STERLING COMMERCIAL PAPER IS HERE
Bureaucratic considerations aside, sterling commercial paper has arrived; and, as with Beaujolais nouveau, there will be a scramble to get a first taste of the product.
Within two years it is expected that 10% to 15% of commercial borrowing in the UK will be transacted through the new market. UK merchant banks will have to be there, but they will meet stiff competition from the US houses that have dominated the Euronote market in recent years. The questions remain: how useful will sterling CP be to the corporate treasurer, and how successful will the banks be in marketing the new instrument to investors?
The UK government announced on April 29 that changes would be made in the Banking Act to provide for such as market. As expected, the first sterling CP facilities were for companies that do not have access to the acceptances market.
Property and insurance companies are the two major categories of borrower that cannot issue acceptances. Other corporate treasurers have shown an interest, but they can wait and see how demand develops.
"Initially, the market for sterling CP is likely to be 50% retail buyers and 50% banks," claimed Kevin Regan of Merrill Lynch International.