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What is Collateral Transfer?

 

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

 

Why does the Receiver need the Collateral (SBLC/BG)?

 

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.

 

Who is the Provider?

 

The Provider is often the Collateral Management Firm or Hedge Fund or Private Equity Company.

 

Why does the Provider want to transfer (lease) his Collateral (SBLC/BG)?

 

The Beneficiary of the collateral pays the Collateral Transfer Contract Fee - "rental fee" - at certain percentage of the Valye of the Collateral (SBLC/BG). It varies from 6% to 12% 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.

 

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Collateral Transfer (Leasing SBLC)

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