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CAN QIP EFFECT STOCK MARKET

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03/07/2009 :

CAN QIP EFFECT STOCK MARKET

Qualified institutional placement (QIP) is one of the capital raising methods adopted by the where a company which is listed on the exchange can issue equity shares or debentures to a qualified Institutional Buyer. Such a fund raising method has been very popular among the entity which doesn’t want to involve itself in the length procedures of issuing shares thus its one of the speedy method for the companies and doesn’t involve itself into any procedure requirements issued by the market regulators. 

QIP was introduced by SEBI in the year 2005 so that the domestic companies are able to have quick funds fore their establishment as well as the dependence on the foreign market for the capital raising can be reduced. Prior to 2005 domestic companies in India were involved in excessive dependence on the foreign capital though GDR or Foreign currency convertible bond (FCCB).

The participant for the QIP is not the retail investors.  The securities can be issued only to a QIB who should not be the promoters or are any way linked to the company, thus only huge corporate or financial institutions can take part in the QIPs. Thus there is no offer to the public in such scenario.

It has been observed that within a short span of time there is a sudden huge rush for the QIP. This was majorly due to the several corporate which had sucked out liquidity/ money from the market. They are specifically the rate sensitive sectors which loose a lot in the recession. One of the sectors which have used QIP s extensively is the real estate, as there was huge liquidity crunch in this sector and for their survival many real estates companies are opting for the QIP. Such companies are looking forward for the restructuring of their balance sheet as well as are opting for the new projects to rid off their debts. The fund raising in the year2009 has increased more than 40% of it was raised in the year 2008, not only this there are large number of issues waiting in line for the QIPs and many such issues will be hitting the market in coming months.

HOW RETAIL INVESTORS CAN BE BENEFIITED:

Its is in general that the retail investors cannot participate in the QIPs. Thus can never have their share of the company listings, in such a scenario QIPs   is not advantageous for the retail investors, however one should focus on the other side. If these companies would have opted for ADR, GDR or FCCB then also the Indian retail investor could not have participated at all but at least in the QIP, once the stock has been listed in the exchange then the retail investors can participate. Thus it is better to have something than nothing. Thus here in the initial phase it will be the institutional investors actively participating , but after the post listing of issue it will be the retail customer who can actively trade on it.

One of the recent QIPs which undertook in the year 2009 was of unitech. It was one of the largest qualified institutional placements (QIP) by Indian corporate. The company raised about Rs. 2000 crores .

This was necessary for Unitech as the company need funds to stay afloat, also through the method of QIP the investors can bet on the opportunity to mark the returns again in this stock, which was on the verge of bankruptcy. Also the response to the QIP held by Unitech was very strong, as this was the only method left for them to have their positive returns from the script as the company was facing a huge financial trouble. Thus the QIP proved beneficial for both the institutional and retail investor.

 


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