In the news: QIP’s (Qualified Institutional Placements) making a comeback!

By Reshma Krishnan

The headlines yesterday screamed that QIP’s were making a comeback. (Source)

The article talked about how after a steep decline, QIP’s or Qualified Institutional Placements have come back to life after almost half a dozen companies have raised around Rs 3000 crores in September and over a dozen companies like, Bank of India, Canara Bank , IndusInd Bank , IL&FS and Mahindra CIE are said to be planning to raise a total of as much as Rs 12,000 crore in the next one to three months based on estimates arrived at by ET.

But what is a QIP? It’s a capital-raising tool that eschews the usual long-winded and expensive process of a rights issue or a further public offer.  It’s the process by which a listed company can raise money by issuing equity shares, convertible debentures, or any security, barring warrants, which can eventually be converted into equity, even at a later time. And because you don’t offer it to the general public and only offer it to QIB (Qualified Institutional Buyers) the fund raising process is much faster, always a key criteria for a company strapped for cash. Who are QIB’s? Think mutual funds, venture capital funds, private equity funds, FII’s, domestic financial institutions.
SEBI

Is there a catch? Well yes. You can’t just blindly offer it to one QIB. Sebi has mandated that you need at least two QIBs for a raise of less than Rs 250 crore and at least 5 QIB’s if it’s more than that.

 

Do they get in cheap? No. The QIP price will not be lower than the average of the high and low of the closing prices of the equity shares during the two weeks preceding the “relevant” date. The “relevant” date will be the opening date of the issue, as decided by the company’s board. Therefore it’s fair to see that a slew of QIP’s means the folks in the know feel the market is about to rise.

 

But the market just fell yesterday, you ask. What’s going to happen now? The market fell about 573 points yesterday on back of India’s surgical attacks against Pakistan. (Read Here)

 

Well, obviously those getting ready for a QIP didn’t know that. And if the market doesn’t come back up in a hurry, the average price for the preceding weeks will obviously be lower than it would have been if the market had not fallen yesterday. Welcome to the world of equities!

 

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