A Commercial Paper (CP) is an unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories and meeting short-term liabilities. Maturities on commercial paper rarely range any longer than 270 days. The debt is usually issued a discount, reflecting prevailing market interest rates.
In Kenya, Commercial Paper is regulated by the Capital Markets Authority (CMA) whose published draft (Guidelines for Issuance of Corporate Bonds and Commercial Paper) offers directives, procedures and qualifications for issuance.
Who Can Issue Commercial Paper?
Since Commercial Paper is an unsecured promissory note, any company issuing the paper must represent a good credit risk. Commercial Paper issuers are typically household names and have a substantial net worth. Commercial Paper is not for small companies. Investors must be willing to buy unsecured Commercial Paper based on the company’s reputation and review of the company’s financial position. Without a very strong reputation, the dealers of Commercial Paper (known as Placement Agents) would not be able to successfully sell this product.
Guarantor institutions are often large banks or insurance companies and must meet the Capital Markets Authority guidelines.
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