SOUTH AFRICA: SIGNIFICANT PROPOSED CHANGES TO THE COMMERCIAL PAPER EXEMPTION NOTICE, 1994

By Casper van Heerden,Mohammed Saib Monday, August 07, 2023
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On 13 July 2023, the Prudential Authority published its proposed amendments (available here) to the Commercial Paper Exemption Notice of 1994 (Notice) and has invited all interested parties to submit their comments to it on or before 15 August 2023.

The purpose of the Notice is to allow corporates to access the domestic capital market by issuing commercial paper to raise funding from institutional investors for general corporate purposes of the issuer.

The Prudential Authority has identified that corporate bonds are being issued under the Notice for reasons other than short term funding for business/operational activities. The Prudential Authority has therefore proposed these amendments to regulate the current situation.

The main amendments relate to the following:

  • limiting the term of all instruments to 364 days;
  • stipulating that proceeds can only be used for operating capital of the issuer;
  • increasing the number of disclosures to be made in the placing documents;
  • placing continuing obligations on auditors to re-confirm compliance with the Notice whenever there is a material change; and
  • requiring Prudential Authority approval for programme establishments and debut issuances.

It is unclear how the amendments will affect already issued and outstanding notes. Ultimately though, these changes require careful consideration and thought by any companies or entities issuing notes, and by the banks advising on these transactions.