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: (c) Whether company can issue CPs to Retail Investors at Par Value in denomination of ₹1 Lakh each and trading shall be possible purely on OTC basis or not?

Answer & Explanation:

Commercial Paper 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). Hence, company cannot issue CPs in denomination of ₹1 lakh. CP may be issued to individuals, banking companies, other corporate bodies (registered or incorporated in India) and unincorporated bodies, Non-Resident Indians and Foreign Institutional Investors (FIIs). The initial investor in CP shall pay the discounted value and not the par value and that too by means of a crossed account payee cheque to the account of the issuer through Issuing and Paying Agent (IPA). Though CPs can be traded on OTC but all trades shall be reported within 15 minutes of the trade to the reporting platform of Clearcorp Dealing Systems (India) Ltd. (CDSIL). Additionally, the SEBI has prescribed framework for listing of Commercial Papers. Post listing, CPs will be available for trading on stock exchange's trading platform.

Topics: Commercial Papers

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