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IMPACT OF PLACEMENT

WITH
QIP VS PUBLIC OFFER IN
INDIA

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IMPACT OF PLACEMENT WITH QIP VS PUBLIC OFFER IN INDIA
TABLE OF CONTENTS
Understanding Issues 04

Public Issues 08

Private Placement 09

Indian IPO Market 10


Developments In The IPO Market Since The Nineties 10
Market Revival 11

Indian IPO Market - Prospects & Challenges 12


Recent Trends 13

Suggestions / Recommendations 18
Qualified Institutional Placement 20
Why Was It Introduced? 21
Who Can Participate In The Issue 22
Key Regulatory Issues 23
Conditions And Procedural Requirements For Participating In The QIP Process 25

QIP Vs Preferential Allottment 30

Advantages of QIP 32

QIPs In India 35

Why Is India Inc Going For QIPS? 40

IBN18 Broadcast to Raise $90 Million through QIP, Private Placement 42

QIPs -The Road Ahead 43

Conclusion 44

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IMPACT OF PLACEMENT WITH QIP VS PUBLIC OFFER IN INDIA
INTRODUCTION
A company, whether public, or private limited, needs to raise capital both
debt and equity to meet its objectives of survival and growth. However,
they need huge amounts of funds to scale up. When funds are raised as
equity, they entail to the investors risks of capital loss, and maybe other
losses as well on account of fall in investment value, etc.

Other part of the story is how convenient it is for the issuer firm to raise
equity using the available options and whether the obligations originated
from those options are suitable to the parties.

The regulatory body for such corporate matters is known as Securities and
Exchange Board of India (SEBI), while the maturity of the Merchant
Banking industry is extremely crucial to ensure smooth flow through
meeting the regulatory requirements of raising capital.

In this background, we will look at why any company would choose to


raise funds through Qualified Institutional Placements (QIP) to Qualified
Institutional Buyers (QIB), as against the long established source of public
issues.

UNDERSTANDING ISSUES:

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IMPACT OF PLACEMENT WITH QIP VS PUBLIC OFFER IN INDIA
Issues in the meaning of issuance of securities. The aim is towards
understanding the various types of issues, eligibility norms, exemptions
from the same. The disclosure requirements regarding the issuance of
securities are covered in detail in the SEBI (Disclosure and Investor
Protection) Guidelines, 2000.

What are the eligibility norms for making these issues”?

SEBI has laid down eligibility norms for entities accessing the primary
market through public issues. There is no eligibility norm for a listed
company making a rights issue as it is an offer made to the existing
shareholders who are expected to know their company. There are no
eligibility norms for a listed company making a preferential issue.

However for Qualified Institutions’ placement (QIP), only those companies


whose shares are listed in NSE or BSE and those who are having a
minimum public float as required in terms of the Listing agreement, are
eligible.

The main entry norms for companies making a public issue (IPO
or FPO) are summarized as under:

Entry Norm I (EN I): The company shall meet the following
requirements:

(a) Net Tangible Assets of at least Rs. 3 crores for 3 full years.

(b) Distributable profits in at least three years

(c) Net worth of at least Rs. 1 crore in three years

(d) If change in name, atleast 50% revenue for preceding 1 year should be
from the new activity.

(e) The issue size does not exceed 5 times the pre-issue net worth

To provide sufficient flexibility and also to ensure that genuine companies


do not suffer on account of rigidity of the parameters, SEBI has provided

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IMPACT OF PLACEMENT WITH QIP VS PUBLIC OFFER IN INDIA
two other alternative routes to company not satisfying any of the above
conditions, for accessing the primary market, as under:

Entry Norm II (EN II):

(a) Issue shall be through book building route, with at least 50% to be
mandatory allotted to the Qualified Institutional Buyers (QIBs).

(b) The minimum post-issue face value capital shall be Rs.10 crore or
there shall be a compulsory market-making for at least 2 years

OR

Entry Norm III (EN III):

(a) The “project” is appraised and participated to the extent of 15%


byFIs/Scheduled Commercial Banks of which at least 10% comes from the
appraiser(s).

(b) The minimum post-issue face value capital shall be Rs. 10 crore or
there shall be a compulsory market-making for at least 2 years.

In addition to satisfying the aforesaid eligibility norms, the company shall


also satisfy the criteria of having at least 1000 prospective allotees in its
issue

SEBI (DIP) guidelines have provided certain exemptions from the eligibility
norms. The following are eligible for exemption from entry norms.

 Private Sector Banks

 Public sector banks

 An infrastructure company whose project has been appraised by a


PFI or IDFC or IL&FS or a bank which was earlier a PFI and not less
than 5% of the project cost is financed by any of these institutions.

 Rights issue by a listed company

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IMPACT OF PLACEMENT WITH QIP VS PUBLIC OFFER IN INDIA
Primarily, issues can be classified as

Public, Rights or preferential issues (also known as private placements).


While public and rights issues involve a detailed procedure, private
placements or preferential issues are relatively simpler. The classification
of issues is illustrated below:

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IMPACT OF PLACEMENT WITH QIP VS PUBLIC OFFER IN INDIA
PUBLIC ISSUES

Public issues can be further classified into Initial Public offerings and
further public offerings. In a public offering, the issuer makes an offer for
new investors to enter its shareholding family. The issuer company makes
detailed disclosures as per the DIP guidelines in its offer document and
offers it for subscription. The significant features are illustrated below:

Initial Public Offering (IPO)

It is when an unlisted company makes either a fresh issue of securities or


an offer for sale of its existing securities or both for the first time to the
public. This paves way for listing and trading of the issuer’s securities.

Further public offering (FPO)

It is when an already listed company makes either a fresh issue of


securities to the public or an offer for sale to the public, through an offer
document. An offer for sale in such scenario is allowed only if it is made to
satisfy listing or continuous listing obligations.

Rights Issue (RI)

It is when a listed company which proposes to issue fresh securities to its


existing shareholders as on a record date. The rights are normally offered
in a particular ratio to the number of securities held prior to the issue. This
route is best suited for companies who would like to raise capital without
diluting stake of its existing shareholders unless they do not intend to
subscribe to their entitlements.

