In its bid to widen the bond market, the Reserve Bank has relaxed commercial paper (CP) issuances by lowering the minimum required credit rating to A3 from A2 as well as the ticket size from Rs 10 lakh to Rs 6 lakh. “CP shall be issued in minimum denomination of Rs 5 lakh and multiples of Rs 1 lakh…the minimum credit rating for a CP shall be ‘A3’ as per rating symbol and definition prescribed by Sebi,” the Reserve Bank said in a new notification under the Commercial Paper Directions 2017, issued by its financial markets regulation department.
Earlier minimum required rating was A2, while the minimum ticket size was Rs 10 lakh. It can also be noted that many small companies have been facing difficulties in raising funds from the money market as they do not enjoy good credit ratings and this move will help such companies raise debt capital.
The notification said eligible issuers shall obtain credit rating for issuance of CP from at least two Sebi-registered rating agencies, and should adopt the lower of the two ratings.
It also said CP may be issued at a discount to face value but CPs are an unsecured money market instrument issued in the form of a promissory note. The original tenor of a CP lies between seven days to one year. CPs are held in a dematerialised form through any of the depositories approved by and registered with Sebi.
RBI also made it mandatory to report secondary market trading and settlement within 15 minutes of the trade to the Financial Market Trade Reporting and Confirmation Platform (F-Trac) of Clearcorp Dealing System India.
It also said CPs can be bought back in full or part, at prevailing market price and the buyback offer should be extended to all investors in the CP issue and should not be made before 60 days from the date of issue. Once bought back CPs shall stand extinguished.
The apex bank further said the issuer has to ensure that the proceeds should be used to finance only current assets and operating expenses. The end use must be explicitly disclosed in the offer document. The issuer should also furnish the board resolution authorising the company to borrow through CP to IPAs (issuing and paying agents).
The issuer also has to submit a certificate from CEO/CFO to IPAs on quarterly basis that the CP proceeds are used for the disclosed purposes only.