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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
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
Advantages of QIP 32
QIPs In India 35
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.
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.
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.
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.
(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
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two other alternative routes to company not satisfying any of the above
conditions, for accessing the primary market, as under:
(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
(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.
SEBI (DIP) guidelines have provided certain exemptions from the eligibility
norms. The following are eligible for exemption from entry norms.
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Primarily, issues can be classified as
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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:
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IMPACT OF PLACEMENT WITH QIP VS PUBLIC OFFER IN INDIA
PRIVATE PLACEMENT
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IMPACT OF PLACEMENT WITH QIP VS PUBLIC OFFER IN INDIA
INDIAN IPO MARKET
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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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.
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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.
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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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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
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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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.
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.
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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.
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.
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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.
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
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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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.
IPO valuation:
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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QUALIFIED INSTITUTIONAL PLACEMENT
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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.
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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QIP has also helped issuing companies price their issues closer to the
prevailing market price.
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.
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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
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.
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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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.
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.
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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
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
2. Mutual Funds
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
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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).
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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.
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
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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
9. Placement Document
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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.
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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.
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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.
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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.
ADVANTAGES OF QIP
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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.
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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.
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QIPs IN INDIA
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.
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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
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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.
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
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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
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IMPACT OF PLACEMENT WITH QIP VS PUBLIC OFFER IN INDIA
In The Pipeline
HDIL 2880
PANTALOONS 1000
HDFC 4000
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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.
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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.
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IMPACT OF PLACEMENT WITH QIP VS PUBLIC OFFER IN INDIA
IBN18 Broadcast To Raise $90 Million Through QIP,
Private Placement
September 04 2008,
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.
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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.
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.
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.
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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.
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IMPACT OF PLACEMENT WITH QIP VS PUBLIC OFFER IN INDIA