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IMPACT OF PLACEMENT WITH QIP VS PUBLIC OFFER IN INDIA
PRIVATE PLACEMENT

It is an issue of shares or of convertible securities by a company to a


select group of persons under Section 81 of the Companies Act, 1956
which is neither a rights issue nor a public issue. This is a faster way for a
company to raise equity capital. A private placement of shares or of
convertible securities by a listed company is generally known by name of
preferential allotment. A listed company going for preferential allotment
has to comply with the requirements contained in Chapter XIII of SEBI
(DIP) Guidelines pertaining to preferential allotment in SEBI (DIP)
guidelines include pricing, disclosures in notice etc, in addition to the
requirements specified in the Companies Act.

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IMPACT OF PLACEMENT WITH QIP VS PUBLIC OFFER IN INDIA
INDIAN IPO MARKET

SEBI (DIP) Guidelines, 2000

The responsibilities to promote and to protect are counter-balanced by


SEBI through process of equitable regulation on the one hand of the
attendant process relating to public issues and on the other regulating
those who carry out these processes to strict disciplined and code of
conduct. SEBI in the year 1992 issued exhaustive guidelines to
standardise disclosure obligations and make it incumbent for corporate
floating public issues to publish all relevant information affecting
investors' interest. Based on experience gained these regulations were
reviewed and revised in the year 2000 and fresh guidelines were issued.
The guidelines of the year 2000 are amended from time to time.

DEVELOPMENTS IN THE IPO MARKET SINCE THE NINETIES

With the onset of the liberalised economy of the Nineties, a robust IPO
market
depicting a boom was growing in volumes. This growth was steeply
affected in
the subsequent years(1994-95) by the stock market Scam (popularly
identified as
the Harshad Mehta Scam). It became the Era of Fly-by-night operators. A
number of promoters queued up to raise funds through IPOs after controls

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IMPACT OF PLACEMENT WITH QIP VS PUBLIC OFFER IN INDIA
on
pricing of issues were lifted in 1992. Encouraged by the buoyant stock
market, a
slew of finance companies flocked to the market with issues priced at
substantial
premiums. Most of the issues were of poor quality and the funds raised
were
routed into treasury operations. Investing in the shares of a finance
company wastaken as lucrative. Little did people realise the risk involved
in it. Most companies vanished later. And the returns from the few that
survived did not justify the premium. The quality on offer was poor, and
the size of most of the offers small - far below Rs 2 crore. Stringent
disclosure requirements were not in place to check fly-by-night operators.
The offer document of those days gave the
investing public little information of relevance.

The bad experience in the mid-1990s put off investors from the primary
market
for several years to come. 1998 was the worst year as public issues
practically
dried up. Only 150 companies tapped the market in 1997-98, against
1,500
companies in 1995. The amount mobilised through public and rights offers
too
shrunk to about Rs 15,000 crore against Rs 25,000 crore in 1997-98. This
period
saw a shift towards the debt market and the preferential issue route to
make up
for the in the IPO segment. Corporates could switch to easier available
options
for raising capital requirements.

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IMPACT OF PLACEMENT WITH QIP VS PUBLIC OFFER IN INDIA
MARKET REVIVAL

The IT boom of the late 1990s and the introduction of the book-building
system for pricing of public issues came to revive investor interest in the
primary market to an extent. The primary market was laden with issues
from the media and technology segment as against earlier years, when
the primary issue market was dominated by the finance sector or core
industries such as cement, steel and petroleum. There was an awakening
of sorts in the public issue market in 2003 after it had hibernated for
nearly six years.

Year 2004 appears to be a big year for IPOs. Big-ticket issues, including
those of PSUs such as ONGC and GAIL, the long-awaited TCS and those in
the power and oil and gas sectors such as Power Trading Corporation,
NTPC and Petronet LNG, are in line to raise funds. The total funds to be
mobilised are estimated at a whopping Rs 50,000 crore higher than the
amount raised in any of the previous years. Most of these are quality
offers a departure from the past. These issues can have a significant
impact on the secondary market too as current holdings could be
liquidated to mop up new issues.

INDIAN IPO MARKET - PROSPECTS & CHALLENGES

ONGC-Issue Allotment Fiasco

The ONGC fiasco resulted on the account of failure of one intermediary,


the registrars to the issue. This has brought disrepute to the entire
process. The Registrars in fact handle back office work. We, in India pride
ourselves with capacity and expertise to handle the back office functions
of several of the global players more efficiently and more competitively
than they could handle at the foreign destination. We have a flood of
business process outsourcing flowing into public offers. Is the supporting
infrastructure in the Indian markets adequate? Don't forget, even the
Power Trading Corporation listing has been delayed because of "technical

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IMPACT OF PLACEMENT WITH QIP VS PUBLIC OFFER IN INDIA
problems" after the issue. Obviously, these two fiascos – in particular the
ONGC one - have come as a major wake-up call for the primary market as
a whole, at a time when the entire market and investment banking
community was basking in the glory of the six successful public offers
from the government stable. But suddenly, even as disinvestment
minister Arun Shourie talked of raising Rs 1 lakh crore every year from the
markets, a section of the primary market looked ill equipped to handle the
load. It is alleged that the registrar in question, while finalising the
allotment of the ONGC's mega issue of Rs 10,500 crore, did not follow the
allotment formula and credited more shares to high net worth individuals
than was warranted. There was excess allotment of 4 lakh shares to 52
high net-worth individuals due to operational snags at the office of the
registrar. While some shareholders have been erroneously allotted shares
more than what they were entitled to while others have neither received
shares nor their refund orders till date. The result was that the entire
process of allotment was delayed and investors who had borrowed funds
to invest in the shares could not immediately sell them. The result was
high interest burden and losses. Many such allottees, in turn, sold the
shares, some of which at least they were not entitled to. The resultant
post-issue mess, involving the issuer, the stock exchanges, the investors
and the Securities and Exchange Board of India, besides the registrar, has
taken off the erstwhile credit and good performance exerted by number of
contributors thus far including the Disinvestment Minister in what has
been a highly successful season for the government-issue.

It is in this background that the issue of opportunities & challenges of IPO


market is analyzed. It is obvious the infrastructure deficiency in back
office processing of a mega assignment had led to the fiasco. It is
deskwork or handling clerical routine at the office that has let us down. It
is not a business problem or setting up of a roadblock, but merely
avoidable human error that has come to jolt the entire market. A nail in a
horseshoe was lost and it led eventually in the battle being lost.

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IMPACT OF PLACEMENT WITH QIP VS PUBLIC OFFER IN INDIA
How then can this phenomenon be explained? Look to the fiasco as a case
of
human failure, in the functions of planning and organizing and not due to
lack of
infrastructure. Whether the selection of the registrar was made objectively
taking into account the constraints of a tight schedule? Post-issue work as
a rule is more labour intensive. Technology to a large extent if applied
properly can
handle the job smoothly. Was it properly put in use?

