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Qualified Institutional Placement allowed to boost domestic markets

Mumbai , May 8

The Securities and Exchange Board of India (SEBI) on Monday allowed listed companies to raise funds from the domestic markets through Qualified Institutional Placement (QIP) of securities with no pre-issue filings with the regulator. This move is to encourage Indian companies to raise funds from domestic markets instead of tapping overseas markets.

As per the guidelines, issuers will have to allocate a minimum of 10 per cent of such placements to mutual funds. For each QIPs, there shall be at least two allottees for an issue size of up to Rs 250 crore and at least five allottees for an issue size in excess of Rs 250 crore. "Further, no single allottee shall be allotted in excess of 50 per cent of the issue size," the guidelines stipulated. The securities issued through QIPs will be equity shares or any securities other than warrants that could be converted into (or exchangeable) with equity shares, SEBI said in a circular.

The placements of these specified securities could be made only to Qualified Institutional Buyers (QIBs), while a minimum of 10 per cent in each such offer should be allotted to mutual funds, the regulator said. Promoters or those related to the issuers are barred from participating in such issues.

Less cumbersome

Since the proposed alternative mechanism of fund raising route for listed companies in the domestic market to informed institutional investors, the disclosures and procedural stipulations would be relatively less compared to the public issue process. "This will allow the listed companies to tap for funds in a much quicker way," said an investment banker.

SEBI said the aggregate funds that can be raised through QIPs in one fiscal year should not exceed five times of the net worth of the issuer at the end of the previous year. The pricing of the specified securities will be similar to that for GDR/FCCB (global depository receipts/foreign currency convertible bonds) issues and it will enjoy all benefits of corporate actions such as stock splits, rights issue, bonus issue and so on.

The regulator's move comes after a report by the SEBI-committee raised concern over the growing number of Indian listed companies tapping funds through the GDR/FCCB routes. For instance, while the number of follow-on public issues in domestic markets during 2001-02 to 2004-05 period rose from zero to six, the number of GDRs/FCCBs from listed Indian companies grew by three-fold from three to 42, the committee had said. "It appears that the GDR/FCCB route is preferred by listed companies mainly on account of its time and cost effectiveness. While, on the one hand, this is resulting in a gradual export of the domestic market, on the other hand, it is impacting the depth of the domestic markets," the report had said.

More Stories on : Regulatory Bodies & Rulings | Private Placement | Overseas Borrowings

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