Requesting confirmation at the time of negotiation

[memo]

I need your help in the following:-

• L/C opened for EUR 3500000 – payable 60 days after B/L date –F49 MAY ADD.
• Applicant asked for modification F49 to be CONFIRM.
• Line for confirmation was not sufficient. So it issued a special approval.
• Advising bank sent MT 730 ( ack message) without referring to whether adding confirmation or not.
• Trade finance of advising bank asked issuing bank for a pledge agreement and deposit L/C value i.e. EUR 3500000 in order to add confirmation.
• Advising bank negotiate three compliant documents for about EUR 2500000.
• Advising bank insists on having a pledge agreement to confirm L/C despite 70% of L/C implemented.
• Applicant bank confirms maturity dates for payment of three shipments.
• The question here why the advising bank requested a pledge agreement and a deposit while it issued a special approval in the beginning and what are the benefits for beneficiary for having such confirmation whereas effected more than 70% of L/C.
• Was the act of advising bank correct in requesting such confirmation at the time of negotiate documents for EUR 2500000?
• How could the issuing bank act in this circumstance?

[jmitra]

if the beneficiary is received a confirmed letter of credit from the advising bank, then the advising bank is the confirming bank under UCP 600 and it does not matter what are the arrangement between the issuing bank and the advising bank. the confirming bank may come up with different condition for the issuing bank

[ajoy]

Not 100 % sure of the questions asked but I will give my two bits anyway (My comments in bold) :

L/C opened for EUR 3500000 – payable 60 days after B/L date –F49 MAY ADD.
( May add only implies that the issuing bank is ok with advising bank adding a confirmation on bene request. Advising bank may or may not do this at thier discreation. In case the bene asks for confirmation and advsing bank is unwilling /unable to add confirmation they should inform both the Bene and IB accordingly)
• Applicant asked for modification F49 to be CONFIRM.
(As above as per advsing bank's sole discretion )
• Line for confirmation was not sufficient. So it issued a special approval.
( again entirely advsing bank's own discretion. Also it may set any preconditions for IB for confirming as per thier instruction)
• Advising bank sent MT 730 ( ack message) without referring to whether adding confirmation or not.
( Acknowledgemnet of what. Sorry I am not clear about this. I would expect Advisng bank to send thier preconditions for confirming in this case)
• Trade finance of advising bank asked issuing bank for a pledge agreement and deposit L/C value i.e. EUR 3500000 in order to add confirmation.
( Advsing bank can ask any preconditions. Looks like Advisng bank thinks that IB /IB country risk is too high or they are already exposed enough hence no limits availble)

• Advising bank negotiate three compliant documents for about EUR 2500000.
( I presume not as confirming bank which is fine too unless IB fulfilled the recquired pre conditions)
• Advising bank insists on having a pledge agreement to confirm L/C despite 70% of L/C implemented.
( Again , the fact that 70% of the Lc is implemted makes no difference. The negotiation obiviously is not covered by Advsing Bank's confirmation yet so if teh payment is not forthcoming from IB on due date they have recourse to beneficiary for recovering teh negotiated amount with interest)
• Applicant bank confirms maturity dates for payment of three shipments.
( Again,IB has only confirmed maturity date. if on or after maturity date they are unable or unwilling to pay for any reason then negotiating bank need not pay the beneficiary on due date or will have recourse to Bene if they pay on due date and dont recive the money from IB)

• The question here why the advising bank requested a pledge agreement and a deposit while it issued a special approval in the beginning and what are the benefits for beneficiary for having such confirmation whereas effected more than 70% of L/C.
( Do the above comments answer this question already? 70 % of the Lc is negotiated but in the absence of confirmation , advisng /negotiating bank has no additional liability except as negotiating bank. Bene benefits from a confirmation as in any other confirmation. Once advsing bank confirms they must pay on recieving credit compliant documents on due date as per LC irrespective of the internal arrangemnet between the IB and Advisng/Confirming Bank.)

• Was the act of advising bank correct in requesting such confirmation at the time of negotiate documents for EUR 2500000?
( yes in my opinion the advisng bank has and can set any requirements for confirming any LC)

• How could the issuing bank act in this circumstance?

( Depends on the risk precetion vis a vis the applicant of LC. for example if the IB thinks that they too need a 1000 % cash collateral from applicant they can ask for the same. If applicant is unable to give a 100 % pledged deposit in this case. They can communicate accordingly to the advising bank asking them to add the confirmation at thier risk or not at all.)

[memo]

Thanks for your positive reply. Regarding yr inquiry about acknowledge of what ,it means Ack for acceptance or rejection of amendment l/c from may add to confirm (UCP article 10 d) or we could consider that just receiving MT 730 ,means accepting amendment. However the three presentations totaling i.e eur 2500000 did not indicate any notification of accepting or rejection confirmation. For your information the preconditions of Advising Bank submitted to IB through the local REP. Office and not through the standard correspondences by swift MSGS .Up till now we have not received any notification from advising bank regarding preconditions required or confirmation .benef forwarded shipping docs and applicant accepted such docs ,IB undertake to pay on maturity date.
regards
memo