Commercial Paper…Direct Finance Discount at face value, negotiable…Shift ability… transferable……. imparts liquidity CPs have a minimum maturity of 7 days.

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Commercial Paper…Direct Finance Discount at face value, negotiable…Shift ability… transferable……. imparts liquidity CPs have a minimum maturity of 7 days and maximum of 1 year….in India in US it can’t be more than 270D… in UK 7D-1 Y Benefits It has flexibility in terms of maturity so that the borrower is able to choose the period to maturity for any issue…tailor made maturities..also it can issue when ROI is favorable Lower interest rates by issuing CP vs ROI on Short Term Bank Borrowing A CP program can be arranged quickly as compared to Bank Loan High Liquidity….Transferability……..Commercial Papers are actively traded in the secondary market Chances of default are almost negligible but are not zero risk instruments

Cash Flow of Commercial Paper (CP)…  CPs are also discount instruments (face value > issue Price)  The issue price is calculated as follows : P =  F = Face Value  P = Issue Price of CP  r = yield  M = maturity 1.Example F = 2,00,000, ROI =6.5%, m =120 days Issue price (P) = 2,00,000/ 1+(6.5*120)/100*365 = 1,95,815 2.Example….M=180D, F= 5,00,000..D(Discount Rate) = 8%...IP=?....Current Yield = ? Discount amount = 5,00,000*8%*180/365 = 19,726….IP = 5,00,000 – = 4,80,274 Y = (19726/480274)*(365/180) = 8.33%....from Investor point of view Discount Rate….Issuer Point of View Yield……Investor Point of View

Eligibility for issue of CP The tangible net worth of the company, as per the latest audited balance sheet….is not less than Rs. 4 crore; the company has been sanctioned working capital limit by banks for ……meeting the working capital requirements The borrowal account of the company is classified as a Standard Asset by the financing bank/s. All eligible participants should obtain the credit rating for issuance of Commercial Paper…. The minimum size of issue is Rs.25 lakh Amount invested by a single investor should not be less than Rs.5 lakh (face value) ….5000 nos. of CPs CP can be issued in denominations of Rs.5 lakh or multiples thereof. The total amount of CP proposed to be issued should be raised within a period of two weeks from the date on which the issuer opens the issue for subscription iles/PR/Essar%20Steel%20India%20Ltd pdf iles/PR/Essar%20Steel%20India%20Ltd pdf

Rating Requirement…..CP All eligible participants shall obtain credit rating for issuance of Commercial Paper from either the Credit Rating Information Services of India Ltd. (CRISIL) or the Investment Information and Credit Rating Agency of India Ltd. (ICRA) or the Credit Analysis and Research Ltd. (CARE) or the FITCH Ratings India Pvt. Ltd. or such other credit rating agencies as may be specified by the Reserve Bank of India from time to time, for the purpose. The minimum credit rating shall be A2 by any rating agencies. The issuers shall ensure at the time of issuance of the CP that the rating so obtained is current and has not fallen due for review. esources/OutstandingRating.aspx esources/OutstandingRating.aspx