As India Inc struggles, QIPs fall out of favour

By: | Published: June 29, 2016 6:10 AM

Fewer corporates have been taking the qualified institutional placement (QIP) route to raise capital from the market this year.

Fewer corporates have been taking the qualified institutional placement (QIP) route to raise capital from the market this year.

So far, only three companies have raised close to Rs 500 crore via QIPs compared with over Rs 18,224 crore raised in the corresponding period of 2015 when by as many as 31 firms mopped up funds through qualified placements, according to Prime Database.

Sanjiv Bhasin, vice-president at IIFL, believes that volatility in global markets has been a dampener for companies looking to raise capital from institutional buyers. “Qualified institutional buyers (QIBs) only accept companies with quality earnings record and since most corporates have been struggling with their earnings, fewer take the QIP route to raise funds,” Bhasin said.

The Sensex currently trades at a price to earnings (P/E) multiple of nearly 17 times its one-year estimated forward earnings — higher than the five-year long-term average of 15 times.

Qualified institutional placements are a channel through which a listed firm could raise additional capital by issuing equity, fully or partially convertible debentures or any other securities which are convertible to equity shares to a QIB.

The mechanism was introduced by the Securities and Exchange Board of India (Sebi) in 2006 to prevent listed firms in India from being excessively dependent on foreign funding.

Companies including HDFC Bank, Bajaj Finance, IndusInd Bank and HDFC raised between Rs 1,400 crore and Rs 5,000 crore in 2015 via QIPs. In 2016, Deepak Nitrite, Suprajit Engineering and Indian Overseas Bank opted for qualified institutional placements to raise additional capital.

Recently, YES Bank hired Goldmann Sachs as investment banker to help the private lender raise close to Rs 6,780 crore through a QIP.

The company had announced its plans to raise capital during its last quarterly results in May. The company had raised around Rs 2,900 crore through a QIP in June 2014.

In an interview with Bloomberg last week, YES Bank managing director and chief executive Rana Kapoor said that the placement would result in a dilution of 12%-13.5% of stake.

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