Qualified Institutional Placement

Qualified Institutional Placement

Qualified Institutional Placement (QIP) is a financial tool used by listed companies in India to raise capital by selling equity shares, fully and partly convertible debentures, or any securities other than warrants that are convertible to equity shares to qualified institutional buyers (QIBs). 

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What Is Qualified Institutional Placement?

Qualified Institutional Placement is a fundraising tool for listed companies in India, enabling them to issue equity shares, debentures, or other securities convertible into equity shares to Qualified Institutional Buyers. It is a faster and more efficient way to raise capital without the lengthy procedures of a public issue.

In 2020, Axis Bank, a major private sector bank in India, utilized QIP to raise capital. The bank successfully raised ₹10,000 crores by issuing shares at a price of ₹420.10 per share to institutional investors. This QIP helped Axis Bank to bolster its capital adequacy ratio and fund its growth plans efficiently.

Qualified Institutional Placement Procedure

The procedure for QIP involves several steps:

  • Approval from the Board of Directors: The company’s board must approve the QIP and decide on the size and pricing of the issue.
  • Appointment of Merchant Bankers: Professional advisors manage the QIP process.
  • Pricing of the Issue: The price of securities is determined, which should be at least the average of the weekly high and low closing prices of the related shares on the stock exchange during the two weeks preceding the relevant date.
  • Filing with Stock Exchange: Necessary documents and details of the QIP are filed with the stock exchange.
  • Allotment to Qualified Institutional Buyers (QIBs): The securities are allotted to QIBs, which include banks, mutual funds, insurance companies, etc.

Advantages of QIP

One of the primary advantages of QIP is its speed and efficiency in raising capital. It bypasses the lengthy and complex procedures of a public issue. 

  • Reduced Costs: Lower costs than public offerings due to fewer regulatory requirements.
  • Pricing Flexibility: Companies have some flexibility in pricing the issue.
  • No Pre-issue Filings Required: Unlike public issues, pre-issue filings with market regulators are not required.
  • Minimal Dilution of Shareholder Value: Since QIP targets institutional investors, it minimally dilutes existing shareholders’ value.
  • Enhanced Reputation: Conducting a QIP can improve the company’s reputation and credibility in the market.

Drawbacks of QIP

A significant drawback of QIP is the potential for existing shareholders’ stake dilution despite minimal dilution compared to other methods. 

  • Market Dependency: The success of a QIP heavily depends on market conditions.
  • Limited Investor Base: QIP restricts the investor base to qualified institutional buyers, limiting broader market participation.
  • Risk of Underpricing: Incorrect pricing can lead to underpricing, affecting the company’s valuation.

Who can apply for QIP?

Qualified Institutional Buyers (QIBs) are the primary entities eligible to apply for QIPs. These include:

  • Public Financial Institutions: As defined in the Companies Act.
  • Scheduled Commercial Banks
  • Mutual Funds
  • Foreign Portfolio Investors
  • Venture Capital Funds
  • Insurance Companies
  • Pension Funds

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What Is Qualified Institutional Placement? – Quick Summary

  • Qualified Institutional Placement is a mechanism for listed companies in India to raise capital by selling securities to Qualified Institutional Buyers.
  • Qualified Institutional Placement Procedure involves board approval, appointment of merchant bankers, pricing determination, filing with the stock exchange, and allotment to QIBs.
  • Advantages of QIP include speed, reduced costs, pricing flexibility, no pre-issue filings, minimal shareholder value dilution, and enhanced market reputation.
  • Drawbacks of QIP include Potential stake dilution, market dependency, limited investor base, and risk of underpricing.
  • Entities like public financial institutions, banks, mutual funds, foreign portfolio investors, venture capital funds, insurance, and pension funds can apply for QIP.
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Qualified Institutional Placement – FAQs  

1. What is meant by qualified institutional placement?

Qualified Institutional Placement refers to a fundraising method used by publicly listed companies in India to issue securities directly to qualified institutional buyers.

2. Is QIP a private placement?

Yes, QIP is considered a form of private placement as it involves issuing securities directly to a pre-selected group of institutional buyers, bypassing the public offering process.

3. What is the minimum number of allottees in QIP?

In QIP, the minimum number of allottees should not be less than two for each issue if the issue size is less than or equal to ₹250 crores. For issues exceeding ₹250 crores, there is no such minimum requirement.

4. What are the eligibility conditions for making qualified institutional placement?

Eligibility conditions include having a fully compliant listing history of at least two years, meeting SEBI’s minimum public shareholding norms, and ensuring that the QIP’s size does not exceed five times the net worth of the issuer.

5. What are the advantages of qualified institutional placement?

The main advantage of QIP is its efficiency and speed in raising capital, avoiding the lengthy and complex procedures associated with public issues.

6. What is the lock-in period for QIP?

Securities allotted under QIP are subject to a lock-in period of one year from the date of allotment.

7. Does QIP affect share price?

Yes, QIP can affect share price as the issuance of additional shares might dilute existing shares, potentially impacting the stock price.

8. What is the difference between QIP and FPO?

The key difference between QIP and FPO is that QIP is a private placement of shares or securities to institutional investors, while an FPO (Follow-on Public Offer) involves offering additional shares to the public after the company is already listed.

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