A Ltd. has been sanctioned Working Capital Limit of ₹2 crore from its banker at 11% p.a. Its tangible Net Worth is ₹6 Crore and its account is classified as a Standard Asset by banks/institutions. Till date company has n

CS Professional · Corporate Funding & Listings in Stock Exchanges · PYQS · June 2021
A Ltd. has been sanctioned Working Capital Limit of ₹2 crore from its banker at 11% p.a. Its tangible Net Worth is ₹6 Crore and its account is classified as a Standard Asset by banks/institutions. Till date company has not obtained any Credit Rating. Analysing the current trend of lower interest rate, CEO of A Ltd., Mr. X proposed to raise more funds by way of Commercial Papers (CPs) on the following terms: (i) The period of the CPs shall be of 2 years. (ii) The denomination of each CP shall be ₹1 Lakh and will be issued at Par Value. (iii) The CPs shall be issued to retail investors. (iv) The CPs shall be issued in Dematerialised Form only. (v) The quantum of issue of CPs shall be of ₹4 Crore. (vi) The trading of CPs will be purely on OTC basis. You as Company Secretary of the A Ltd. have been asked to submit a Report advising the management on the following matters: (a) Whether company is eligible for issuing Commercial Papers or not?

Answer & Explanation:

Yes, A Ltd. is eligible for issuing Commercial Papers (CPs) as it meets the following conditions, as issued by Reserve Bank of India: The tangible net worth of the company, as per the latest audited balance sheet, is not less than ₹4 crore; Company has been sanctioned working capital limit by bank/s or Financial Institutions; and The borrowal account of the company is classified as a Standard Asset by the financing banks/ institutions. However, A Ltd. shall obtain credit rating for issuance of CPs from any one of the SEBI registered Credit Rating Agencies. The minimum credit rating shall be 'A2' [as per rating symbol and definition prescribed by the Securities and Exchange Board of India (SEBI)]. The company shall also appoint an Issuing and Paying Agent for issuance of CPs.

Topics: Commercial Papers

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