Revocable credit

LeoCullen · Post by **LeoCullen** » Thu Nov 16, 2000 12:00 am

Under what circumstances would a beneficiary accept the issue of a revocable documentary credit?

khalilhamad · Post by **khalilhamad** » Thu Nov 23, 2000 12:00 am

I do not see any circumstances under which the beneficiary should accept a revocable credit. If I am correct then the next UCP revision should consider dropping revocable credits.

[edited 11/23/00 5:18:25 PM: deleting name since it is already shown on the lefthand side]

AbdulkaderBazara · Post by **AbdulkaderBazara** » Sat Dec 09, 2000 12:00 am

a) If beneficiary wants to penetrate a new market. b)If beneficiary is a subsidiary or employee of the applicant.

vobrien · Post by **vobrien** » Wed Dec 13, 2000 12:00 am

There are not many situations were a revocable
credit is used in day to day lc business.

However, I once used a revocable credit to finally
clinch a high value deal between a supplier
of high value telecoms infrastructure equipment and
nervous buyer.

To move the importer forward the Credit was first issued in
Revocable form which gave the importer an opt out (provided
documents were not taken up before revocation.

Once all the terms and conditions of the Credit were satisfactory to
both parties the Credit was amended from Revocable to Irrevocable.

I emphasise that this case is an exception. However, the revocable credit
played it's part in facilitating the transaction.

As an aside it is interesting to note that
UCP 500 Aricle 8 specifically provides for a revocable
credit made availabe by deferred payment and re-affirms the
issuing banks obligations to a nominated bank
"However...the issuing bank must:
...reimburse another bank with which a revocable credit has been
made available by deferred payment, if such bank has prior to receipt
of it of notice of amendment or cancellation, taken up documents which
appear on their face to be in compliance with the
terms and conditions of the Credit,

So, even in a revocable credit it the time of taking
up the documents that binds the issuing bank to reimburse.
(provided of course the credit had not earlier been revoked).

This interesting article is often overlooked.

T.O.Lee · Post by **T.O.Lee** » Sat May 05, 2001 1:00 am

As a consultant and trainer in LC, I was told by my clients that for certain countries, revocable LC was used to support the application of export licence for certain goods, such as those under tight government control, for example rare metals, which the country must control the outflow for national security reasons. These rare metals are used for high tech war time equipments, such as radar, targeting system, rockets, nuclear weapons, etc. The country must also keep a minimum safe quantity for war reserve purpose.

If the export licence is not approved, then the LC can be cancelled without the approval of the beneficiary. This is important to the applicant buyer. He may issue three such LCs to buy one shipment for insurance purpose, and also to increase the hit rate. The three LCs are under different names for the applicants, such as from associated companies, partners and some companies that have surplus LC facilities and would like to open LC for others for a commission, which is not uncommon in Hong Kong amongst Indian companies. If three shipments are approved, and he needs only one, he may cancel the other two LCs easily. Otherwise the other two unfortunate beneficiaries may disagree cancellation when the export licences have been approved.

If things are not done in this way, the buyer has to apply LC one by one with three suppliers in the same or different country(ies). That may be tedious and don't make commercial sense.

If the LC is irrevocable, then the applicant may have problems arising from unutilised foreign exchange, if the LC is however undrawn. It then follows that the applicant's cash flow or T/R facilities may be frozen for a long period.

If the export licence is approved, then the revocable LC can be either utilised or amended to become irrevocable, if necessary.

After hearing my story, maybe you may agree to keep the revocable LC in the revision of UCP 500.

When I tell this sort of rare story, it reminds me of my friend Mr. Gray Sinclair of London. After he passed away in the same year as Bernard Wheble, we have lost a walking encycropedia of LC. I am now trying to continue his noble mission.

If you tell this story in your lectures, to your friends, or disciples, please don't forget to quote the origin. Thanks.

[edited 5/8/01 12:49:06 PM by sean (Moderator)]
[edited 10/27/01 9:35:52 PM]

AbdulkaderBazara · Post by **AbdulkaderBazara** » Sat May 05, 2001 1:00 am

I would like to thank Mr. T.O.Lee for his valuable and informative contribution to this forum and appreciate if we could get some of the rare stories on revocable transferable LC’s and revocable standby letters of credit. I have posted my view on these types of LC’s on April 18, on the General Discussion Section.

T.O.Lee · Post by **T.O.Lee** » Sat May 05, 2001 1:00 am

My response to Mr. AbdulkaderB from Saudi Arabia is that if you would like to hear more rare stories about LC operations, please contact the Institute of Banking of the Saudi Arabia Monetary Agency, which has already invited me to do a three-day LC workshop in Jeddah on 1-3 October 2001 to the bankers in Saudi Arabia. I visit one country only once in a year. So don't miss it.

The Hong Kong round is scheduled in June 4-5 (HKIB) and 7-8 (HKGCC). Further details available in my website.

The topic in KSA is "Trade Finance Risk Management". I will try to post the contents in my website soon. As Larry King of CNN said " Please don't go away".

If you can't wait, please give me an email (my email address is available in my website) so that I can refer you to the right contact person. To respect the DC PRO, I do not wish to do it here. Please forgive me.

My email address is experts@tolee.com

[edited 5/22/01 3:55:57 PM]
[edited 10/27/01 9:28:35 PM]

AbdulkaderBazara · Post by **AbdulkaderBazara** » Mon May 07, 2001 1:00 am

Agree with you that we should respect the DC Pro. I am already aware of the workshop in Saudi Arabia and will make sure that I will attend it. However, my intention to bring the issue in this forum, as everybody does, is to exchange opinions among the members, see the point of view of others and have collective benefit from it. The generous contributions of a few like Mr.PGauntlett, Mr. Iarry Bacon, Mr. V. Obrien and yourself - among many others - has brought life to this fourm and wish to see it continue.