QIP proceeds: Debt trumps capex

Written by Jash Kriplani | Mumbai | Updated: Oct 28 2014, 07:03am hrs
While several companies have mopped up money via the qualified institutional placement (QIP) route in H1FY15, most of it will go towards repayment of debt rather than serve as equity for projects, reports Jash Kriplani in Mumbai. An amount of R20,000 crore has been raised by corporates through QIPs in the six months to Septembera five-year highbut, on a rough reckoning, half of this will be used to pare borrowings. If one excludes the money that banks have raised of approximately R5,000 crore to help them shore up their capital adequacy ratios, then two-thirds of the funds that companies have picked up will be used to bring down their borrowings. Reliance Communications R4,808-crore QIP, the largest in FY15, would help the telecom player reduce its net debt, which stood at R40,879 crore as on March 31, 2014.

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While firms with stronger balance sheets are no doubt welcome, the Street has by and large stayed away from such companiesas seen from the value lost by thempreferring to back those that are spending on capex.

Of the seven companies that floated QIPs to pick up money to pare debt, five are trading lower than the price they were trading at on the date of the issue. Jaiprakash Associates has been the worst hit as its shares are trading 60.13% lower since its Rs 1,499.38-crore QIP on July 2. Shares of GMR Infrastructure and RCom have fallen 36.77% and 32.87%, respectively. Only Ashok Leyland has emerged unscathed since its QIP with its shares gaining 16.88% amid strong September sales.