In the volatile world of equities, where investors? sentiments change with the colour of price tickers, one instrument?QIP (qualified institutional placements)?is surely keeping up with the times. They are quick, cost-effective and, more importantly, don?t require regulatory approvals from market regulator Sebi. In fact, it has become such a rage that chief financial officers in the corporate world increasingly prefer them to FPOs that have been receiving poor retail response of late.
This calendar year could see record fund-raising via QIPs, with more than 70 companies having intentions to raise capital through this route. These companies together can raise up to Rs 40,000 crore. Last year, it raised Rs 33,000 crore. In 2010 so far, more than 34 companies have raised over Rs 18,500 crore through this route, which is more than that of IPOs that amassed Rs 14,000 crore.
Some of the largest QIPs done this year include Adani Enterprises, which raised Rs 4,000 crore, followed by IDFC (Rs 2,654 crore). GMR Infrastructure and Yes Bank raised Rs 1,400 crore and Rs 1,034 crore, respectively.
More than half of QIPs done this year are trading above their issue price, which has helped keep the sentiments intact. ?Entire QIP market is proving to be a market in itself,? said IDFC Capital managing director (investment banking) Prashant Shetty. He added that if the secondary market continued to do well, the momentum in the QIPs market would continue.
Adani Enterprises? stock price is currently trading 20% above its QIP price, while IDFC?s stock price is up 10%, GMR Infra is up 3% and Yes Bank is up 28%. Interestingly, same couldn?t be said of IPOs.
Although over 70 companies plan to mop up funds through this route, market experts are wary. ?Companies are passing board resolutions for QIPs. But that doesn?t mean that they will raise that much money. They are just keeping an opportunity open, said equity head of SMC Capital Jagannadham Thunuguntla.
While it?s anybody?s guess, if QIPs will pip IPO and FPO numbers this calendar year since the time line of the government disinvestment plan isn?t fully clear, it is likely the IPOs and FPOs combined will be more than that of QIPs.
Interestingly, last year, QIP collections, the highest in a calendar year, were more than that of IPOs and FPOs combined.
The concept of money raising through QIP gained popularity in 2007, when about Rs 20,000 crore was raised. In 2008, it went into a slump because of the liquidity crunch and adverse secondary market conditions. Again in 2009, thanks to the record foreign inflows and up tick in the secondary market QIP market activity peaked.
QIPs are popular route for fund-raising as they are quick and cost-effective. Another reason is that market regulator Sebi?s approval is not required for QIPs and also there is no lock-in period for investors. From an investors? point of view these products are good as the allotment is discretionary and not proportionate as in case of IPOs. The investors in this instrument include sophisticated investors comprising foreign institutional investors and domestic institutional investors like mutual funds and banks.