Case Study: L/C Issuance and Independent Confirmation Enables Jindal Saw to do Business with Iraq

The Indian steel and manufacturing company Jindal Saw received an order worth US$168 million from Iraq, with another potential order of $150m provided the quality of goods supplied under the first contract was of an acceptable standard. Jindal Saw’s senior management was not keen to supply material to Iraq, however, without assurance on the payment, due to limited control after supplying the material and the volatile nature of Iraq. 

The big trade finance challenge for the corporate treasury therefore was to cover the sovereign risk in an acceptable manner. A solution that did not imperil the credit lines of Jindal Saw was required, while still providing funding for the goods supplied in the shortest possible timeframe after being shipped from India.

Finding the Best Trade Finance Solution

Jindal Saw began discussions with their Iraqi client to find the best option to deliver assurance on payments once the goods were dispatched from India and one option, which both parties could mutually accept, was to supply material under a $168m Letter of Credit (L/C) issued by the Trade Bank of Iraq. 

Senior management still remained hesitant, however, and asked the treasury to go back to the table arguing for the need for an international bank that had the necessary capability, experience and expertise to be involved in the trade finance solution and to manage the transaction for the supplier. 

Jindal Saw officials approached Citi, Caylon Bank and other competing banks to propose a solution where either a bank of international stature, or their relationship bank, could provide confirmation on the L/C issued by the Trade Bank of Iraq. They were looking for a one-stop-shop solution covering L/C advisement right through to payment realisation, but crucially one that met all of the senior management team’s requirements to minimize the risks associated with the trade. Even last year when this trade deal was put together for delivery this year and on-going future deliveries of material, Iraq was still considered to be a volatile country with irregular outbreaks of violence and some unstable financial, governmental and corporate governance structures. 

Citi won the contract to supply the extra assurance that was desired. Its strategy was to design a unique structure where a 100% cash margin is placed by Trade Bank of India with Citi in Dubai, United Arab Emirates (UAE) subsequent to the issuance of the L/C, thus covering Citi in Dubai of all risks under the $168m L/C issued by the Trade Bank of Iraq. Upon export, Jindal Saw would submit the documents under the L/C to Citi in India, who would jointly scrutinize the documents and immediately release the payment to Jindal Saw.  

Citi’s structure allowed Jindal Saw to receive ‘exports proceed’ notification immediately upon document submission. On the back-end, Citi entered into an arrangement with the Trade Bank of Iraq on a 100% cash deposit model, thereby covering a credit risk free confirmation, as well as earning revenues for itself in excess of $1m by acting as backer for the trade finance deal. 

Overcoming the Obstacles  

The challenges of cross-border risk mitigation and realising secured payments as quickly as possible were the two primary challenges associated with financing this deal. The importer in Iraq would need credit and would not agree to an upfront payment, while the credit appetite of the original L/C issuing bank, the Trade Bank of Iraq which was facilitating the deal locally, also needed to be taken into consideration.  

An innovative one-off ‘double L/C’ solution was developed to meet the various demands, including the supplier’s demand for risk assurance and quick payment after shipping. 

The deal was complex due to the limited capability of banks to add confirmation on the original L/C as a result of fears about political instability in Iraq. Citi in India discussed the challenges with the Citi team in Dubai and they in turn discussed the trade finance solution with the Trade Bank of Iraq, hammering out the final details. 

Citi was chosen to implement the strategic one-stop-shop solution where Citi in India could independently confirm the L/C issued by Trade Bank of Iraq, even though the importer was located in a trade sensitive location. The $168m instrument was issued without actually placing any credit risk on the L/C issuing bank as Citi agreed to take this on as part of its $1m fee. The unique structure for the confirmation of the L/C was a true differentiator for both the client and the market, and it ensured a successful delivery and subsequent order for $150m this year. 

The key benefits of the bespoke L/C arrangement were:  

  • Significant risk reduction.  
  • Quick payment.  
  • An expanded role for treasury within the corporate and the establishment of a template for future deals.  
  • Compliance with all necessary regulatory, governmental and financial control requirements.  


The trade finance solution developed by Citi for Jindal Saw addressed the concerns of both the treasury and the senior management at the firm to realise the funds immediately after the shipment of goods and to minimize the risk. The eventual solution deployed offered the ability to remain with the existing L/C issuing bank, Trade Bank of Iraq, as preferred by the applicant, while still delivering the desired capability to cover the associated sovereign risks and the flexibility needed to approve the large value order internally at the manufacturer. 

The structure of the solution reduced the days sale outstanding (DSO) drastically and required no utilisation of credit lines, so working capital was not adversely affected. The structure was particularly innovative believe the participants: reissuing the L/C from Dubai to India to add the required confirmation and structuring on the back of the original L/C with a 100% cash collateral margin kept by Trade Bank of Iraq, covered the credit risks involved with the instrument and enable the deal to go ahead. It also provided a template for future deals and acted as a trade finance solution should by facilitating a deal that may not have happened otherwise. All parties were satisfied with the solution and Iraq got some of the industrial and manufacturing equipment that it needs to rebuild the country.