The RBI issued some guidelines on issue of Commercial Paper on 01.01.2013.
Some of its salient features are:
Eligibility for issue of CP: Companies, PDs and FIs are permitted to raise short term
resources through CP within the umbrella limits.
A company would be eligible to issue CP if it meets the following
criteria:
1.
Tangible net
worth as per the latest audited balance sheet is not less than Rs. 4 crore;
2.
Has been
sanctioned working capital limit by banks or FIs; and
3.
The borrower
account of the company is classified as a Standard Asset by the financing bank/
institution.
Issue of CP – Credit enhancement,
limits, etc.
·
CP shall be
issued as a ‘stand-alone’ product. Further, it would not be obligatory in any
manner on the part of the banks and FIs to provide stand-by facility to the
issuers of CP.
·
Banks and FIs
may, based on their commercial judgment, subject to the prudential norms as
applicable to them, with the specific approval of their respective Boards,
choose to provide stand-by assistance/ credit, back-stop facility etc. by way
of credit enhancement for a CP issue.
·
Non-bank
entities (including corporates) may provide unconditional and irrevocable
guarantee for credit enhancement for CP issue, provided:
1.
the issuer
fulfills the eligibility criteria prescribed for issuance of CP;
2.
the guarantor
has a credit rating at least one notch higher than the issuer given by an
approved CRA; and
3.
the offer
document for CP properly discloses the net worth of the guarantor company, the
names of the companies to which the guarantor has issued similar guarantees,
the extent of the guarantees offered by the guarantor company, and the
conditions under which the guarantee will be invoked.
4.
The aggregate
amount of CP that can be issued by an issuer shall at all times be within the
limit as approved by its Board of Directors or the quantum indicated by the CRA
for the specified rating, whichever is lower.
5.
Banks and FIs
shall have the flexibility to fix working capital limits, duly taking into
account the resource pattern of company’s financing, including CP.
6.
An issue of
CP by an FI shall be within the overall umbrella limit prescribed in the Master
Circular on Resource Raising Norms for FIs, issued by the Reserve Bank of
India, Department of Banking Operations and Development, as prescribed/updated
from time-to-time.
7.
The total
amount of CP proposed to be issued should be raised within a period of two
weeks from the date on which the issuer opens the issue for subscription. CP
may be issued on a single date or in parts on different dates provided that in
the latter case, each CP shall have the same maturity date.
8.
Every issue
of CP, and every renewal of a CP, shall be treated as a fresh issue.
Form of the Instrument, mode of issuance and redemption
Form
1.
CP shall be
issued in the form of a promissory note (as specified in Schedule I to these
Directions) and held in physical form or in a dematerialized form through any
of the depositories approved by and registered with SEBI, provided that all RBI
regulated entities can deal in and hold CP only in dematerialized form
through such depositories.
2.
Fresh
investments by all RBI-regulated entities shall be only in dematerialized form.
3.
CP shall be
issued in denominations of 5 lakh and multiples thereof. The amount invested by
a single investor should not be less than 5 lakh (face value).
4.
CP shall be
issued at a discount to face value as may be determined by the issuer.
5.
No issuer
shall have the issue of CP underwritten or co-accepted.
6.
Options
(call/put) are not permitted on CP.
Tenor
1.
CP shall be
issued for maturities between a minimum of 7 days and a maximum of up to one
year from the date of issue.
2.
The maturity
date of the CP shall not go beyond the date up to which the credit rating of
the issuer is valid.
Procedure for Issuance
1.
Every issuer
must appoint an IPA for issuance of CP.
2.
The issuer
should disclose to the potential investors, its latest financial position as
per the standard market practice.
3.
After the
exchange of confirmation of the deal between the investor and the issuer, the
issuer shall arrange for crediting the CP to the Demat account of the investor
with the depository through the IPA.
4.
The issuer
shall give to the investor a copy of IPA certificate to the effect that the
issuer has a valid agreement with the IPA and documents are in order (Schedule II).
Rating Requirement
Eligible
issuers shall obtain credit rating for issuance of CP from any one of the SEBI
registered CRAs. The minimum credit rating shall be ‘A3’ as per rating symbol
and definition prescribed by SEBI. The issuers shall ensure at the time of
issuance of the CP that the rating so obtained is current and has not fallen
due for review.
