Provide opportunity for companies to raise funds domestically
A companycan phase out its QIP and can do 2 QIPs at a 6-month interval.
In GDR,one has to convert accounts to IFRS; for QIP, audited results are more than enough.
ADRs andGDRs can be issued only to foreign investors; QIP is primarily issued to Indian institutions.
Mumbai, Sept. 21
Qualified institutional placements (QIPs) are fast gaining ground as an alternative, viable route of raising money for mid-cap companies. Touted as the best method by which any company can go in for a follow-up offering of any kind, it is being viewed as the new mantra to ensure a vibrant onshore private placement equity market.
Only listed companies can opt for the QIP route. A company can phase out its QIP and can do two QIPs at a six-month interval. Also, promoters cannot acquire a stake in the QIP as it is reserved only for institutions such as FIIs, SEBI-registered venture capital funds, mutual funds, insurance companies and other institutional investors.
While Edelweiss Capital can claim first mover advantage given that they were the first company to complete QIP of Rs 46.59 crore for Spentex Industries Ltd, Kotak Investment Bank soon followed close behind doing $75 million placement for Kalpataru Power.
Though Edelweiss and Kotak appear to have set the ball rolling, many other merchant bankers are increasingly indicating their willingness to promote this route as a viable tool for raising funds over depository receipts (ADRs/GDRs), follow-on issues and preferential allotment of equity shares by a company.
"QIPs will soon see the small company GDR market get phased out. It provides an opportunity to buy non-locking shares and as such is an easy mechanism if corporate governance and other required parameters are in place," said Mr Naresh Kothari, Head Institutional Equities, Edelweiss. He said going forward one would see more instrument innovation-taking place.
Many merchant bankers are of the view that the mid-cap definition could be extended and even say a company with Rs 1,000 crore-1,500 crore market cap can look at this route.
QIPs are also the most cost-efficient route to raise money, adds Mr Vikram Seth, Senior Vice-President, Investment Banking, Edelweiss Capital. "The cost differential vis-à-vis a GDR or FCCB in terms of legal fees, is huge. Then there is the entire process of listing overseas, the fees involved. It is easier to be listed on the BSE/NSE vis-à-vis seeking a say Luxembourg or a Singapore listing.
A QIP would mean that a company would only have to pay incremental fees to the exchange. Additionally in the case of a GDR, you would have to convert your accounts to IFRS (International financial reporting standards) . For a QIP, your audited results are more than enough," Mr Seth said.
Also in the case of a GDR, investors invariably seek fungibility over a period of time to sell off in the domestic market.
"ADRs and GDRs can be issued only to foreign investors and Indian institutions are left out from the benefits of the issue whereas a QIP is primarily issued to Indian institutions," said Mr Chetan Savla, Head Equity Product Group, Kotak Investment Banking.
Another reason is that not more than 50 per cent of the equity can go to one investor. As such mutual funds who are increasingly becoming as large an investor base as FIIs, will now be able to participate in these issuances, thereby, creating a more level playing field.
QIPs are also favourable over preferential allotment of equity shares, as these issues require the investor to stay invested for one year, said Mr Savla.
"Retail investors are not allowed to participate in QIPs unlike follow-on issues and, hence, the valuations of the issue in QIP are better."
"QIPs will over a period of time make an institutional investor more powerful. Companies will have to be a lot more competent and goal oriented," added Mr Kothari.
"QIPs can also avoid the fluctuations in market as against follow-on issues," said Mr Anantapadmanabhan Sarma, Executive Vice-President, IDBI Capital Market Services.
The capital markets regulator had announced fresh guidelines in May for the qualified institutional buyer.
Thus QIPs has provided an opportunity for companies to raise funds domestically, instead of exploring the private placement route out of India through overseas issuances.