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Letter of Guarantee

 
 


Outward Guarantee under Government Special Fund for Overseas Construction


 

Introduction

A special fund set up and financed by the central government can provide guarantee and make compensation payment in advance under for bid, performance and advance payment guarantee, which are issued for overseas constructions in conformity to relevant rules and regulations. The Ministry of Finance and the Ministry of Commerce delegate Bank of China and its authorized branches to exclusively undertake the letter of guarantee business under this special fund.

Functions

Address the difficulties of insufficient credit line and fund faced by overseas construction contracting companies.

Features

Companies may apply to Bank of China for issuing a letter of guarantee just with the outward guarantee under government special fund for overseas construction, and without full deposit or any credit granted by Bank of China. This will substantially simplify the letter of guarantee issuance procedures, reduce funds tied up and cost, and improve the efficiency.

Target Customers

Contractors involved in overseas construction.

Application Qualifications

1. An enterprise legal person that is qualified for foreign economic cooperation on approval of the Ministry of Commerce, and registered with the administrative department for industry and commerce;

2. The enterprise has total asset of RMB 80 million or above, and owners' equity of RMB 15 million or above, and is profitable two years in a row;

3. No record of defaulting on or appropriating governmental special funds and capital and no record of violating other laws and regulations;

4. No more than USD 30 million of an accumulated balance of the special fund used by the same company for issuing letter of guarantee, and no more than USD 40 million by a company engaged in extra large overseas construction with bright future and profitability;

5. The Beijing-based companies under the administration of the central government shall apply to Bank of China head office, and the ones located in places other than Beijing apply to the local or nearby authorized branches of Bank of China.

Process

Ⅰ. Application for letter of guarantee

1. The applicant fills out an application form or a contract for issuance of a letter of guarantee;

2. The applicant pays margin or submits other counter-guarantee;

3. The applicant submits primary documents related to the contract;

4. The applicant submits other documents necessary for issuance of a letter of guarantee as required by the bank.

Ⅱ. Examination and issuance of letter of guarantee

1. The bank examines the customer qualification, underlying transaction and relevant documents;

2. The bank confirms the customer's margin or credit line and other mortgages;

3. The bank examines the written application and form of letter of guarantee;

4. The bank issues the letter of guarantee.

Ⅲ.Payment/compensation against letter of guarantee

In case the beneficiary claims compensation within the validity period of the guarantee, the applicant should be notified in time. The payment should be made after the guaranteeing bank examines the claim documents and confirms the documents are in compliance with the claim clauses of the guarantee. If the applicant is unable to pay the compensation, it may apply to Bank of China to pay for it in advance with the special fund for letter of guarantee risks. Bank of China will make the payment in advance for it within the working day.

The company, for which the advance payment for compensation was made by Bank of China on behalf of itself, shall repay the advance payment within 15 days as of the date when Bank of China made the foreign payment; if it fails to make the repayment in time, it shall within 180 days pay an occupation fee for occupying the letter of guarantee-risk special fund based on the concurrent interest rate of the foreign currency published by Bank of China; more than 180 days,  shall prevail the overdue lending interest rate of the foreign currency published by Bank of China.

Ⅳ. Letter of guarantee fees

The letter of guarantee fees should be charged by the charging principles and rates determined in accordance with the relevant regulations of the head office of Bank of China.

Kind Reminder

1. letter of guarantee amendment to: the clauses of the letter of guarantee can be amended on request of the guaranteed party and the beneficiary, such as extension of extending the validity period.

2. Payment/compensation against letter of guarantee: In case the beneficiary claims compensation within the validity period of the letter of guarantee, should be notified in time. The guaranteeing bank examines the claim documents and confirms the documents are in compliance with claim clauses of the letter of guarantee.

Case

A Chinese project contracting company was awarded a large railway construction project with total contract value up to hundreds of millions USD, and requested to open a performance guarantee in amount of more than USD 50 million. The company had a balance of credit line in total of just USD 20 million, and was unable to obtain another USD 30 million of credit for the letter of guarantee. Bank of China, upon assessment, believed this company enjoyed sound creditworthiness and operational status, and the project was feasible and in conformity to all requirements applying the guarantee-risk special fund. By applying USD 20 million of credit line plus more than USD 30 million of guarantee-risk special fund, it issued the performance guarantee for the company that then smoothly entered into the contract with the project owner.

Our Advantages

The outward guarantee under government special fund for overseas construction is exclusively conducted by Bank of China, representing a perfect combination of the government financial support and the expertise of Bank of China. It will provide best solutions for companies' construction contracting development worldwide, espcially. in Asia, Africa, Middle East, Latin America, etc. Since 2002, Bank of China has used the outward guarantee under government special fund for overseas construction to issue letter of guarantee for 117 companies in various construction contracts valued about USD 44.6 billion, rendering strong support for Chinese companies implementing "Going out" strategy.

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