What is QIP: With the rise in the stock market, many companies want to raise money quickly for different purposes. Qualified Institutional Placement (QIP) route is becoming the preferred route for most firms looking to raise capital. This explainer explains what QIP is and why companies prefer it over traditional methods such as a follow-on public offering (FPO) or rights issue.
Know what is QIP?
It is a method of raising capital that allows listed companies to raise funds from Qualified Institutional Buyers (QIBs) by issuing new equity shares, fully and partially convertible debentures, or any security other than warrants convertible into equity shares.
Who are Qualified Institutional Buyers (QIBs)?
Public financial institutions, scheduled commercial banks, mutual funds, insurance companies, foreign portfolio investors and foreign institutional investors.
Can retail investors with high net worth invest in QIP?
Retail investors and high net worth individuals are not allowed to invest in QIP.
Why is QIP attractive for companies?
Because it helps them to avoid long and complicated processes of FPO or rights issue. Also, because QIBs are savvy investors, they have a long-term perspective, which helps maintain price stability.
Can promoters participate in QIP?
The promoters of the company which is bringing QIP cannot participate in it.
Are there any rules regarding the minimum number of institutional buyers participating in the QIP?
If the issue size is more than Rs 250 crore, there should be at least five buyers. More than 50 percent stake cannot be allotted to any one buyer. If the issue size is up to Rs 250 crore, there should be at least two buyers.
What is the basis for determining the price of QIP?
Under SEBI regulations, the issue price should not be less than the average of the weekly high and low of the closing prices of the last few weeks.
Why can’t it be less than average?
Earlier also there have been allegations that promoters were allotting shares cheaply to their favorite investors. The price of QIP affects the market price of the stock.
Can a QIP issue be priced above the market price?
Yes, it can be kept. But QIBs usually ask for a discount. This is one of the reasons why they take part in such placements. They can buy a good amount of shares without increasing the stock price, instead of buying in the open market.
