Revolving LC

[TaiOanlan]

Hello,
I am a newcomer in here. I would like to seek some opinion in relation to Revolving L/C which is an actual case I face.
My role is LC advising bank as well as Nego bank.
LC is issued by an Indian bank.
The amount is USD8,000,000.00.
Expiry date is 28.Feb.2020.
Latest date of shipment is 14.Feb.2020.
Partial shipments is Allowed.
LC tenor is 90 days from the date of Bill of Lading.
Presentation period is Within 14 days from the date of Bill of Lading but within the validity of the letter of credit.
In L/C field 47 additional condition section, only following information are related to Revolving.
*''This is revolving letter of credit with automatic replenishment on credit confirmed documents at negotiating bank upto cummulative value of USD21,065,825.00"
*"We will reinstatement the L/C on the request of applicant"
*"Cummulative presentation value should not be exceed to USD21,065,825.00 during the lifecycle of the L/C and at any point of time liability under L/C should not exceed USD 8 million"

Since I have never ran into such revolving L/C, please advise whether or not my following views are correct.
1. The L/C amount would reinstate as USD 8 million at the point that documents presented to Nego bank which means the LC balance is always USD 8 million no matter what draft amount is being presented?
(It seems to me if that is the case, the record of utilization in the back of the L/C would be meaningless job because L/C balance would always be USD 8 million)
2. If the L/C is partially utilized in USD 4 million, then the beneficiary cannot present next documents with value more than USD 4 million? ( because the L/C indicates liability....should not exceed USD 8 million)
3. If the L/C is fully utilized in USD 8 million, then the beneficiary can only present next export bill after the utilized USD 8 million export bill being settled on maturity date ? ( again, because the L/C indicates liability....should not exceed USD 8 million)

It is a strange L/C to me. The presentation value will not over USD 8 million in any case because Issuing bank limits their liability in USD 8 million. That means the cummulative presentation value would never hit to USD21,065,825.00. Also, it is ambiguous when the L/C is going to reinstate. My understanding is that LC would reinstate at the point of documents being presented to Nego bank from beneficiary because of the clause "This is revolving letter of credit with automatic replenishment on credit confirmed documents at negotiating bank". However, L/C is also saying "We will reinstatement the L/C on the request of applicant". This looks like Issuing bank is deciding when the L/C balance is reinstated as full balance USD 8 million............

Look forward to many opinion and discussion on this.

Regards,

[picant]

Hi Pal,
Revolving credit is usually requested when the goods contract has a clause that the amount of delivery goods may be increased on buyer request untill a determinated amount and naturally goods quantity.
In this case It is better to ask the issuing bank for clarification;
the bank exposure being limited to 8 millions dollar must include the tenor of the draft 90 days.
Probably the applicant may ask for increasing the l/c amount, under further guarantee/collateral ?
If comulative, it must be so claused.
Confirmed or conform documents?.
Possible Schedule for shipments:
14.02.19
14.05.19
14.08.19
14.11.19
14.02.20
Let us know.
Other comments appreciated
Ciao

[TaiOanlan]

Hi Picant,
Thank you for your explanation.
The L/C is advised to beneficiary. But it seems that the L/C is not opened as they expected.......
A bit unusual L/C. We internally got opinion that this is not a Revolving LC at all. And yes, there is doubt that it is error in expression of ``conformed`` documents being ``confirmed`` documents.
It is under discussion between buyer and seller for the time being for amending the L/C to make more sense as Revolving L/C. The buyer in India is a extremely famous company and they tend to open L/C in favor of them.

Regards, Luke

[cristiand969]

As the reinstatement of L/C value rests with the applicant, I am on the opinion that it is not an effective revolving L/C but merely a would-be revolving by its title .A revolving L/C must not depend upon the applicant authorization as the L/C turns into normal L/C with further increments in value by subsequent amendments.
The wording " confirmed documents' may convey the meaning that L/C may be (acceptable) to be revolved after docs found OK by issuing bank and paid. It is advisable to seek for a clarification.

[TaiOanlan]

Thank you for the comment, Cristiand969.

[alaaebrahem]

Please note that when you are establishing the L/C that revolves either in value (a fixed amount is available which is replenished when exhausted) or in time (an amount is available in fixed installments over a period). L/Cs revolving in time are of two types: in the cumulative type, the sum unutilized in a period is carried over to be utilized in the next period; whereas in the non-cumulative type, it is not carried over
i think you have to specify and fill the below schedule

LC Phase Last Date of Delivery Phase Expiry Date
1ST revolution Date Date
2ND revolution Date Date
3rd revolution Date Date

[TaiOanlan]

Thanks for the comment, Alaaebrahem.
Is there also cumulative and non-cumulative for revolving in value?
If it is revolving in value, the LC has to indicate a fixed amount such as 500,000.00?
And the reinstate timing is an export bill gets settled?
Reinstate amount is accumulated up to LC amount?

Regards,