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.
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.
Every business needs capital to grow and expand. Any public listed company when they need money, they prefer the QIP route because
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.
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.
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.
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.
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.
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.
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