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Informist, Tuesday, Jan. 7, 2025

 

--IFSCA chairman: Plan for CP issuance by GIFT City corporates yet to launch

--CONTEXT: IFSCA chairman had said CP issues in GIFT City to start from Sept

--IFSCA chairman: FX borrow norms pose challenge to CP issuance in GIFT City

 

By Sunil Raghu

 

AHMEDABAD - The plan to enable corporate entities in the Gujarat International Finance Tec-City, or GIFT City, to raise short-term funds through commercial papers is getting delayed due to a regulatory hitch, International Financial Services Centres Authority Chairman Kalyanaraman Rajaraman said.

 

"There seems to be some difficulty in issuance of commercial papers. I am told that it is not possible under the external commercial borrowings framework!" Rajaraman told Informist in a brief chat recently. He pointed out that the existing framework for external borrowings does not allow trading in instruments below a certain maturity threshold.

 

As per the norms issued by Reserve Bank of India, the minimum average maturity period for all external commercial borrowings is three years, irrespective of the amount of borrowing. However, if the ECB is raised from a foreign equity holder and utilised for working capital, general corporate purposes or repayment of rupee loans, the maturity period will be five years. Commercial papers are unsecured, short-term debt instruments with a maturity period typically ranging from one week to one year, issued by any corporate entity or financial institution.

 

Rajaraman had said in June that the issuance of commercial papers would begin at IFSC by August or September 2024. IFSC had even set up a team to work on the modalities of setting up a market for commercial papers at GIFT City. The idea behind facilitating issuance and listing of commercial papers at GIFT City was to provide a channel for companies, both Indian and global, to raise short-term resources from global markets. The commercial paper segment has emerged as a preferred short-term fundraising route for corporates as bank loans have become relatively costlier amid the increase in the marginal cost of funds-based lending rates. Moreover, mutual funds in the country have large corpuses to invest in these commercial papers, which helps corporates meet short-term debt requirements at a manageable cost.

 

Rajaraman said that as for certificate of deposits, GIFT City has 28 operational banks that have a fairly large asset base and that they can start issuing CDs.  End

 

Edited by Ashish Shirke

 

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