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Basic Info on
Corporate Guarantee

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What is a Corporate Guarantee?

A Corporate Guarantee is a new term like a Bank Guarantee and exclusively available with our providers where one Bank (Issuing Bank) issues an indemnity to another Bank (Beneficiary Bank) or directly to a Beneficiary, on behalf of its account holder. The Issuing Bank will expect its account holder to pledge assets to the bank for its issue.

Types of Corporate Guarantees

There are effectively two main types of Corporate Guarantees,
(1) A Direct Guarantee where the account holder instructs his bank to issue a Guarantee directly in favor of the Beneficiary, and
(2) An Indirect Guarantee where a second bank is requested to issue a Guarantee in return for a Counter-Guarantee. In this case the Issuing Bank will indemnify losses made by this second bank in the event of claim against the Guarantee.

Purpose of Corporate Guarantees

  • Project Funding
  • Advance Payment Guarantee
  • Performance Guarantee
  • Payment Guarantee
  • Payment Guarantee
  • Guarantee securing a Credit Line
  • Order & Counter Guarantee

A Corporate Guarantee is considered a “Demand Guarantee” and as such is governed by the International Chamber of Commerce (ICC) and Uniform Rules for Demand Guarantees (URDG).

Some Guarantees are written to guarantee rental payments, some are written on guarantee payments upon the meeting of certain conditions. Some are even issues to Guarantee loans and credit lines. All of them are written for a specific purpose to a specific party.

Each Corporate Guarantee will be worded for the purposes it is intended. Some may be “callable upon demand” or some may only be “callable” when the Beneficiary provides notice of satisfaction of a pre-determined condition.

Currently under the new URDG 758 an underlying contract should be provided that states clearly the purpose of the Corporate Guarantee and forms part of the Guarantee.

Characteristics of Corporate Guarantees

  • Corporate Guarantees are written specially for a purpose; where an account holder will instruct his bank to issue a Guarantee to another bank on behalf of their account holder.
  • The Bank will hold adequate assets of the account holder as security for the Corporate Guarantee.
  • They cannot be bought or sold.
  • They do not carry CUSIP or ISIN numbers and are not tradable securities.
  • They are issued for a specific time period.
  • Upon Expiry, Corporate Guarantees are terminated, they are not traded.
  • A Corporate Guarantee has no end value and does not accumulate any investment element or maturity value.
  • A Corporate Guarantee has no end value and does not accumulate any investment element or maturity value.
  • They should not be spreadable on the open market as the issue of a Corporate Guarantee is between closed parties (The Issuer & the Beneficiary only).
  • Banks do not issue them to raise money and should not be confused with Medium Term Notes.
  • The Strength of a Corporate Guarantee is limited to the financial standing and rating of the Issuing Bank.
Neelesh
General Manager

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