Questions & answers

How does a Chinese investment group obtain a letter of credit in the U.S. when its assets are still in China?

How does a Chinese investment group obtain a letter of credit in the U.S. when its assets are still in China?


Answers
  • Jason Zhang

    Cushman & Wakefield
    February 26, 2018

    Most of the state-owned banks of China (Bank of China, ICBC, CCB, ABC, etc) would issue a letter of credit (with their offshore branch) based on the company's assets onshore in China. However, with the current tightened policy and scrutiny on "back-to-back" loan, it can be difficult to obtain one without proper business justification.

  • Archer Lin

    Shanghai Heguan Equity Investment Fund Management Co., Ltd.
    February 08, 2018

    In order to get an overseas loan, the Chinese investment group need to use its domestic asset as a guarantee to obtain a SBLC from Chinese banks. Then those Chinese banks' foreign branch (or foreign banks) will offer FCY credits secured by SBLC.

  • Sha He

    Berwin Leighton Paisner LLP Beijing Representative Office
    December 18, 2017

    Thanks for your question. If the assets are in China and that is the only mortgage you can offer as the security for your loan in the US, I believe it is difficult for you to obtain the L/C from a foreign bank or an overseas branch of a PRC bank. A US bank would need stronger assurance such as a L/C issued by a bank to guarantee the repayment of the loan. The difficulty is that the onshore Chinese asset may not be acceptable for Chinese banks to issue a guarantee or L/C which will in turn be a guarantee or L/C for your US lender. I have also checked with an overseas branch of a Chinese bank: they stated that they cannot issue the L/C in favor of a foreign bank securitized by the assets in China because the Chinese bank would be unable to discount the L/C by paying off an offshore bank because of China's foreign exchange regulations. If you, as a Chinese investment group, have or are due to obtain the ODI approval with NDRC, MOFCOM and SAFE, you may consider Nei Bao Wai Dai.

  • Jeffrey Jahns

    Seyfarth Shaw LLP Real Estate Group
    December 13, 2017

    The question presupposes that the letter of credit would be issued by a U.S. Bank or the U.S. branch of a foreign bank. That bank would require collateral for the issuance, which might take the form of (1) a letter of credit from a foreign bank, (2) cash or (3) a secured interest in other collateral. If the letter was issued by the U.S. branch of a Chinese bank, it would undoubtedly be comfortable in accepting Chinese assets as collateral on the same basis that it would in if issuing the letter in China. Addressing the 3 categories of collateral listed above: In the case of a letter of credit from a foreign bank issued in favor of a U.S. bank (which is issuing the letter in question), the foreign bank, presumably a Chinese bank, would apply its own underwriting requirements relative to the customer and its assets just as it would in China. In the case of cash, no additional collateral would be required. For a U.S. bank to underwrite a letter of credit solely on the basis of assets in China, the bank would need to be very comfortable about the value and stability of the collateral and its ease in realizing on the collateral in the event the letter was called. Many banks will lack the sophistication to make that assessment, but some will be able to arrive at a resolution to accept Chinese assets, although the requirements are likely to be higher than a Chinese bank would require in similar situations.

  • December 13, 2017

    One way is if their Chinese bank does business in the US or has a correspondent relationship in the US.

  • Mark Drumm

    Managing Director, Regent Park Advisors
    November 28, 2017

    The easiest is to go through a Chinese Bank with a presence in the United States.

  • Jonathan Zhang

    5Cgroup International Corporation
    November 28, 2017

    This can be done by a qualified third party via a due diligence check in China. This same third party can communicate with the Chinese banks who can issue SBLC to the beneficiary body in the United States, usually a 100% subsidiary of the Chinese company who owns the asset in China.

  • Paul Guan

    Paul Hastings
    November 28, 2017

    They will have to deposit cash with the bank (in many cases, 100% of the L/C amount).

  • David Lynn

    Chief Executive Officer, Everest Medical Core Properties
    November 27, 2017

    Use an international bank like HSBC.