The Synthetic Letter of Credit is a sophisticated financial instrument used in trade finance and structured financing arrangements under Malaysian law. It combines the security and payment assurance features of traditional letters of credit with synthetic elements that allow for more flexible structuring of trade finance transactions. This document is particularly relevant when parties require alternative financing structures that may not fit within conventional LC frameworks, while still maintaining the security and certainty of traditional LCs. It must comply with Malaysian financial regulations, including the Financial Services Act 2013 and Islamic Financial Services Act 2013 where applicable, and often incorporates international trade practices such as UCP 600 principles. The document is typically used in complex international trade transactions, project financing, or when traditional LC structures may not be suitable due to specific transaction requirements or risk considerations.
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1. Parties: Identification of all parties: Applicant, Beneficiary, Issuing Bank/Financial Institution
2. Background: Context of the underlying transaction and purpose of the synthetic LC
3. Definitions: Key terms used throughout the document, including technical banking and trade finance terminology
4. Facility Amount and Currency: Specification of the LC amount and currency denomination
5. Term and Validity: Duration of the LC, including issuance and expiry dates
6. Payment Terms: Conditions for payment, including trigger events and payment mechanism
7. Documents Required: List of required documents for LC activation and payment
8. Representations and Warranties: Standard declarations by the parties regarding their capacity and authority
9. Fees and Charges: All applicable fees, charges, and commission structures
10. Events of Default: Circumstances constituting default and consequent remedies
11. Governing Law and Jurisdiction: Specification of Malaysian law as governing law and jurisdiction details
1. Islamic Banking Compliance: Required if the synthetic LC needs to comply with Shariah principles
2. Syndication Provisions: Required if multiple banks/financial institutions are involved in providing the facility
3. Security Arrangements: Details of any collateral or security provided, if applicable
4. Transfer and Assignment: Terms for transferring or assigning rights under the LC, if permitted
5. Force Majeure: Provisions for unforeseen circumstances affecting performance
6. Anti-Money Laundering Compliance: Specific AML provisions if required by the nature of the transaction
1. Schedule 1 - Form of Drawing Notice: Template for beneficiary to make drawing under the LC
2. Schedule 2 - Required Documents: Detailed list and format of all required supporting documents
3. Schedule 3 - Fee Schedule: Detailed breakdown of all fees, charges, and commission rates
4. Schedule 4 - Conditions Precedent: List of conditions to be satisfied before LC becomes effective
5. Appendix A - Standard Forms: Collection of standard forms for various notices and certificates
6. Appendix B - Payment Mechanics: Detailed flowchart or description of payment process and triggers
Authors
Relevant legal definitions
Clauses
Relevant Industries
Banking & Financial Services
International Trade
Manufacturing
Commodities Trading
Import/Export
Shipping & Logistics
Energy & Resources
Construction & Infrastructure
Islamic Banking
Relevant Teams
Legal
Finance
Treasury
Trade Operations
Risk Management
Compliance
Islamic Banking
Corporate Banking
International Trade
Credit
Relevant Roles
Trade Finance Manager
Corporate Banking Officer
Chief Financial Officer
Treasury Manager
Finance Director
Risk Management Officer
Compliance Officer
Islamic Banking Specialist
Trade Operations Manager
Legal Counsel
Credit Risk Officer
Commercial Banking Manager
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