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solution

What are the risks for IBMM?

in the following case
The bank has received a request to issue an advance payment guarantee from their client, IBMM. This is in respect of the supply of four concrete cutting machines to a new customer, RoadWars. Because IBMM has not dealt with the buyer before and funds will be required to assist in the procurement of parts and the manufacture of the machines, a deposit of USD 555,415 representing 40% of the total contract value is required from the buyer. The buyer requires a demand bank guarantee to secure the return of the deposit monies should the machines not be supplied. The wording of the required guarantee has been supplied by the buyer (beneficiary) and is shown below. This is known as ‘private text’. TO IBMM ADVANCE PAYMENT GUARANTEE In furtherance of contract number 71154 between the applicant, IBMM (the seller) and the beneficiary RoadWars (the buyer), we Guarantor Bank hereby irrevocably undertake to pay the Beneficiary any amount up to the Guarantee value of USD 555,415 upon presentation of the Beneficiary’s first written demand. This guarantee is assignable, transferable and shall be governed by the laws of thebeneficiary’s country and subject to the exclusive jurisdiction of their courts. This guarantee will remain open for the receipt of claims until returned to Guarantor Bankby the Beneficiary for the express purpose of cancellation. The machines will be delivered in four separate shipments over the next 6 months. In this case study, the applicant’s bank will be issuing their own guarantee to the beneficiary.

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