With the public issues market having remained virtually dormant till this
year,
many intermediaries, including the registrars had gone out of business.
One
reason for the present post-issue fiasco can be traced to a lack of choice
among
registrars. But can this be deemed as dearth infrastructure? It is a case of
failure
of organizing the resources to carry out a task. We have the equipment
and
human resources for the successful handling of the job. But we need to
plan
effectively. Due to lack of demand there is shrinkage of the supply. These
Mega
Issues come first to SEBI and the Stock Exchanges for approval. At that
point the market infrastructure had to be viewed and correctional
measures could have been initiated. Messages should have reached to
those who have closed their shop to come back. Market Development is
the responsibility of SEBI and
development of Intermediaries is the role of the stock exchange. There is
no
dearth of professionals to come forward and act as Registrar, if the
volume of

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IMPACT OF PLACEMENT WITH QIP VS PUBLIC OFFER IN INDIA
business is attractive. Employees to handle supporting tasks can be
trained
within 3 to 6 week's time. The real contributory causes for the fiasco is
defective
planning and organising. The volume of the task to handle is well known.
It is
customary for good public issues to be oversubscribed by 10 to 15 times
in India.
The issue is open for 5 days and allotment is to be completed and
allotment
letters/refund orders dispatched within 30 days thereafter. It is a fact that
there
was dearth of service providers in the area of Registrars to issue. Still
several
earlier issues including Maruti Mega Issue (though much smaller
compared to
ONGC) were handled successfully.

RECENT TRENDS

In the last quarter of FY 2007-08, several large equity offerings, including


those from reputable business houses, have struggled to hit their targets.
India's stock markets have been volatile, reacting to fears of a widening
global credit crunch and fears of a U.S. recession. Let's have a glance of
IPOs in the Indian primary market during Jan-March, 2008.

Fund raising by Indian companies has seen a sharp drop in the last
quarter of financial year 2007-08. This is evident from an analysis of data
presented in the above table.

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IMPACT OF PLACEMENT WITH QIP VS PUBLIC OFFER IN INDIA
But qualified institutional buyers, including foreign investors, mutual funds
and hedge funds, applied for only 0.06% of their quota in the Wockhardt
issue. The non-institutional portion (mainly for high net-worth individuals
or HNIs) was subscribed 0.0048 times. Even the retail part saw demand
for barely more than half the pie. It was an unmitigated disaster and the
first time in recent memory that an IPO from a respected business house
has flopped in India.

Close on its heels, real estate company Emaar MGF, a joint venture
between the Dubai-based Emaar group and MGF Development of New
Delhi, also had to withdraw its IPO in the face of low demand. The Rs.
6,500 crore issue started with a price band of Rs. 610-690. It was brought
down to Rs. 530-630 in two trenches. The last date of subscription was
extended by three days, but to no avail.

The Bombay Stock Exchange Sensitive Index, Sensex, touched 21,207 on


January 10, an all-time high. Barely a month later, on February 10, it fell to
16,608, a five-month low.

Wockhardt and Emaar MGF were bad enough for investor sentiment. But
the overvalued Reliance Power IPO was the most high profile sufferer. This
was an issue from the Ambani stable; word on the street is that the
Ambanis have always made money for their investors. At Rs. 11,500
crore, it was India's largest-ever IPO.

The Reliance Power IPO was eventually oversubscribed 73 times and


raised $190 billion. Some $100 billion of this came from foreign funds.
This constitutes one-and-a-half times the total foreign institutional
investor (FII) money coming into the country since 1992. "When Reliance
Power lists early February, it will be among the 10 top listed companies in
India," Anil Ambani, the younger son of Reliance founder the late
Dhirubhai Ambani, told a press conference shortly after the IPO closed. "If
we assume it lists at the issue price of Rs. 450, the market capitalization

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for the group will be around $100 billion."

It was not to be. Reliance Power ended its first day on the markets at Rs.
372, Millions lost money. The Sensex dropped 863 points in sympathy.
The myth of Ambani invincibility was shaken. Clearly, it didn't help the
Reliance Power IPO that the Sensex lost more than a fifth of its market
capitalization between January and February 2008.

Market’s opinion on any stock remains divided in the investment


fraternity, proving the fact that there exist divergent views about the
company’s valuations. As long as this continues, IPO pricing will also be a
contentious issue and there will no answer to the million dollar questions
“what is the right price of an IPO”.
In addition to the above study, an empirical study was undertaken
covering the IPOs issued during the period January, 2007 to April, 2008 to
develop a statistical model to understand the impact of various
parameters on overpricing of an IPO and the degree of overpricing on
account of these parameters in combination.

The study revealed existence of a clear correlation between the retail and
the QIB over subscription during the offer period and greater the demand
of IPO lesser the over-pricing of the issue.

Greater the dilution in promoter shareholding higher was the degree of


over-pricing and disclosure of IPO grading lowered the degree of
overpricing.

Nimbus plans to raise Rs 750 cr via public issue


Posted on July 7th, 2010

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IMPACT OF PLACEMENT WITH QIP VS PUBLIC OFFER IN INDIA
NEW DELHI: Media and entertainment company Nimbus Communications
plans to raise up to Rs 750 crore through a public issue, in which its
financial investors, including 3i, will sell a part of their shares, two people
with direct knowledge of the matter said.

“Nimbus plans to file its draft red herring prospectus by the end of July or
August,” the first person said. This will make it the first media house,
which specialises in sports, to get listed on the bourses. When contacted,
Nimbus Communications spokesperson declined to comment on the
development.

Nimbus Communications owns Nimbus Sport International, which


specialises in sports rights management, and Neo Sports Broadcast that
runs sports channels Neo Sports and Neo Cricket. The group also owns a
film distribution business and a cricket website. For the year ended March
2010, the Mumbai-based company had revenues of over Rs 1,200 crore.

The proceeds of the issue will be used to fund its expansion plans in North
America and Asia. It also plans to use the money to launch new channels.
Financials investors Oman International Fund, private equity firm 3i,
besides Cisco collectively own around 60% of the firm and will sell a fifth
of their individual stake each or around 12% collectively, the second
person said. Bulk of this equity is owned by Oman International Fund and
3I. It could not be independently verified how much money of the total Rs
750 crore will go to the company through fresh issue of shares. So far, 3i
has invested $75-80 million in three tranches between 2005 and 2008. In
2005, it invested $45.5 million and in 2007, it co-invested $125 million
(around Rs 552 crore) along with Oman International Fund and Cisco.
Oman International Fund made the investment in two tranches.

