Global Investment Trends
In 2015 there was a resurgence in foreign direct investment. There was a growth of approximately 40% since the global and economic crises experienced in 2008.
Author: IntaCapital Swiss
Indian Textile Manufacturer – subsidiary in Dubai
Proposal
Collateral Transfer Facility – Collateral / Loan Security Only
- Brief : To Secure and Guarantee an existing pre-approved commercial credit line
- Total Facility Requirement : € 12 million
Facility Obtained
UAE based Provider Group
- Facility Secured : Collateral Transfer Facility of € 12 million
- Annual Contract Fee : 5.85%
- Term : 36 months
- Deposit against Contract Fee : € 250,000
An Indian textile manufacturer required additional security to release a pre-negotiated credit line with their existing offshore bankers. The additional borrowings were required for expansion of their distribution infrastructure in Dubai, where they had a relatively new but established sales network.
The client had been trading for only a few years but had a strong order book. The Facility successfully obtained by IntaCapital allowed them to receive investment from our UAE provider via the medium of a Demand Guarantee (Bank Guarantee) and was issued to their nominated recipient bank in Dubai. The recipient bank was associated to their subsidiary company in Dubai allowing the company to utilise the Guarantee as security for their Credit Line that they had pre-arranged themselves with their own bankers.
This transaction was a very typical type of credit enhancement proposal where the client did not hold suitable or adequate security to borrow from their existing bankers. Collateral Transfer assisted them to be successful by importing suitable loan security.
Swiss & United Kingdom: Trade Deals post BREXIT
Switzerland has never been part of the European Union (EU). However, it has remained a successfully close partner and is a member of the Shengan Agreement that allows free-travel across member states.
2017: Uplift in C/T Popularity
At this time of political upheaval and economic uncertainty, international companies are turning to sophisticated investors to raise adequate collateral through collateral transfer arrangements and securities lending to raise their much needed project and expansion capital.
Beware of Imitations!
Over the last few years, the industry has experienced a major up-turn in the popularity of using ‘leased’ bank guarantees and standby Letters of Credit (and other types of instruments) to secure credit lines, commercial loans and project finance.
The Benefits of the Collateral Transfer Provider
When a private equity firm or other types of funding institutions make an investment into companies on an international platform, several laws come into play. If an equity company made an investment (or indeed a loan) into a company outside of their own jurisdiction (i.e. they physically lent funds in a different country), they may need Government permissions, licenses and other forms of financial authority registrations in that jurisdiction in order to make such investment or lending commitment.
Bank Guarantee ‘Lease’ or StandBy Letter of Credit Providers
A Provider is the party who enters the Collateral Transfer Contract (or the Collateral Transfer Agreement, “CTA”) with the Principal or Recipient. A Provider will typically be a private equity firm, a hedge fund or wealth manager or indeed a family office, managing funds on behalf of their clients or investors.
Why is it called ‘Leasing’ Bank Guarantee or Standby Letter of Credit?
The word ‘leasing’ when regarding to Bank Guarantees and Collateral Transfer is a misnomer and should be avoided…
Why are the Collateral Transfer Terms fixed annually?
Collateral Transfer facilities you will often find are offered in terms of 12 to 72 months, working on a renewable 12 month contract…
What is the Collateral Transfer Medium?
The ‘medium’ refers to the actual bank instrument used to convey the commitment to the Recipient of the Collateral Transfer facility…
