals. Providers are able to offer investors good returns on non-liquid assets (e.g. valuable artworks, gemstones, real estate etc) by offering Collateral Transfer facilities.
The contract between the Provider and Beneficiary for the given term binds the Beneficiary to accept the terms of the issue of the BG/ SBLC and to pay a service charge to the Provider for its use.
We are able to arrange the issue of a Bank Guarantee or Standby Letter of Credit from a top 20 world bank for a term of 1 year. The minimum value is US$ 100 million and the cost quoted will depend upon the value required but typically ranges between 8.0% – 13.0%. This fee is paid directly to the bank instrument provider and our company only charges a small fee of 0.25% – 0.5% on successful issuance.