Last year, Nimbus Communications renewed its global media rights deal
with Board of Control for Cricket in India (BCCI) till 2014. Under this deal,
Nimbus will exclusively market various media rights for all international

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cricket tours staged by BCCI for five years and 78 days of domestic cricket
events every year during the period, globally.

SUGGESTIONS / RECOMMENDATIONS

Based on thestudy and discussions, it is recommended that investor


awareness needs to be increased through various means including the
disclosures in the prospectus and media communication. Further
regulatory framework may be strengthened to include certain provisions
with respect to freedom for the institutional investors, taxation norms and
IPO grading and appraisal evaluation. The major recommendations can be
described as:

Cyclicality of multiples:

The company should disclose the cyclical effect of the downturns in the
market. Downturn periods over larger historical time period such as 12-15
years can be established over which the related multiples (example P/E,
EV multiples) should also be disclosed. In Indian markets, the periods such
as 1998-99, 2000-01 were the lean phases of the market. Evaluating the
multiples of the related companies during these periods will help the
investors in understanding the relevant sector performance during such
economic downturns however, an investor should also account for the
fundamental changes in the environment and economic growth rate of the
country.

Hard underwriting:

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IMPACT OF PLACEMENT WITH QIP VS PUBLIC OFFER IN INDIA
The concept of hard underwriting mooted by SEBI recently is a positive
step towards regulating the markets more effectively. It is imperative
that, investment banks exercise greater diligence towards valuation /
pricing and hard underwriting would compel bankers to think twice before
pricing issues aggressively.

Stringent KYC norms:

Improvements are required in regulatory policing. Stringent adherence of


KYC norms by retail service providers (brokers, banks, depositories) is
required so that malpractices are avoided (viz. multiple demat accounts
for one individual).

IPO valuation:

IPO valuation should also be introduced in addition to the already existing


IPO grading. The IPO valuation should be given to an independent agency
which will provide an unbiased and fair opinion. Alternately, the scope of
IPO grading agencies can also be widened to include IPO valuation as well.
Currently their scope is limited to assigning of grade to an IPO based on
the relative assessment of the fundamentals of the issue with respect to
other listed securities in India.

Adequate disclosures:

The regulators should focus on making the investors more aware of the
industry fundamentals, company performance and plans through
adequate disclosures so that the investors can take a more holistic view
on the company.

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IMPACT OF PLACEMENT WITH QIP VS PUBLIC OFFER IN INDIA
QUALIFIED INSTITUTIONAL PLACEMENT

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).

QIP permits listed companies to collect funds from domestic markets


without the need for submitting any pre-issue filings to market regulator,
Securities and Exchange Board of India (SEBI). Instead of trying to raise
cash from public at large, the companies adopt this route to get funds
from a few large investors called Qualified Institutional Buyers.

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IMPACT OF PLACEMENT WITH QIP VS PUBLIC OFFER IN INDIA
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.

Established in 2006, this method of capital generation has gained


momentum since April 2009 when the real estate major Unitech sought to
raise funds through this route. Ever since, a lot of real estate companies
and now the infrastructure companies are planning to raise funds through
this new route.

WHY WAS IT INTRODUCED?

To enable listed companies raise money from domestic markets in a short


span of time, market regulator SEBI introduced the concept of QIP in 2006
when it amended (in the form of Chapter XIIIA) the Disclosure and Investor
Protection Guidelines (DIP). The terms and conditions of the QIPs are very
similar to the Regulation D offerings (Rule 144A) under US Security Act of
1933.

This was also done to prevent listed companies in India from developing
an excessive dependence on foreign capital. Prior to introduction of QIPs,
the complications associated with raising capital in the domestic markets
had led many companies to look at tapping overseas markets via foreign
currency convertible bonds (FCCB) and global depository receipts (GDR).
During 2005-06, a lot of companies were raising funds through American
Depositary Receipts (ADR's) and Global Depository Receipts (GDR's). In
2005, the amount of money raised through these sources amounted to Rs.
8800 Crores.

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IMPACT OF PLACEMENT WITH QIP VS PUBLIC OFFER IN INDIA
QIP has also helped issuing companies price their issues closer to the
prevailing market price.

WHO CAN PARTICIPATE IN THE ISSUE?

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 for QIBs on
private placement basis and is not an offer to the public.

The Securities and Exchange Board of India has defined a Qualified


Institutional Buyer as follows:

Qualified Institutional Buyers are those institutional investors who are


generally perceived to possess expertise and the financial muscle to
evaluate and invest in the capital markets. In terms of clause 2.2.2B (v) of
DIP Guidelines, a ‘Qualified Institutional Buyer’ shall mean:

a) Public financial institution as defined in section 4A of the


Companies Act, 1956;

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IMPACT OF PLACEMENT WITH QIP VS PUBLIC OFFER IN INDIA
b) Scheduled commercial banks;
c) Mutual funds;
d) Foreign institutional investor registered with SEBI;
e) Multilateral and bilateral development financial institutions;
f) Venture capital funds registered with SEBI.
g) Foreign Venture capital investors registered with SEBI.
h) State Industrial Development Corporations.
i) Insurance Companies registered with the Insurance
Regulatory and Development Authority (IRDA).
j) Provident Funds with minimum corpus of Rs.25 crores
k) Pension Funds with minimum corpus of Rs. 25 crores

KEY REGULATORY ISSUES

Any listed company which satisfies the following two norms can raise
capital through QIP route:

 Its equity shares of the same class (as that being raised) are listed
on a stock exchange having nationwide trading terminals.

 It is in compliance with the prescribed minimum public shareholding


requirements of the listing agreement (prescribed by SEBI)

The term QIB has the same meaning as that prescribed in the SEBI (DIP)
guidelines clause 2.2.2B(v). The QIB should not include promoters or
members related to promoters of the issuer. As per SEBI Guidelines, the
issue of QIP needs to be managed by a SEBI-registered merchant banker.
There is no preissue filing of the placement document with SEBI. The

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IMPACT OF PLACEMENT WITH QIP VS PUBLIC OFFER IN INDIA
placement document is placed on the website of the stock exchanges and
the issuer, with appropriate disclaimer to the effect that the placement is
meant only for QIBs on private placement basis and is not anoffer to the
public.

