Why listed companies prefer QIP to other ways of fundraising?

All the companies are established with the plan of growth and development and the expansion in the later stage of development, so with the amount invested through the QIP the fresh capital infusion happens in the listed company and this helps the company to recover from the debts for the small tenures. Sometimes QIPs are issued also to reduce promoters holding in the company.

As already discussed, Any company or institution is formed with the motive of long-term stability through growth and profits. All the companies or institutions who are listed on the Indian stock exchange, such as BSE or NSE, need some fresh funds during their course of growth in different forms like through equities or derivatives. 

Equities means raising money through the shares allotments in the IPO when the company is first listed on the stock exchange or the FPO(follow on public offer)means when the company needs more money for expansion. This way any company or organization can raise money listed on the Indian stock market.

But the company has some limitations for issuing fresh shares in the market and this limits the company’s options to raise money from the market. The solution to this issue is the QIP, and the company can easily raise funds through this method.

Let us understand one by one all the nitty gritty about QIP:

What is QIP?

QIP is called qualified institutional placement, let’s break each word and understand what it means exactly.

Q in the QIP: The qualified means the organization whose are well-qualified means having huge experience in the stock market for the last 10+years are called as qualified institutions because they carry a huge amount of analytical skills to understand the intrinsic value means the real capacity of the share price of the company in the present and in the future so they are called as the qualified.

I in the QIP: The institution tells more about the source of the money to be raised. This means through this process it is a huge amount and thus it’s rarely possible that any individual is having his net worth in crores so the investment is done through the large organizations who are called as the institutions…

P in the QIP: The placement means for this  the bulk transactions happen and they get placed after the initial scrutiny of the Sebi because of this its called as the placement of the transactions 

So all to sum up in simple words QIP is the way of raising the money by the companies who are already listed on the Indian stock exchange and this money is raised from large institutions or investors.

Who is QIB?

The large organizations who want to buy the stick in the company through equity mean shares are called QIB means simply qualified institutional buyers. For example, recently SBI was the QIB for the purchase of some equity stake in the yes bank and from these QIP transactions yes bank raised money to improve their balance sheets.

But why was QIP introduced?

 Before 2006 for any company to raise money in the domestic market there was the need for so much paperwork and slow mode of results from the paper works and then very less fund transfer in actual from this paper works for all the Indian institutions who are in real need of funds for their growth plans.

so companies use to raise money from big foreign institutions in the form of via American depository receipts (ADRs), foreign currency convertible bonds (FCCBs), and global depository receipts (GDR), but this is not advisable for any domestic companies developments is the company will be mostly dependent on the foreigner funds for all their growth plans.

So in 2006 Sebi introduced QIP means quantitative investment placement through which any company listed on the Indian stock market can raise money quickly from some particular investor in the quickest possible ways and with the least documentation and paper works.

From whom and where Shares for QIP are allotted?

All the listed companies on the company hierarchy of shares division means some are with the promoters, some with investors, and rest in the open market with the retail investors. when the company wants to raise the money the shares from the promoter’s stakes are sold to the interested inverters. This reduces the stake of promoters by some percent but the company is able to raise large amounts of capital for the growth plans.

How is the QIP issued?

There are different ways to issue QIP but the 2 major ones are as floors:

  1. Qip up to  250 cr.: in these placements up to 2 invested can only invest as per the rules of the Sebi.
  2. Qip of 250 crs and above: in these placements up to 5 investors are allowed to invest but with one condition that none of the 5 investors is allied to have more than 50% investment in the QIP placements means for example QIP is of 300cr. 1 inverter who wants to do the maximum possible investment can invest up to 150 crs only can the rest 150 cores will be compulsorily produced by the remaining 4 investors, as per the Sebi rules.

The promoters are not allowed to participate as investors in the QIP. Along with this rule in any QIP plans irrespective of any value 10% investment has to be done in the form of mutual funds may be direct from the investments of some stack of investment. 

For example, If any QIP is of 100 cr any 2 interested investors are going to invest in it then 20 cr of the total amount has to be invested by them from any mutual funds organizations and this can be their company or any other company in which they have already invested so this 20 crs needs to be invested by the MF company on behalf of some part of the investment from them.

Is there any discount given to the QIB investors?

Yes, the small amount of devout us given to the invites after calculating the average of last weeks trades prices .giving this discount is a win-win situation to both the company and the investors this is because the shares are produced in the bulk order and this bulk purchase reflects in to increase in the shares prices on the next day of share market prices instantly. 

What are the examples of QIP fundraising?

There are many regular examples of fundraising through the QIP but some of them are as follows:

  • Shriram Transport launched its Rs 2,000 cr QIP on June 7, 2021
  • The banking institution, Bank of Maharashtra will raise up to Rs 2,000 crore through the QIP route before July-end 2021.
  • Telecom company VI plans to raise Rs 7,000 crore through QIP in the year 2021.
  • Banking institution, Bank of Baroda raises Rs 4,500 crore through QIP in march 2021.

So yeah, there’s a lot of fundraising planned and happening in the Indian industry segments this year and in the near future too, if you have a hot take on the matter, don’t forget to share your views now on Twitter

Until then…

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