Blue Chips Line Up Large Commercial Paper Issues

The corporates are showing a renewed interest in the instrument following the recent credit policy announcements which freed CP from cash credit limits for corporates.

Grasim Industries has approached Credit Analysis and Research Ltd (CARE) for the rating of CP worth Rs 75 crore. The company is raising funds for its expansion plans which include a cement project.

Most of the companies are also planning to raise funds to the tune of Rs 40-60 crore from the CP market. Some of the players who have already got their CP instruments rated are now looking actively at placing CPs, said one banker.

 

We have been receiving enquiries on CPs from players like ACC, Voltas, Asian Paints, Wochardt and L & T, all of whom have shown renewed interest in the paper, said the banker. The issuers are looking at levels between 11.75 per cent and 12 per cent. These rates are very much lower than the rates prevailing in the market till a few days before the credit policy.

The issue which continues to trouble the corporates is that automatic reinstatement has not been permitted.

Moreover, outstanding dem- and loan components cannot be converted into CPs as the CP limit still has to be maintained within the maximum permissible bank finance (MPBF) limits.

However, most of the banks are in the process of borrowing money in the inter-bank money market and lending it through the CP route. Rates in the inter-bank money markets are ruling at 2.5 -3 per cent.

In the case of borrowers with assessed MPBF of Rs 20 crore or above, the cash credit component has been restricted to 25 per cent of the MPBF and the balance 75 per cent is in the form of loan component.

In the case of borrowers with assessed MPBF of Rs 10 crore or above, but less than Rs 20 crore, the cash credit component has been reduced to 40 per cent from 60 per cent.