As per the guidelines, issuers would have to allocate a minimum of 10 per


cent of such placements to mutual funds. For each QIP's, there have to 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. No single allottee
is allotted in excess of 50 per cent of the issue size.

The disclosures and procedural stipulations are relatively less compared


to the public issue process.

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 are
similar to that for GDR/FCCB (global depository receipts/foreign currency
convertible bonds) issues.

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.

CONDITIONS AND PROCEDURAL REQUIREMENTS FOR


PARTICIPATING IN THE QIP PROCESS:

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IMPACT OF PLACEMENT WITH QIP VS PUBLIC OFFER IN INDIA
To be able to engage in the QIP process, the companies need to fulfill
certain conditions and are required to comply with the detailed procedure
laid down in the DIP Guidelines.

1. Applicability

The issuance of securities as QIP is available only to a listed company


which fulfils the following conditions:

 Its equity shares of the same class are listed on a stock exchange
having nation-wide trading terminals for a period of at least 1 year
as on the date of issuance of notice to its shareholders for
convening the meeting of its Board of Directors / Committee of
Directors authorised by the Board to decide on the opening of the
proposed QIP issue; and

 It is in compliance with the prescribed minimum public shareholding


requirements of the listing agreement.

2. Mutual Funds

A company is required to allot a minimum of 10 per cent of securities to


be issued to mutual funds. However, if no mutual fund is agreeable to
take up the minimum portion of 10 per cent, or part thereof, such
minimum portion or part thereof may be allotted to other QIBs.

3. Minimum Number of Allottee

Further it is mandatory for the company to ensure the minimum number


of allottees for each placement made under QIP issue is not less than:

a. Two, where the issue size is less than or equal to rupees 250 crore;

b. Five, where the issue size is greater than 250 rupees crore. Also no
single allottee can be allotted more than 50% of the issue size. Further
QIBs belonging to the same group or those who are under common

25
IMPACT OF PLACEMENT WITH QIP VS PUBLIC OFFER IN INDIA
control (also defined in the DIP Guidelines) shall be deemed to be a single
allottee.

4. Pricing

SEBI has set a floor price for the companies opting for QIP issue.
According to DIP Guidelines an issue of securities shall be made at a price
not less than the average of the weekly high and low of the closing prices
of the related shares quoted on the stock exchange during the 2 weeks
preceding the date of the meeting in which the Board of the company or
the Committee of Directors duly authorised by the Board of the company
decides to open the proposed issue.4 In simple terms the SEBI mandated
formula, 3 Public shareholding under the listing agreement is of at least
25% (10% minimum public share holding has also been specified for few
companies, which meet the criteria as laid down in the guidelines).

4 Substituted vide SEBI Circular No. SEBI/CFD/DIL/DIP/32/2008/28/8 dated


August 28, 2008. amended in August 2008, allows the price of an issue
under QIP to be based on a twoweekaverage share price. Prior to this
amendment the pricing was based on higher of the six month or two-week
average share price. This acted as a deterrent for investors who would
have had to pay substantial premiums over the prevailing market prices.
The modification was basically to make the offer price more realistic since
the two-week average price is considered closer to market conditions. The
rationale behind the change in pricing norms, as explained by the then
SEBI Chairman, Mr. C. B. Bhave, was that the highly volatile market and
the price uncertainty witnessed in the listed stock was rendering it
impractical to have a six months average and the amended pricing norm
would allow the companies to price the issue as close to the market price
as possible. The easing of norms along with the rally in secondary markets
has given a chance to the promoters of companies to price their issues in
sync with market price. This SEBI mandated floor price may come in the
way of closing some QIP deals as has been witnessed in the last quarter.

26
IMPACT OF PLACEMENT WITH QIP VS PUBLIC OFFER IN INDIA
For an investor, the key concern while evaluating whether or not to
participate in the QIP offer is valuation. Many companies face problem
when their current market price is lower than floor price (two-week
average share price) as in such cases the QIBs are reluctant to take a loss
on their books from the very beginning. Though the drastic rises in price
of shares of a company wooing the QIBs often complicate matters and the
merchant bankers recently were reportedly lobbying on behalf of QIBs for
giving more flexibility while pricing QIPs, it is unlikely that SEBI will alter
the pricing norms in the near future. The modification which has come by
only last year is a move taking us a step closer to global practices.
Moreover, if the credentials of the company are sound the investors would
not shy away from investing in it at the SEBI mandated floor price despite
the volatility of the shares in a reviving market.

5. Pricing of shares on conversion

Where securities which are convertible into or exchangeable with equity


shares at a later date are issued, the price of resultant equity shares is to
be determined in the same manner as mentioned above.

6. Restriction on Amount Raised

The aggregate of the proposed placement and all previous placements


made in the same financial year shall not exceed 5 times the net worth of
the issuer company as per the audited balance sheet of the previous
financial year.

7. Limitation

For a period of 1 year from the date of allotment, a QIB is not entitled to
sell the securities allotted to it except on a recognised stock exchange.
The DIP Guidelines clarifies that any sale by way of a bulk or block
transaction in accordance with the SEBI procedures and the stock
exchange, shall also be treated as a sale on a recognised stock exchange.
Thus, the QIP route allows the allottees an exit mechanism on the stock

27
IMPACT OF PLACEMENT WITH QIP VS PUBLIC OFFER IN INDIA
exchange without having to wait for a minimum period of one year, which
would have been the lock–in period had they subscribed to shares
pursuant to a preferential allotment.

8. Shareholder’s Resolution

A company proposing to offer securities to QIBs through this route has to


get a special resolution passed at general meeting of its shareholders. The
resolution shall specify that the allotment is proposed to be made to QIBs
and shall also specify the relevant date on the basis of which price of the
resultant shares shall be determined.

Further allotment of securities issued has to be completed within 12


months from the date of passing of the special resolution. If the company
proposes to make multiple placements then the placements made
pursuant to authority of the same shareholders’ resolution shall be
separated by at least 6 months between each placement.

9. Placement Document

The securities are to be issued on the basis of a placement document


which must contain all material information, including the information
specified in Schedule XXIA of DIP Guidelines. However, for a company
making QIP there is no requirement of pre-issue filing of the placement
document with SEBI.

In case of QIPs it is a private document provided to select investors,


through serially numbered copies. A copy is also placed on the website of
the concerned stock exchange and of the issuer with an appropriate
disclaimer to the effect that it is in connection with an issue to QIBs and
that no offer is being made to the public or to any other category of
investors. The company is only required to file a copy of the placement
document with SEBI for record purpose within 30 days of the allotment of
securities.

