The Hindu Business Line : More companies take QIP route to raise funds

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More companies take QIP route to raise funds

K.R. Srivats

New Delhi, Dec. 27 The Securities and Exchange Board of India’s attempts to encourage Indian companies to raise money domestically rather than going outside for American depository receipts (ADRs)/global depository receipts (GDRs)/foreign currency convertible bonds (FCCBs) seem to have paid some dividends.

Qualified Institutional Placements (QIP), a new method introduced in May 2006 for companies to raise funds from the market, has now emerged as a more favourable fund-raising route for Indian companies in comparison to ADRs/GDRs/FCCBs, say analysts and capital market observers.

“I think SEBI’s objective has been met. QIPs are attractive for companies as the issue cost is lower, the process is simpler and faster (no prior filing of draft offer document with SEBI), and compliance requirements are lighter as compared with ADRs/GDRs. Moreover, QIPs were introduced at a time when the market for FCCBs was drying up,” Ms Sonali Sinha, Associate Director, Transaction Advisory Services, Ernst & Young told Business Line.

She highlighted that in the current fiscal (2007-08) too, there has been strong issuance of QIPs with 2-3 issues like IDFC, GVK and Max India being over Rs 1,000 crore each.

Mobilisation

As per the data compiled by SEBI, 21 National Stock Exchange (NSE)-listed companies had cumulatively raised Rs 4,530 crore through QIPs in 2006-07. In 2005-06, Indian companies mobilised $3.6 billion through ADRs/GDRs. However, the next year saw the resource mobilisation level through the route coming down to $896 million.

In 2004-05, Indian companies had mobilised $826 million through ADRs/GDRs.

Meanwhile, the capital market regulator has in its latest annual report for 2006-07, tabled in Parliament recently, admitted that the resources raised through the Further Public Offering (FPO) route had declined in 2006-07 due to introduction of QIP in that year.

In 2006-07, resources mobilised through FPOs stood at Rs 1,293 crore, much lower than the level of Rs 12,358 crore mobilised through the same route in 2005-06.

“QIPs have received good response and been a success. It appears that they have curtailed the interest in ADRs/GDRs among Indian companies. This year too, response has been strong and a number of companies have gone in for QIPs,” Mr Prithvi Haldea, Managing Director of Prime Database, said.