Sponsor Guarantee Agreement

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8th October 2021
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Sponsor Guarantee Agreement

Credit facilities granted by banks may include a guarantee facility in which the bank provides collateral to a foreign supplier of the borrower. When the supplier requests the bank guarantee, the issuing bank avoids putting the money out of its pocket, but requires the borrower to provide the amount of the call to the bank to transmit it to the supplier. Banks that are aware of the sponsor`s assets sometimes bypass the borrower and contact the sponsor to pay the money from the conversation to the issuing bank. Admittedly, all this is a personal guarantee in disguise and a distortion of the purpose of the aid to sponsors. A prudent and well-advised sponsor should not let this pass. One month is allowed because the notification of a capital increase to the Companies Registry Office usually takes three weeks. A similar timeline is convenient for the sponsor to find ways to finance their own credit facility. The support of sponsors is useful to save the project company if, despite the banking institutions, it does not have the means to pay the construction costs and related expenses. Heaven is the limit of the sponsor`s liability in this regard. In other words, banks expect the sponsor to have deep enough pockets for all eventualities. The only objective of sponsorship support is therefore the completion of construction. In addition, the proceeds of the project play a decisive role in the place of the sponsor.

With regard to international project financing, the liability of the promoter or promoter is limited. The final shareholders and individual shareholders of the project company must make available, in addition to syndicated bank loans, their own personal financial resources, in order to ensure that the project is completed in a timely manner. This is called limited recourse funding. As a derogation from the typical dependence on project revenues and the separation of commitments between the sponsor and the project company, Thai banks sometimes group the sponsor with the project and require a simple personal guarantee from the sponsor. Simple assistance to sponsors remains common. Rarely, banks ask for both a personal guarantee and support from sponsors in the same project, but sometimes you can see a personal guarantee “hidden” in a sponsorship agreement. Here`s the tricky part. Sometimes banks go even further, forgetting that this is only a temporary support to sponsors and not a permanent personal guarantee. They extend the cash waiting period that the promoter must cover, beyond the closing date of the project, until the date of full repayment of the loan.

Banks consider a lack of liquidity or cost overrun as a “Drawtop” event, which means that the borrower of the project company cannot draw funds from the loan until the situation is resolved.. . .