When the LC beneficiary is a “sister company” in Singapore: How can Bank V remain the presenting bank?

Intro

In international trade, it’s becoming increasingly common for exporters to restructure their transaction models through a “sister company” abroad — often to optimize payment flows or take advantage of tax and logistics benefits.

However, when a Letter of Credit (LC) is involved, this change can create uncertainty for the bank in Vietnam: can it still examine and present the documents as before, even though the official beneficiary is now the Singapore-based company?

In this Q&A, Mr. Old Man explains how Bank V can still act as the presenting bank — while staying compliant and accommodating the interests of both sister companies, A and A1.

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Question

Dear Mr. Old Man,

Please advise on the following case:

Previously, our client A (Vietnam) was the exporter, delivering goods to B (Singapore), the importer, under an LC issued by B’s bank in Singapore.

Bank V acted as both the advising and negotiating bank, since the LC stipulated that documents be presented and negotiated at Bank V.

Now, A plans to restructure the transaction as follows:

• A establishes a new company A1 in Singapore, which will sign the export contract with B.
• B will open a deferred payment LC (80 days) in favor of A1.
• After receiving LC proceeds from B, A1 will pay A by TT (telegraphic transfer) on a 150-day deferred basis.
• The shipping documents will still be prepared by A (Vietnam), showing A as the shipper. The invoice, however, will be in A1’s name — though in practice, it is still issued by A, since both companies share the same staff.
• A wishes for Bank V to continue checking and handling LC documents as before.

I’m looking for a feasible way for Bank V to participate appropriately in this new LC arrangement. Specifically:

1. I initially considered a transferable LC, where Bank V would serve as the transferring bank for the second beneficiary (A). However, the different payment terms (80-day LC vs. 150-day TT) make this unworkable.
2. If the LC requires presentation through Bank V, would it cause any legal or operational issue that A1 does not maintain an account with Bank V?

I’d greatly appreciate your advice.

Sincerely,

Luong Thi Truc

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 Answer

Dear Truc,

I understand your case as follows:

A1 (Singapore) – a sister company of A (Vietnam) – signs an export contract with B (Singapore) under an 80-day deferred payment LC issued by B’s bank in Singapore.

In reality, A Vietnam is the actual shipper and will prepare and present the documents on behalf of A1 Singapore. Once LC proceeds are received, A1 will pay A via TT 150 days after shipment.

Both A and A1 wish the documents to be presented through Bank V, which will check and forward them to the issuing bank.

So, the key questions are:

• Can a transferable LC apply in this case?
• If not, how should the LC be worded to ensure documents must be presented via Bank V?

Here’s my view:

1/ I agree with you that a transferable LC is not suitable here — not only because of the mismatch in payment terms but also because neither A1 nor A expects to use that mechanism.

2/ To ensure presentation through Bank V, the LC could be structured as follows:

Field 41a: Available with Issuing Bank by Deferred Payment

Field 42P: Deferred Payment – 80 days sight

Field 47A (Additional Conditions): Documents must be presented restrictedly via Bank V.

With this setup, A1 can authorize A to ship the goods and present the documents via Bank V, which will check and send them to the issuing bank in Singapore.

The LC proceeds will be remitted to A1’s account with its bank in Singapore. Upon receiving payment, Bank V can transfer the funds according to A1’s written instructions or authorization.

This is a practical and compliant solution that aligns with the interests of both companies. However, to avoid any foreign exchange control issues, Bank V should ensure that:

• It holds a valid power of attorney from A1 authorizing A to present documents, and
• It receives clear written instructions from A1 regarding the transfer of LC proceeds to A1’s designated account in Singapore.

Additionally, Bank V should consult its legal department to verify regulatory compliance before implementation.

Best regards,

Mr. Old Man