10. Merchant Bankers

28
IMPACT OF PLACEMENT WITH QIP VS PUBLIC OFFER IN INDIA
The QIP issue and allotment is managed by merchant banker(s) registered
with SEBI who is/are required to furnish, to each stock exchange on which
the same class of shares or other securities are listed, a due diligence
certificate stating that the issue is being made and complies with DIP
Guidelines, along with the application made for seeking inprinciple
approval for listing of the proposed securities.

11. Issuer Certification

The issuer company is required to furnish a copy of the placement


document to each stock exchange on which the same class of shares or
other securities are listed as also a certificate stating that the issue is
being made and complies with DIP Guidelines, along with the application
made for seeking in-principle approval for listing of the specified
securities.

QIP VS PREFERENTIAL ALLOTTMENT

29
IMPACT OF PLACEMENT WITH QIP VS PUBLIC OFFER IN INDIA
Companies raise funds through various methods which includes public
issues, rights issues and private placement. These methods are different
for unlisted companies and different for listed companies. Unlisted
companies follow the routes of IPOs and private placement and listed
companies uses FPOs, preferential issues, rights issue and QIPs to raise
funds. Above listed sources of finance, has their pros and cons attached to
them in terms of dilution of ownership, costs involved in raising the funds,
time involved etc. So, different companies use different mode in order to
raise funds while keeping their strategic objectives intact.

Listed companies have more options of fund raising in comparison to


unlisted companies. Listed companies can raise funds by further public
offering, preferential allotment, rights issue and qualified institutional
placements. Keeping focus on private placement method of fund raising,
we can differentiate between preferential allotment of shares and
qualified institutional placements as both the method are for listed
companies

So, interesting question arises here is that why do companies prefer


qualified institutional placements instead of preferential allotment?

Private placement of shares or of convertible securities by a listed


company to selected group of investors is called preferential allotment. In
simple terms, It is an issue of stock available only to designated buyers.

Whereas, QIP can be defined as the method of raising money/funds from


the market by issuing equity shares, fully and partly convertible
debentures or any securities excluding warrants to a Qualified Institutional
Buyers by any listed company in India.

30
IMPACT OF PLACEMENT WITH QIP VS PUBLIC OFFER IN INDIA
Both the above mentioned modes of private fund raising tool by listed
companies are cost effective and time savers but still they differ in some
aspects. The success of QIP was essentially because of limited regulatory
restrictions and very quick turnaround that can happen.

Following are the differentiating reasons which make


QIP issues a success story:

 Unlike preferential allotment, QIPs don’t have any lock-in period


which is very attractive feature for the investors. Investors prefer
QIPs so that they can exit the investment anytime, if anything goes
wrong (market crashes, companies rating dropped etc.). But this is
not so with preferential allotment, as there is one year lock-in period
for the promoters to ensure that the promoters or main persons who
are controlling the company, shall continue to hold some minimum
percentage in the company after the public issue.

 Regulatory norms in case of fund raising through QIP is minimal in


comparison to preferential allotment. In the latter case company
has to comply with DIP Guidelines by SEBI. A listed company going
for preferential allotments has to comply with the requirements
contained in Chapter XIII of SEBI (Disclosure & Investor Protection)
guidelines pertaining to preferential allotment in SEBI (DIP)
guidelines which interalia include pricing, disclosures in notice etc.,
in addition to the requirements specified in the Companies Act.

31
IMPACT OF PLACEMENT WITH QIP VS PUBLIC OFFER IN INDIA
 Pricing of preferential allotment has been done by taking the
average of six months or two weeks whichever is higher. Whereas in
the case of a QIP,the pricing is the average of the last two weeks.
This measure helps companies in fixing their issue price at much
better rate in comparison to preferential allotment.

Above mentioned reasons helps us in understanding the biased behaviour


of companies towards QIP instead of preferential allotment as the former
compliments companies in their goals achievement which is to raise low
cost funds in less time. Preferential allotment, on the other hand, restricts
companies in certain areas like pricing of the issues and lock-in period
feature which is unattractive for investors.

ADVANTAGES OF QIP

Raising funds by means of issuing securities to QIBs provides multi-fold


benefits to the issuer companies, investors and economy as a whole.
Following is the list of advantages of QIPs as compared to other means of
fund raising:

 Lighter compliance requirements – Only audited financial results are


more than enough for QIP whereas in case of GDR there is a need to
convert all the accounts of a company to International financial
reporting standard (IFRS).

32
IMPACT OF PLACEMENT WITH QIP VS PUBLIC OFFER IN INDIA
 Speed - No need of additional approval from SEBI (other than
qualification as QIB) The funds raised will be from known sources of
funds viz the QIB's. Hence, the number of disclosures and
procedural stipulations will be low compared to public issue process.

 Consolidation of Indian markets – On a macroeconomic level, the


QIP's help to prevent the flight of capital to foreign countries,
increase trading volumes and hence prevents the feared export of
capital thereby leading to the consolidation of the Indian Markets.

 Benefit to existing investors – The QIP is a win-win situation to both


the company seeking to raise fund as well the current investors in
the company. The invested companies may get a chance to average
out their investments and so proportionately reduce their cost of
acquisition.

 Time Saving: QIPs can be raised within shorter span of time as


compared to FPO or Right Issue which are time consuming
procedures. Even compared to preferential allotment which can
even take as much as three months, this is a speedier method of
private placement where capital raising can be done in as soon as a
week.

 Simplified Procedure: QIP scores over others methods as there are


fewer formalities and requirements as regards rules and regulations
and it does not have to undergo the elaborate procedural

33
IMPACT OF PLACEMENT WITH QIP VS PUBLIC OFFER IN INDIA
requirements of fund raising such as the submission of pre-issue
filings to SEBI or converting the accounts to International Financial
Reporting Standards and the like. Except the 10% reservation for
mutual funds, companies can issue securities to QIBs on
discretionary basis. Only audited financial results are more than
enough for QIP whereas in case of GDR there is a need to convert all
the accounts of a company to International financial reporting
standard (IFRS).

 Valuation: Barring the SEBI norms regarding floor price the valuation
of the issue is decided between the issuer and the buyers and there
is no third party interference. This also is another reason for its
popularity.

