LC ISSUED BY SUDANESE BANK

QUERY FROM PRAKASH

I've some confusion and non-transparency in the letter of credit I've received. Can someone pls. help to clear the process.

I've received an L/c from Sudan. The receiver of this L/c is a paris based bank. The Sudan based bank has mentioned in Cl. 41a … with…by … a paris based bank. The sudan based bank does not have an correspondent bank in India. The Confirmation instruction Cl. 49 states 'confirm'. Cl. 78 states that the paris based bank is authorised to debit their account with them after 5 working days.

My banker is an india based bank. I want to negotiate the L/c in India. The L/c also states that original documents will go to Sudan based bank. My queries are:

1) I want to confirm this L/c due to the country from which the l/c originates.
2) In that case, should I confirm this l/c from paris based bank ? Will a paris based bank confirm an l/c from an indian client ? 3) How will the process of documents sending and payment receiving work ?

Normally , if the confirming bank was based in India, I would negotiate this l/c with the l/c confirming bank and this bank would have sent the documents to the l/c opening bank , after receiving the payment for the l/c. In this case, The l/c is confirmed and restricted to be negotiated by a bank in Paris , but the documents will go directly to Sudan. How will we receive the payment from paris without the paris bank receiving the documents. Or is it that since the l/c receiver is paris based bank, this instruction of sending documents directly to sudan based bank is for the paris based bank. – Prakash.

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COMMENT FROM MR. OLD MAN

Hi Prakash,

Please arrange with the applicant to have the LC amended as follows:

# LC is to be confirmed by the advising bank (which is your bank in India).
# LC is available with confirming bank by negotiation.
# The issuing bank is requested to nominate a reimbursing bank which is prepared to issue its reimbursement undertaking, in accordance with URR 725 Article 9, to the claiming bank, i.e. confirming negotiating bank. I think your bank will be ready to add its confirmation to the LC if the nominated reimbursing bank (possibly Paris based bank) is a reliable and creditworthy bank.

The above solution, which is easy to be accepted by both the issuing bank and the confirming bank, may help guarantee your payment so long as the documents presented are complying.

Best regards,
Nguyen Huu Duc

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COMMENT FROM FRAMMI

Objections!

Dear Huu Duc,

Nice to see you're back again.

However, this time, I do not agree with your sight.

Prakash already stated that the Sudanese Bank doesn't hold correspondent relationships with Indian banks. A reimbursement arrangement would not serve as collateral and the Indian bank would have no security for a confirmation.

A valid reimbursement arrangement would not mean that payment will be effected if no funds are available on the account of that Sudanese Bank held with the Paris reimbursement bank.

The only way would be to demand the Sudaneses Bank's funding on a deposit account with that Indian Bank, where the Sudanese Bank might not be too happy with.

-Each long journey starts with a small step-

Best regards

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MR. OLD MAN'S RESPONSE TO FRAMMI

Reimbursement undertaking

Dear Frammi,

Thanks for your welcoming me back. Although having been attacked by scums in these recent days, www.letterofcreditforum.com still remains to be one of my favourite forums. It is my honour to occassionally join the forum and read your comments.

With regards to my comment to Prakash’s query, I would like to say that I do not mean my solution is the best for the scenario but I hope that it would be the one that is easy to be accepted by the issuing bank and the confirming bank.

A reimbursing bank is IRREVOCABLY BOUND TO HONOUR A REIMBURSEMENT CLAIM as of the time it issues the reimbursement undertaking (URR 725 Article 9.g). I do think the beneficiary’s bank is prepared to add its confirmation to the LC issued by the Sudanese bank if it receives a reimbursement undertaking issued by a reliable and creditworthy bank.

Whether or not such a reliable and creditworthy bank is prepared to issue its reimbursement undertaking depends on the agreement between the would – be – reimbursing bank and the Sudanese bank.

It seems that you have misunderstood my intention when saying that a valid reimbursement arrangement would not mean that payment will be effected if no funds are available on the account of that Sudanese Bank held with the Paris reimbursement bank.

As said once having issued its reimbursement undertaking, the reimbursing bank must honour whether or not funds are available in the Sudanese bank’s account with the reimburing bank.

Best regards,
Nguyen Huu Duc

P/s: It is recommended to read URR 725 Article 9 again.

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FRAMMI'S RESPONSE

Dear Huu Duc,

I missed to focus on that special article.

However, especially when dealing with less well rated states like Sudan, I made the experience that often no such hard reimbursement confirmations are given, but just softly worded nine-weather-confirmations like "We herewith confirm that we will …… provided that sufficient funds are maintained …."
Anyhow, as I don't use the URR 725 too often, I really should read them all over again.

-Each long journey starts with a small step-

Best regards
Frammi …