About Qualified Institutional Placement; why is it used by ventures to raise funds?

The majority of businesses seeking to obtain money are finding that the Qualified Institutional Placement (QIP) method is their first choice

Advertisement

Many businesses are scrambling to raise funds for a range of reasons as a result of the stock market’s recent surge. The majority of businesses seeking to obtain money are finding that the Qualified Institutional Placement (QIP) method is their first choice. This explainer breaks down the QIP and explains why businesses choose it over more traditional options like a rights issue or a follow-on public offering (FPO).

Listed firms can use it as a capital-raising mechanism to issue new equity shares, completely and partially convertible debentures, or any other securities other than warrants convertible to equity shares in order to obtain money from qualified institutional buyers (QIBs).

Learn How To Invest in IPO in India

Who qualifies as Qualified Institutional Buyers (QIBs)?

Public financial institutions, international institutional and portfolio investors, insurance companies, mutual funds, scheduled commercial banks, and insurance companies.

Can high net worth individuals (HNIs) and regular investors make investments in QIPs?

No.

Why does QIP appeal to businesses?

For it saves them from having to go through the drawn-out and difficult procedures of a rights issue or FPO. Additionally, because QIBs are experienced investors, their long-term outlook contributes to price stability.

Can sponsors take part in a QIP?

No.

Are existing regulations governing the bare minimum of institutional purchasers required to take part in a QIP?

At least five buyers are required if the issue size exceeds Rs 250 crore. A buyer cannot be given more than 50% of the whole stake. There should be two buyers if the issue size is up to Rs 250 crore.

Swan Energy to raise up to ₹4,000 crore through QIP, floor price at ₹703.29  per share

What is the foundation for a QIP’s pricing?

As per SEBI regulations, the issue price must not be less than the mean of the closing prices’ weekly high and low for the previous two weeks.

Why is it not able to be lower than the mean?

Allegations have been made in the past that promoters were giving cheap shares to investors they preferred. The market price of the stock is influenced by the QIP price.

Is it possible to price the QIP issue more than the going rate?

It is possible, indeed. However, QIBs usually request a reduction. It’s one of the reasons people take part in this kind of placement. Unlike when they acquire on the open market, they can obtain a respectable quantity without raising the price of the stock.

Union Bank of India shares: QIP issue price to be revealed on Feb 23. Key  details - BusinessToday

What happens if a QIB receives shares and, lacking a long-term perspective, wishes to sell them the following day?

It is unable to. A six-month lock-in period applies to securities allotted under a qualified investment plan (QIP) after the date of allocation. This is to guarantee that the topic is only engaged in by QIBs who have a medium- to long-term perspective.

Advertisement