QIP stands for Qualified Institutional Placement.
QIP in the stock market is a fundraising tool, whereby a company raises capital by issuing equity shares, fully and partly convertible debentures, or any securities other than warrants which are convertible to equity shares.
The only parties eligible to purchase QIPs are Qualified Institutional Buyers (QIBs), which are accredited investors, as defined by the market regulator.
This limitation is due to the perception that QIBs are institutions with expertise and financial power that allows them to evaluate and participate in capital markets, without the legal assurances of a follow-on public offer (FPO).
The complications associated with raising capital in the domestic markets have led many companies in the past to raise funds from foreign markets via Foreign Currency Convertible Bonds (FCCB) and Global Depository Receipts (GDR) to fulfil their needs.
To reduce dependence on foreign capital and to give a push to the domestic markets, the Indian stock market regulator launched QIPs in 2006.
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Some of the rules and regulations for a company to raise capital through a QIP are -
Several more regulations dictate who may or may not receive QIP securities issues.
Now that we know bits and pieces of QIP, the question remains: Why do companies want to opt for QIPs?
Here are a few points answering this:
Even as the covid-19 pandemic has hit businesses across the majority of the industries, Indian financial services businesses have been the most proactive in tapping the markets to raise funds.
Kotak Mahindra Bank raised Rs 74.5 bn through via QIP to reduce its promoter shareholding whereas ICICI Bank raised Rs 150 bn under its QIP to fund its business growth and meet regulatory capital requirements.
Canara Bank also raised Rs 20 bn through its QIP issue for augmenting its Tier I capital to support growth plans and to enhance its business.
So that was a quick guide to understanding the mechanics of QIPs.
We will keep you updated on upcoming QIPs and other developments from this space. Stay tuned.
Happy Investing!