Issue of Commercial Paper

Commercial paper is an unsecured money market instrument issued in form of a promissory note.

Eligibility criteria for NBFC: NBFCs are eligible to raise funds through issue of commercial papers (CP) subject to the condition that any fund based facility availed from banks and/or financial institutions is classified as a standard asset by all financing banks/institutions at the time of issue.

Tenure: 7 days to 1 year

Use of Funds: the exact end use shall be disclosed in the offer document at the time of issue of a CP.

Conditions for Issue:

1. It should be issued as a stand-alone product.
2. CP to be in the form of a promissory note as per the prescribed format.
3. It should be held in dematerialised form through depositories registered with SEBI.
4. Minimum denomination of Rs.5 lakhs and multiples thereof.
5. Issued at a discount to face value.
6. The issue of CP not to be underwritten or co-accepted.
7. Call and Put options not permitted.
8. Banks and FIs may, based on their commercial judgement, choose to provide stand-by assistance/credit, back-stop facility etc. by way of credit enhancement for a CP issue.
9. Non-bank entities (including corporates) may provide unconditional and irrevocable guarantee for credit enhancement for CP issue provided 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.

Rating: Issuers whose total CP issuance during a calendar year is 1000 crore or more, shall obtain credit rating for issuance of CPs from at least 2 CRAs (w.e.f October 01, 2017) registered with SEBI and should adopt the lower of the two ratings.

Where both ratings are the same, the issuance shall be for the lower of the two amounts for which ratings are obtained.

The minimum credit rating for a CP shall be ‘A3’ as per rating symbol and definition prescribed by SEBI.

Procedures: Issuers to follow standard procedures and documentation prescribed by Fixed Income Money Market and Derivatives Association of India (FIMMDA) as ‘Operational Guidelines on CPs’.

Secondary market trading and settlement of CP

1. All OTC trades in CP shall be reported within 15 minutes of the trade to the Financial Market Trade Reporting and Confirmation Platform (“F-TRAC”) of Clearcorp Dealing System (India) Ltd.
2. The settlement cycle for OTC trades in CP shall be T+0 or T+1.
3. OTC trades in a CP shall be settled through the clearing corporation of any recognized stock exchange or any other mechanism approved by RBI.

Buyback of CP

1. The buyback of a CP, in full or part, shall be at the prevailing market price.
2. The buyback offer should be extended to all investors in the CP issue.
3. The terms of the buyback should be identical for all investors in the issue.
4. The buyback offer may not be made before 30 days from the date of issue.
5. CPs bought back shall stand extinguished.

Duties and obligations of the Issuer

The issuer of CP shall -

i.                  Appoint an IPA (Issuing and Paying Agent) for issuance of a CP.

ii.            Comply with all relevant requirements under these directions and furnish a declaration in this regard to the IPA.

iii.               Ensure that the proceeds from CP issues are for declared end uses.

iv.               Furnish the board resolution authorizing the company to borrow through issuance of a CP to the IPA.

v.                Keep the bank(s) from whom it has outstanding fund or non-fund based credit facility(ies) informed of its market borrowings, including through CPs, latest by the end of the month in which a CP was issued.

vi.       Arrange for crediting the CP to the demat account of the investor with the depository through the IPA within 7 days of issue.

vii.              Route all subscriptions/redemptions/buybacks/payments and default details through the IPA.

viii.          *Make disclosures in the offer document.

ix.             Submit a certificate from the CEO/CFO to the concerned IPAs on quarterly basis that CP proceeds are used for disclosed purposes, and certifying adherence to other conditions of the offer document and the CP directions. The certificate may be provided within 15 days from the close of the quarter.

x.                Inform the CRA and IPA on the same day about any default/delay in CP related payments.

xi.               The issuer who has defaulted on a CP shall not be allowed to access the CP market for six months from the date of repayment of the defaulted obligation.

*Disclosures in Offer Document:

Ø  Details of outstanding CPs and other debt instruments as on date of new issuance including date of issuance, amount issued, maturity date, amount outstanding, credit rating, name of credit rating agency and name of IPA.

Ø  Summary of last three years audited financials or if the issuer has not been in existence for three years, available audited financials, material litigation and regulatory structures.

Ø  Details of default of CPs or any other borrowings for past three years.

Ø  Details of current tranche including amount, current credit rating, name of credit rating agency, its validity period and details of IPA.

Ø  End-use of funds.

References:

RBI Master Circular

Contact:

CS Divyanshu Bansal

Email ID: divyanshubansal401@gmail.com

Ph: 9958381905