 Lock-in: It provides an opportunity to investors to buy non-locking


shares since they have an exit option on the stock exchange and do
not have to wait for a minimum period of 1year.

 Lower Cost of Capital: QIP route is more cost effective in comparison


to other modes which prove to be costly. The cost differential vis-à-
vis ADR/GDR in terms of legal fees, listing charges is huge. In a QIP
the company has to pay an incremental fee to the stock exchange.

 Retail Investors: In view of the SEBI mandate to issue 10% of the


issue to mutual funds QIP also gives the retail investors a practical
and efficient means to further diversify their portfolios.

34
IMPACT OF PLACEMENT WITH QIP VS PUBLIC OFFER IN INDIA
QIPs IN INDIA

In 2006, market regulator allowed promoters to raise money through QIP


issues after which many companies started availing this window for their
fund requirements

The first Indian company to raise funds through the QIP route
wasSpentexIndustries Limited. The amount raised in this case was Rs.
46.59 crores. The sole manager of this fund raising exercise was
Edelweiss Capital.

Ever since, the Indian companies have used QIP's aS a significant route to
fund-raising. According to the figures compiled by Bloomberg Asia-Pacific
League Tables, Indian companies raised Rs. 3935 crores in 2006. The next
year 2007, termed as the best year for the equity markets, saw a
whopping 456 percent increase in the amount raised through QIP route. In
2007, Rs. 21,700 crores were raised by the Indian companies through the
QIP route.

35
IMPACT OF PLACEMENT WITH QIP VS PUBLIC OFFER IN INDIA
This formed about 18% of the total money raised by Indian companies in
2007. Spentex Industries, Kalpataru Powers, GMR Infra, Axis Bank,
Kotak Mahindra Bank, etc were some of the major companies which
raised funds through the QIP route in this time. Thus, especially for the
mid-cap companies, QIP emerged as the viable alternative route to raise
finance.

However, after the equity markets collapsed in early 2008, the QIP activity
also slowed down as issuers faced pricing issues. The main reason for this
was the SEBI pricing rules. According to SEBI pricing rules for QIPs, the
price of new shares/ security sold through QIPs should be either the
average of the past six months' trading prices or the average during the
previous two weeks -- whichever is higher. This prevented many issues
from hitting the market as investors would have had to buy at substantial
premiums to prevailing market prices. The strong bull market for the
Indian market continued for almost the entire 2008 and as a result only
Rs. 3568 crores were raised through the QIP route in the whole of 2008.

As the market was in a better situation during 2006 & 2007, QIP
placements were not much utilized or were not in the preferred fund
raising platform for the Indian companies. Companies preferred IPOs as a
medium to meet the capital requirements.

Until March 2008, IPOs were the happening thing in the market for fund
raising. But after the economic slowdown, the numbers started
diminishing. After Lehman Brothers collapsed in September 2008, fund
raising of the Indian companies through IPO started diminishing, as equity
markets collapsed and companies eventually delayed their fund raising
plans. As on March 2009, four companies raised money through IPO.

At the same time QIPs started to emerge as a medium for fund raising.
Although there are a number of ways to avail capital, the speed with

36
IMPACT OF PLACEMENT WITH QIP VS PUBLIC OFFER IN INDIA
which a QIP can be executed makes it a popular means of raising money.
A lot of companies slowly started opting for QIPs because it is a very fast
process. The money raising can be done in as soon as a week. The second
advantage is that there is no need of SEBI approval. Finally, the issue can
be done closer to market price.

Out of the total 65 companies that collectively raised 6.87 billion USD
through QIPs between 2006 and 2008, market price of as many as 52
companies declined from their offer price. Stocks are currently valued at
5.04 billion USD, 27% lower than the amount raised through the QIP
issues.

In 2007 there were a large number of QIPs which shows a downward trend
in 2008, after the financial crisis.

In 2009, bolstered by improving investor sentiment and strong


institutional interest, several cash-starved companies used the QIP route
to raise thousands of crores to stay afloat. More such companies,
especially in the real estate or infrastructure sectors, are looking to raise
an estimated 7-9 billion USD in the next few months of the current
financial year to cut their debt and improve return on investment in
projects.

India Inc. had already raised almost 1.11 billion USD from three QIPs so far
in 2009 and announced plans to raise another 4.5 billion USD. After
Unitech, Indiabulls Real Estate and PTC India raised close to 1.11 billion
USD through the QIP route. The Mumbai-based real estate company,
Akruti City, plans to raise up to 0.5 billion USD through the QIP route to
fund its projects in Mumbai that are currently under construction. HDIL
and Orbit have already announced plans to raise 0.62 billion USD and 0.11
billion USD respectively. Apart from these, many other companies are

37
IMPACT OF PLACEMENT WITH QIP VS PUBLIC OFFER IN INDIA
mulling over QIP plans. All the above signal that QIP is a going to become
significant fund raiser for India Inc

In the early 2009, there has been a revival of the capital market in India.
The markets have slowly started to climb and slowly started coming out of
the strong bear market. QIPs are safer bets for companies needing funds
in a market that is just out of strong bear market. This is because when an
IPO is made, the company is subjected to stringent norms of SEBI's 90%
subscription, the ESCREW account and other related expenditures, which
make it an extremely costly affair if the issue is not subscribed to. As such
companies opted for the QIP route for raising the much required funds.

The first major company to raise fund through the QIP route in 2009 was
Unitech. In April 2009, Unitech could raise close to Rs. 1625 crore paving
way for other infrastructure and real estate companies to raise funds
through a similar route. Indiabulls Real estate mobilized close to Rs.
2600 crore. The total amount of money raised through this technique has
come close to Rs. 12500 crore till July 15 2009.

Overwhelmed by the success of Unitech and India Bulls, the Indian Inc
became all set to make the QIP as the preferred route to raising funds. All
the major real estate and the infrastructure companies planned to raise
funds through QIPs. The targets of these companies as on 15 July 2009
were

38
IMPACT OF PLACEMENT WITH QIP VS PUBLIC OFFER IN INDIA
In The Pipeline

COMPANY ESTIMATED ISSUE


(Rs. crores)
SHOBHA DEVELOPERS 1500

PARSHAVANATH DEVELOPERS 2500

HDIL 2880

ESSAR OIL 10000

PANTALOONS 1000

LIC HOUSING FINANCE 500

CAIRN INDIA 5000

RELIANCE COMMUNICATIONS 1250

HDFC 4000

39
IMPACT OF PLACEMENT WITH QIP VS PUBLIC OFFER IN INDIA
Table below lists down the impact of stock prices of companies those
announced the stock QIPs.

