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The layman term is called Leasing of SBLC. Technically there is no leasing takes place in Collateral Transfer. It involves 3 parties:-
(1) The Collateral Provider
(2) The Receiver (beneficiary) of the collateral.
(3) The collateral issuing bank
There are several purposes why he needs the SBLC/BG:
1. For Debt Financing for his project/business. It is effectively a form of security for the lender/bank. There is no wirttten reference "leased" in the Verbiage of the MT760 of the SBLC/BG. The instrument is swift directly to the Receiver's bank.
2. The Receiver may utilize it in credit facility purposes such as Trade Financing to issuing of LC, PB for trade financing.
3. Trade Program (Wealth Management) by Trader.
The Provider is often the Collateral Management Firm or Hedge Fund or Private Equity Company.
The Beneficiary of the collateral pays the Collateral Transfer Contract Fee - "rental fee" - at certain percentage of the Collateral (SBLC/BG). It varies from 14% to 18% - any cheaper fee say 6% is likely is scam - depending on the rating of the Issuing Bank and the types of the underlying asset. Cash backed SBLC/BG is more costly.
Usually 2 weeks before the maturity of the Collateral Transfer Conract, the Beneficiary has to return the intrument free of all encumbrances to the Provider.
DESCRIPTION OF INSTRUMENTS
1. INSTRUMENT TYPE
MT760 SBLC, CASH BACKED ICC 600 FORMAT
2. CONTRACT AMOUNT
€000,000,000.00 (XXX MILLION EUROS) WITH EXTENSION
3. FIRST TRANCHE
€10,000,000.00 (TEN MILLION EUROS)
4. SUBSEQUENT TRANCHES
€000,000,000.00 ( TWO HUNDRED FIFTY MILLION EUROS) X 2 TRANCHES
EURO ( € )
6. ISSUING BANK
XX BANK SINGAPORE BRANCH
ONE YEAR AND ONE DAY
8. FUNDING RATE/LEASING FEE
LEASING FEE 16% (inclusive of 3 % swift MT799 Pre-advice fee) + 2% INTEMEDIARY FEE =18% of €000,000,000.00 SBLC CONTRACT AMOUNT
9. DELIVERY MODE
SWIFT MT799 PRE-ADVICE
SWIFT MT799 BANK PAYMENT UNDERTAKING(BPU)
SWIFT MT760 SBLC
BY UNCONDITIONAL MT103 OR WIRE TRANSFER/TT
11. HARD COPY
ORIGINAL HARD COPY BY BANK BONDED COURIER WITHIN 7 BANKING DAYS.
1 INSTRUMENT TYPE: MT760 SBLC, CASH BACKED ICC 600 FORMAT
2. CONTRACT AMOUNT: €X00,000,000.00 (XXX MILLION EUROS) WITH EXTENSION
3. FIRST TRANCHE: €X00,000,000.00 (XXX HUNDRED MILLION EUROS)
4. SUBSEQUENT TRANCHE: €X00,000,000.00 ( XXX HUNDRED MILLION EUROS)
5. CURRENCY: EURO ( € )
6. ISSUING BANK: CITIBANK SINGAPORE
7: AGE: ONE YEAR AND ONE DAY
8. FUNDING RATE/LEASING FEE: LEASING FEE 16% (inclusive of 1% swift MT799 Preadvice fee) + 2% INTEMEDIARY FEE =18% of €X00,000,000.00 SBLC CONTRACT AMOUNT
10. DELIVERY MOD: SWIFT MT799 PRE-ADVICE SWIFT MT799 BANK PAYMENT UNDERTAKING(BPU) SWIFT MT760 SBLC
11. PAYMENT: BY UNCONDITIONAL MT103 OR WIRE TRANSFER/TT
12. HARD COPY: ORIGINAL HARD COPY BY BANK BONDED COURIER WITHIN 7 BANKING DAYS.