Case Study: Securing an Irrevocable Documentary Letter of Credit for Diesel Cargo
Case Study: Securing an Irrevocable Documentary Letter of Credit for Diesel Cargo
A fuel distributor needed to purchase and import 20,000 metric tonnes of diesel from a Middle Eastern supplier. The seller required strict payment security due to volatile oil prices and counterparty risk. The buyer lacked sufficient prepayment liquidity, and local banks were reluctant to take on commodity exposure. Financely was mandated to structure and arrange an Irrevocable Documentary Letter of Credit (LC) that satisfied both parties and cleared banking hurdles.
The Challenge
In oil trading, sellers rarely risk loading vessels without hard payment security. This supplier required a confirmed LC from a top-tier bank. The buyer’s home-bank lacked strong correspondent lines in energy trade, and initial attempts to issue an LC were rejected by the seller’s compliance team. Without a solution, the shipment would be lost, exposing the buyer to shortages and penalties with their downstream clients.
Our Role
Financely structured the transaction to align with international energy trade standards. We packaged the client’s downstream contracts, balance sheet, and receivables into a bankable file. Leveraging our network, we secured an issuing bank willing to post the LC and a European confirming bank acceptable to the seller. The structure included cash margin, receivable assignment, and strict documentary conditions to ensure compliance.
Solution Delivered
- Issuing Bank: Regional commercial bank with existing client relationship.
- Confirming Bank: European bank with active oil trade lines and strong reputation with suppliers.
- LC Terms: Irrevocable, payable at sight, governed by UCP600.
- Collateral: 25% cash margin + pledge of receivables from downstream distributors.
- Documentation Flow: Payment released against Bill of Lading, SGS quality/quantity certificates, commercial invoice, and insurance policy.
Results
The LC was issued and confirmed within 12 business days. The seller accepted and loaded the vessel, delivering on time to the buyer’s port. The buyer secured fuel supply without prepayment strain, while the seller received full bank-backed payment certainty. Both banks benefitted from structured security and a clear compliance trail.
Key Lessons
Why This Matters
Energy cargoes are high value, high risk, and non-negotiable in delivery schedules. Without bank-backed structures, suppliers will not load and buyers risk defaulting on local contracts. Financely bridges this gap by structuring Letters of Credit that protect both sides and unlock trades that would otherwise collapse.
This case study is for informational purposes only and does not constitute legal, banking, or investment advice. Each transaction is subject to independent credit approval, compliance checks, and final documentation. Financely does not guarantee funding outcomes and operates strictly on a best-efforts advisory basis.
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