Amount Price (in Rs)


Name Date
(Rscrore) Issue July 15 ‘09 % chg
Network-18 204.92 130.00 96.10 -26.07 6/12/2009
Bajaj Hind 723.18 204.00 159.00 -22.04 7/3/2009
Dewan Housing 225.77 141.00 116.15 -17.62 7/7/2009
Sobha Developers 526.85 209.40 189.70 -10.70 7/3/2009
Emami 310.00 310.00 350.45 13.04 7/2/2009
PTC 499.99 75.00 86.10 15.67 5/28/2009
DLF 3864.00 230.00 350.75 40.23 5/13/2009
Unitech 1621.08 38.50 74.10 92.46 4/17/2009

WHY IS INDIA INC GOING FOR QIPS?

 First reason is ease of regulation. Second, if somebody tries to go


and buy in the open market, the problem will be impact cost. For
example, Unitech’s QIP was for about USD 325 million. So if somebody
goes out and buys in the open market, it may end up running up the
cost and ending up as an impact cost. Naturally, they have preferred a
QIP route where they will get a guaranteed allotment.

 In case of QIPs, when compared to a preferential allotment, there is


no lock-in. One more question that may come is why companies and

40
IMPACT OF PLACEMENT WITH QIP VS PUBLIC OFFER IN INDIA
investors are choosing the QIP route, why not a preferential allotment?
It’s because in case of preferential allotment, there is a one-year lock-
in. In case of a preferential allotment, the price at which the preferential
allotment has to be done is the average of six months or two weeks,
whichever is higher. But in the case of a QIP, the pricing is the average
of the last two weeks.

 Also, the companies do QIPs where promoter’s holding is significant.


Prices have gone up and promoters seem to see in the current market,
that prices are closer to realistic and that's why they are going for QIP
issues.

 Several companies, especially real estate, were starved of money in


the recent slowdown 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 had already exceeded the total amount of roughly
Rs 3,500 crore that was raised in 2008.

41
IMPACT OF PLACEMENT WITH QIP VS PUBLIC OFFER IN INDIA
IBN18 Broadcast To Raise $90 Million Through QIP,
Private Placement

September 04 2008,

The broadcasting space has attracted interest from private equity


firms and international media houses.

RaghavBahl's IBN18 Broadcast Ltd is planning to


raise $90 million (Rs 400 crore) through a public
issue or a private placement or a qualified
institutional placement. Earlier this year the firm had
changed its name from Global Broadcast News to
IBN18 Broadcast Ltd. The Board of IBN has also
called for an Extra-Ordinary General meeting (EGM) on October 1, 2008 to
seek shareholders approval on its decision to raise money, the company
said in itcommunique' to the stock exchange.

Private equity fund IL&FS Investment Managers holds about 8% stake in


IBN18 Broadcast. They had invested $9 million in November 2006.
RajdeepSardesai, who is the Editor-In-Chief, holds a 4% stake while IBN's
director Sameer Manchanda, holds an 8% stake. Another big shareholder
is Reliance Capital, holding around 9%.

IBN 18 operates English news channel CNN-IBN and Hindi news channel
IBN7. It also runs a Marathi news channel, which is an equal joint venture
with Lokmat. IBN has also tied up with Viacom to launch a general
entertainment channel, Colors. IBN18 is trading at Rs 109 as against its
52-week high of Rs 256 per share.

Investment In Broadcast Media

INX Group, a news and entertainment broadcasting firm raised $170


million from a slew of private equity firms which included Temasek, New
Silk Route, Kotak and New Vernon, last year. The company is scouting for
another $150 million in the market. Rajat Sharma's India TV received
$11.5 million funding from FUSE+Media, an affiliate of US-based venture
fund ComVentures.

42
IMPACT OF PLACEMENT WITH QIP VS PUBLIC OFFER IN INDIA
A lot of strategic investment from overseas broadcasting and
entertainment firms is also finding its way in Indian broadcast companies.
Recently, UTV Software Communications Ltd sold 15% stake in its
broadcasting arm, UTV Global Broadcasting Ltd, to Walt Disney Co for
$28.15 million. NBC Universal Inc. has also picked up a 26% stake in NDTV
Networks, with the option of increasing it to 50% for $150 million.

QIPS - THE ROAD AHEAD

Fund raising through QIPs has increased 10 times if we compare with the
last year levels for the same time period. For last 9 months (Jan–Sep09),
Indian companies raised Rs 21209 crore. It was Rs 2104 crore for the
same period last year (Jan- Sep 08). It is intresting to note that during
(Jan-Mar09) period saw no QIP issues.

Strong signs of easing recession and the depreciating US dollar are


inducing more and more companies to take Qualified Institutional
Placements (QIPs) route to raise funds.

There are at least 49 companies who are in the process of fund raising
through QIP issues with the total proposed amount to be raised at about
Rs 44000 crore.

Some of the prominent names in this list include Tech Mahindra, Essar Oil,
Hindalco, Reliance Communications, Omaxe, Pantaloon Retail, Parsvnath,
Ansal, Jet Airways, RNRL, JSW Steel, L&T, etc.

While some companies choose to raise funds through alternative


instruments such as American Depository Receipts or Global Depoistory
Receipts (GDRs) with underlying shares, QIPs in general are looking strong
this year

43
IMPACT OF PLACEMENT WITH QIP VS PUBLIC OFFER IN INDIA
CONCLUSION

One of the key concerns in QIP is that unlike the rights issues, it dilutes
the stake of existing shareholders. Hence QIP are made by companies
with significant promoter holding and promoters with low stakes are
reluctant to adopt this route as a further dilution could mean risking its
management control of the company. However in difficult times like the
current environment where FCCBs and ECBs are not feasible, this option
as an interim measure can still prove to be beneficial as it gives the
company’s business the much needed capital to bail out and sustain itself.

Now, when the global capital market is struggling for revival, QIP is
ensuring a turnaround by giving the much need financial impetus to the
Indian real estate and infrastructure business while also giving investment
opportunities to the cash rich QIBs who have been waiting on the sidelines
over the last six months to enter the potential-rich Indian real estate
market.

But the QIBs are selective as they look at growth prospects of the
companies and so companies with strong fundamentals, sound corporate
governance and good underlying assets have better ability to tap the QIP
market.

44
IMPACT OF PLACEMENT WITH QIP VS PUBLIC OFFER IN INDIA