What is QIP? Difference Between QIB and QIP. The Impact of QIP on share prices. And many such commonly asked questions about QIP by Indian retail investors.
What is QIP
QIP stands for Qualified Institutional Placement. It is a fundraising tool, whereby a listed company can issue shares or debentures to Qualified Institutional Buyer (QIB).
Because buyers are willing to invest in the company, it is much faster to raise the capital for the company via the QIP route. So, it is a preferred choice of raising money.
If there is a demand for companies shares, it is easy for the company to raise capital. Only a few investors participating in the QIP can do the job for the company.
Difference Between QIB and QIP?
There is no similarity.
To understand things straightforwardly.
QIP is for the company or the management coming out with the requirement of money. They are placing their need in the market. So the term is QIP or Qualified Institutional Placement.
They place the offer in front of the institutional investors.
QIB are Qualified Institutional Buyers. The investors who participate in the QIP. The buyers of the offer placed by the management.
Why QIP?
Every business needs capital to grow and expand. Any public listed company when they need money, they prefer the QIP route because
- Faster Execution – The process is really fast. When a company needs capital, investment bankers take it to the large investors. Interested investors execute the transaction as per the SEBI’s guidelines.
- Price Discount – Large investors when they want a significant stake in a company, if they buy from the open market, can take the share price significantly higher. However, if they go via the QIP route, they can ask a price discount as well.
- Reliable and straightforward – QIP is much easier than using the overseas markets via Foreign Currency Convertible Bonds (FCCB) or American depositary receipt (ADR) or Global Depository Receipts (GDR).
Because it is easy and a win-win situation for both the management and the investor, it is the most preferred route to raise money by the businesses.
Rules for Issuing QIP
As a retail investor, we aren’t too concerned about the rules. They are more of a concern for the promoters. Still, I will share some key highlights to help us know some internals of QIP.
- The company needs to issue a minimum of 10% to mutual funds.
- For QIP size of up to 250 Crore, it needs at least two investors. For above Rs. 250 crores, the company needs at least five.
- No allottee is allowed to have more than 50% of the total amount issued.
- Promoters aren’t allowed to participate in QIP. They may infuse capital in the company via other routes.
Note, they aren’t the full set of rules. They are here to give Indian retail investors some ideas about the basic rules for an understanding of QIP.
What is the difference between other fundraising options like Public offerings/Rights Issue and QIP?
The only difference is the ease of use.
Every method has a similar process of issuing new shares to investors. In some cases, even a retail investor can also participate, but the process takes longer than QIP.
So, companies prefer QIP because of ease of use and help the company with the requirement of capital ASAP.
So QIP is the first choice to raise capital for any company.
If the price at which QIP is offered doesn’t interest institutional investors, company opt for other methods to raise capital.
Who Qualifies as QIB or can retail investor participate in QIP’s?
The Indian retail investor can’t participate directly in a QIP.
QIB’s have net worth or asset under management is in millions of USD. So for the Indian retail investor, it is not possible to participate in QIP.
The indirect route of investing in a mutual fund which participates in QIP is always an option for the Indian retail investor.
What is the Impact of QIP on share prices?
The issuance of new shares to investors should take the price of the stock down as the earnings will divide into more number of share.
The price for QIP is decided based on the average trading price for a couple of weeks from the date with a maximum of 5% discount.
Often when QIP is successful, it suggests there is an interest among large investor to invest in the company, which increases share prices.
SBI recently completed a QIP.
YesBank is in the process.
If Yes bank wants to raise capital and goes the QIP route and are unable to find buyers at a price they are comfortable raising money, they will opt for an alternate way to raise capital.
How the value is calculated. Eg. mkt price 50, BV 100, EPS 5%, industry avg 20%.?
What value are you trying to calculate?
Sir, Axis bank had raised money on 4th august, 2020 through the QIP. But the share prices have only been increasing since that date. If there is huge supply why didnt the price fall?
I am not tracking the Axis bank QIP but if the price didn’t fall it means the demand was higher than the supply at the price the QIP was offered.
Thanks Shabbir for your enlightening article,
Joseph L L Vaz.
The pleasure is all mine.
Dear sir,
This was indeed a very nice article, thank you firstly for sharing the same, also I have a doubt now once the QIP route is success and the company is able to raise money let’s say 250 cr then whats next, do they need to return the same money later and get freed there stakes which they sold to QIP??
Sold off is sold off. They can’t buy it back. But of course they can offer buy back in future or promoter can accumulate from the market. it is not like buying the same QIP from that investor itself.