POF Importance

Proof of Funds Importance

Parties in the deal.

  • Seller = NNPC
  • Consignee = NNPC approved reseller
  • Buyer = the entity signing the purchase agreement
  • End Buyer = Refinery

Now when we get approval for the price and procedure we want to try and get the buyer pre-qualified prior to signing a letter of intent to purchase.
At that point we send out the verbiage for the MT799 (it contains blocked funds verbiage) or MT760
This is important at this stage for two reasons; one, we want a signed contract to be able to close and two, we want the buyers to keep their integrity.
We have learned that some buyers will sign a contract and either not read the language in the addendum or not check with their bank for approval or sign the contract knowing full well that they can not block funds (because they do not have enough funds to do so). Most buyers are intermediary buyer/sellers, which means they are buying to resell to a refinery. When a buyer like that is looking at 3-4% profit they can not rent an SBLC for 5%. Then the buyer and his bank has to go back and forth with the banking verbiage to get it approved with their bank and the seller’s bank. We are fortunate to have a NNPC Approved Fiduciary (Consignee) that has three different banks and has some flexibility but it is painful. How can the buyer hold up his head when he has signed a contract and does not have the money to purchase. We want everybody to feel good about the deal.

You might say; It is just a POF, what's the big deal?

If the NNPC is going to allow its vessel and cargo to go half way around the world with just a notice that the buyer has the money, they want to make sure the money is still there when the vessel arrives.
So the NNPC requires the Consignee to guarantee payment by putting up their own MT99 or MT760(SBLC) or maybe a BG.

That means the Consignee’s bank has to get involved in providing a corporate instrument to the NNPC based on the strength of the buyers POF. Since the Consignee’s bank can not lien or draw on a POF they want the language to be pretty strong and they want the buyer’s bank to be responsible to hold funds and be willing to pay once the cargo arrives.

Without the Consignee’s bank approving the verbiage and issuing an instrument with the NNPC the vessel can not be loaded.

Most buyers in the market today are actually not end buyers, they are intermediaries.
That means most buyers do not have money.
If they had done their job correctly they would have done a contract with the end buyer but most do not tie up that end FIRST and therefore can not show the end buyers banking strength in their account and then may have a problem providing blocked funds.

That is when they start to hedge and say instead the will provide a DLC. But a DLC is not any better because it is just like a POF but weaker because it requires the buyers approval in order to be drawn on. Then they start to squirm and raise the trust issue. They conveniently forget they signed a contract stating that they had the funds.

In fact this business is simply bank to bank, so we get the buyer to pass the MT799 verbiage through their bank so they can enter a contract with their head held high.

Below is a sample  MT799 verbiage:

WE, [XXXXBANKXXXXX], LOCATED AT  [XXXXXXXXXX]  REPRESENTED BY THE UNDERSIGNED OFFICERS, FOR AND ON BEHALF OF OUR CLIENT, _______HEREBY CONFIRM WITH FULL LEGAL AND BANKING RESPONSIBILITY AND LIABILITY THAT WE HOLD ON A FIXED DEPOSIT ACCOUNT OF OUR CLIENT MR _____WITH ___ PASSPORT NUMBER ___ UNDER  ___ ACCOUNT NAME ___ ACCOUNT NUMBER ___ CASH FUNDS ON A FIXED DEPOSIT IN THE AMOUNT OF FIVE HUNDRED MILLION UNITED STATES DOLLARS ($500,000,000 USD).

 

WE [XXXXXX] HEREBY CONFIRM WITH FULL LEGAL AND BANKING RESPONSIBILITY THAT THE FUNDS ARE GOOD, CLEAN, CLEAR FREE OF ANY LEVY LIENS OR ENCUMBRANCES, FREELY CALLABLE WITHOUT ANY RESTRICTIONS. THE RULE OF FULL DISCLOSURE HAS BEEN ESTABLISHED THAT THE FUNDS WERE LEGALLY OBTAINED FROM NON-CRIMINAL BUSINESS ACTIVITIES. AND ARE FREELY AVAILABLE FOR INVESTMENT PURPOSES AND CAN BE USED TO OBTAIN LINES OF CREDITS ON A NON-DEPLETION BASES WITHIN THE ACCOUNT.

 

FURTHERMORE WE [XXXXXXXX], CONFIRM BY VIRTUE OF THIS OPERATIVE INSTRUMENT BY AN AUTHENTICATED SWIFT MT799 AND AS PER INSTRUCTION OF OUR CLIENT/BENEFICIAL OWNER OF THE FUNDS THAT WE HAVE IRREVOCABLY BLOCKED/TITLED RESERVED AND ASSIGNED THE AFOREMENTIONED FIXED TIME DEPOSIT BACKED BY CASH FUNDS IN FAVOUR/ BENEFICIARY OF[XXXXXXXXX] FOR FURTHER BENEFIT OF ITS CLIENT FINANCIAL  CENTER FOR [XXXXXXXXXXX} WITH UNITED STATE DOLLAR ACCOUNT NUMBER [XXXXXXXXX]

 

THIS CONFIRMATION OF IRREVOCABLE BLOCKED/TITLED RESERVED AND ASSIGNED FIXED TIME DEPOSIT CASH FUNDS IS ASSIGNABLE, TRANSFERABLE AND CAN BE CONFIRMED BY INTERBANK SWIFT SYSTEMS OR ON A BANK TO BANK BASIS. AND WILL RETAIN THE SAME TERMS AND CONDITIONS UPON ANY ASSIGNMENT OR TRANSFER TO ANY NEW BENEFICIARY.

 

WE CONFIRM THAT THESE FUNDS HELD IN OUR CUSTODY ARE NOT PERMITTED TO BE WITHDRAWN MOVED OR TRANSFERRED DURING THE PERIOD FROM ONE YEAR AND ONE MONTH FROM TRANSMISSION.

 

THIS CASH BACKED FIXED TIME DEPOSIT GUARANTEE IS AN OPERATIVE AND AUTHENTICATED INSTRUMENT GOVERNED AND SUBJECT TO THE UNIFORM CUSTOMS AND PRACTICES OF DOCUMENTARY CREDITS OF THE INTERNATIONAL CHAMBER OF COMMERCE PUBLICATION NUMBER 500/600 OR ITS LATEST REVISION AND MAY BE CONFIRMED ON A BANK TO BANK BASIS.

 

Information provided by the AluminumNow Group and is for information only as the procedures are changing.