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: (b) Whether company can issue CPs for ₹4 Crore and that too in Dematerialised form only for the period of 2 years or not?

Answer & Explanation:

CP can 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). Therefore, the Company can issue CPs for ₹4 crore. While option is available to company to issue/hold CP in dematerialised or physical form, issuers and subscribers are encouraged to opt for dematerialised form of issue/ holding. However, banks, Financial Institutions (FIs) and Primary Dealers (PDs) are required to make fresh investments and hold CP only in dematerialised form. CP can be issued for maturities between a minimum of 7 days and a maximum of up to one year from the date of issue. The maturity date of the CP should not go beyond the date up to which the credit rating of the issuer is valid. The Company therefore, can issue CPs for a period of 1 year or up to the period for which credit rating will be valid.

Topics: Commercial Papers

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