Meaning: Qualified institutional placement (QIP) is a capital-raising tool, primarily used in India, whereby a listed company can issue equity shares, fully and partly convertible debentures, or any securities other than warrants which are convertible to equity shares to a qualified institutional buyer (QIB). Apart from preferential allotment, this is the only other speedy method of private placement whereby a listed company can issue shares or convertible securities to a select group of persons. QIP scores over other methods because the issuing firm does not have to undergo elaborate procedural requirements to raise this capital.
Definition: A Qualified Institutions Placement is a private placement of equity shares or securities convertible in to equity shares by a listed company to Qualified Institutions Buyers only in terms of provisions of Chapter XIIIA of SEBI (DIP) guidelines. The Chapter contains provisions relating to pricing, disclosures, currency of instruments etc.
Need For QIP: The Securities and Exchange Board of India (SEBI) introduced the QIP process through a circular issued on May 8, 2006, to prevent listed companies in India from developing an excessive dependence on foreign capital. Prior to the innovation of the qualified institutional placement, there was concern from Indian market regulators and authorities that Indian companies were accessing international funding via issuing securities, such as American depository receipts (ADRs), in outside markets. This was seen as an undesirable export of the domestic equity market, so the QIP guidelines were introduced to encourage Indian companies to raise funds domestically instead of tapping overseas markets.
Eligibility To Participate In QIP: The specified securities can be issued only to QIBs, who shall not be promoters or related to promoters of the issuer. The issue is managed by a SEBI-registered merchant banker. There is no pre-issue filing of the placement document with SEBI. The placement document is placed on the websites of the stock exchanges and the issuer, with appropriate disclaimer to the effect that the placement is meant only QIBs on private placement basis and is not an offer to the public.
Advantage Of QIP:-
- Time saving: QIBs can be raised within short span of time rather than in FPO, Right Issue takes long process.
- Cost-efficient: The cost differential 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.
- Lock-in: 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.
Conclusion: When several companies, especially real estate, were starved of money and were finding it difficult to stay afloat, the revival in market sentiment came as a boon to these companies, which are rushing to raise money, mainly to retire expensive debt and restructure their balance sheets. In over a month, funds raised through QIPs by companies has already exceeded the total amount that was raised in 2008. A large number of such issues are expected to hit the market in the next few weeks.