New laws to help businesses in South Africa get funding are coming

The Prudential Authority (PA) has published draft proposals to amend the laws on commercial paper issuance for public comment.
A commercial paper is a type of unsecured, short-form debt, and is mainly used by large companies to pay their payrolls, inventories and other short-term liabilities.
According to Dawid de Villiers, Karen Couzyn and Mateen Memon from Webber Wentzel, the new amendments will include new definitions, a minimum size for issuers and a new regulatory system.
The PA said that draft amendments to the Commercial Paper Exemption Notice, 1994 (CP Exemption Notice) will improve the safety and the health of the commercial paper market.
The CP Exemption Notice looks at the provisions of section 11(1) of the Banks Act, which states that no person may conduct the “business of a bank” unless they are a public company and registered, according to the Banks Act, as a bank.
The PA can also designate certain actions as not being the “business of a bank” for purposes of the Banks Act.
One such activity is taking money from the public against the issue of commercial paper as per the CP Exemption Notice.
“The CP Exemption Notice aims to enable corporates to access the domestic capital market by issuing commercial paper to raise short-term funding from other institutional investors to fund their business/operational activities,” the experts said.
Currently, the CP Exemption Notice states that a commercial paper is largely a written acknowledgement of debt.
This applies regardless of whether the maturity is fixed or notice-period based, whether the rate is fixed or floating, and debentures (debt instruments not backed by collateral) or any interest-bearing written acknowledgement of debt has been issued for a fixed term.
Since 2018, the PA has been consulting on ways to amend the CP Exemption Notice, seeking to create a safer and stabler commercial paper market for market participants.
One such amendment is the enhancement of the definition of “commercial paper,” which would decrease the term structure of commercial paper issuances to 364 days – in line with international best practice and the main intention of the CP Exemption Notice.
“The draft amendment has introduced the requirement for all issuers, other than the central government or issuers where the CP is backed by a central government guarantee, to have net assets exceeding R100 million at a point in time no earlier than 18 months prior to the proposed issuance, as certified by the issuer’s auditors,” the experts explained.
Another key amendment would require new issuers to acquire regulatory approval for placing documents from the PA before issuance.
The PA also suggested that state-owned companies and municipalities could be named as juristic persons that could potentially issue CPs while also recommending improved disclosure requirements for placing documents.
The deadline for public comments is 15 August 2023, and the Position Paper on the Draft Amendments to the CP Exemption Notice can be found below:
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