I would like to get some clarification. If the my buyer issue the transferable LC to my bank and I will cut the cost of product to manufacture with second LC from my own bank .
However this is a huge order , Our company usually issue anywhere from 100,000 to 200,000 amount of LC. But LC amount has to be about 2.2 Millions of USD . Therefore If we use first LC as a collateral , do you think my bank would approve it? And what if Someone only has average credit will the bank approve it as well? , i personally think the first LC acting as collateral would make a big difference
Please share your thoughts
Regards
Whether or not your bank will approve such request normally depends on few considerations: 1.The availability of the master LC. The master LC must be made ‘freely negotiable’ which allows any bank to negotiate. A restricted negotiation LC would not be acceptable. 2. The issuing bank of the master LC must be a reputable bank and preferably the LC is confirmed by local bank. 3. If you wish to issue more than one 2nd LC against the master LC, the master LC must allow partial/part shipment/drawings. 4. However, your bank has the absolute right not to issue the 2nd LC at all. It depends on the risk analysis of your bank.
Reply cont'd...
Bear in mind that there are a lot of things that you need to closely monitor as problems may easily surface in a back to back operations. On paper it may sound very easy, but in reality, problems do happen like amendment, late shipment, discrepancy in transport documents, documents wrongly exchanged and etc.