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What is QIP & QIB??
QIP: - Qualified institutional placement is simply the Mode by which a listed company can issue equity shares, which is fully and partly convertible debentures, or any financial instrument other than warrants which can be converted into equity shares to a Qualified Institutional Buyer (QIB).
It’s not only for preferential placement but also helps in private placements with some selected group of person because of its simple procedure over other methods.
While QIB: - Qualified Institutional Buyers are those Smart people and institutional investors who possess expertise in market and the financial muscle to evaluate and invest in the capital markets. They can be commercial Banks, mutual funds, venture capital funds, FIIs, insurance companies or pension funds with minimum worth of 25Cr. They must be registered with SEBI and must follow their guidelines strictly
You can take advices from portfolio Management service providers. One of the PMS service provider are Moat Financials. SEBI Securities and Exchange Board of India acts like police to surveillance the investors and fraudsters in financial market by continue tracking their actions it also regulates the frame work of Qualified institutional placements QIPs and gives guidelines to Qualified institutional buyers QIBs to work conveniently with them.
Why QIPs were introduced: -
The process of qualified institutional in placement was introduced back in 2006 by security and exchange board of India SEBI to prevent NSE/BSE listed companies to stop its dependency on foreign capitals
Before establishment of QIPs there were a lot of complications for companies in raising capital from domestic market it was very easy for them to issue foreign currency convertible bonds (FCCB) and global depository receipts (GDR) to grow money from overseas market.
Regulations to govern a QIPs: -
To get qualifications and engagement in QIPs, a company has to fulfill some criteria and benchmark set by regulators For example company should be listed on an exchange which can be access from every part of country through its terminal.
A company needs to issue minimum of 10% of the securities which are issued under the mutual fund scheme to process in QIPs. In addition to that a company need to ensure that there are at least two allottees and it is a compulsory criteria if the company is issuing securities above Rs.250 crore. No issue is allowed to qualified institutional buyers who have connections with promoter’s company also No individual allottee is allowed to have more than 50% stake of total issued amount.
All the QIP are managed and surveillance by the SEBI registered merchant broker they furnish and exercise due diligence and submit the certificate to Stock Exchange board to assure and inform them the issue is provisioned and compliance with all the requirements given and mentioned by SEBI.
QIP in NEWS: -
In recent we’ve seen more news on QIPs which are adopted by cash-strapped real estate company like Unitech to raise its capital where Unitech has gathered Rs. 1620 crore through Qualified institutional placement process, the stake and holdings has now came down to 51%.
A report is also saying that LIC Housing Finance is pondering over QIPs to issue share of up to 10% values of its total paid up capital well it’s just an expectation let’s see what comes in future.
We’ve talk enough about QIP now as I mention in definitions I want to bring your attention in QIBs how they works, their regulatory and regulations and a lot more things about them.
Regulations of QIBs: -
Any Institution that follow the terms of clause 2.2.2B (v) of DIP Guidelines issued by SEBI comes under categories of Qualified institutional buyers we will not go deeply in clause but they all may fall under it.
Foreign institutional investor registered with SEBI;
Multilateral and bilateral development financial institutions
Foreign Venture capital investors registered with SEBI
Venture capital funds registered with SEBI
State Industrial Development Corporations
Insurance Companies registered with the Insurance Regulatory and Development Authority (IRDA).
Provident Funds with minimum corpus of Rs.25 crores
Pension Funds with minimum corpus of Rs. 25 crores
Public financial institution as defined in Companies Act, 2013
Most of guidelines matches with QIP because both are regulated by SEBI and QIP and QIBs work together for mutual benefits but amendment made in 2000 by SEBI (Disclosure and Investor Protection) Introduced some additional mode of capital raising from domestic markets.
SEBI guidelines are equally applicable to all kinds of financial assets weather its equity or any other form of securities except warrants which can be convertible with equity share at any time.
The regulator has also prescribed that the total amount raised by issuer through QIBs cannot goes above 5 times of net worth of the issuer at the end of its previous financial year.
Another important provision in favor of the issuer and against the investors QIBs is that the investors cannot and are not allowed to withdraw their bids or applications after closure of the issue.
What we can conclude: -
Securities and Exchange Board SEBI of India introduced the concept of QIBs when Indian corporates were looking for chances to enter into foreign investments overseas to expand their operations, and that was happening mainly due to two reasons
Easily availability of funds in those jurisdictions
Because of less stringent regulatory environment compared to India.
This Concept become very popular among investors and issuers in very short span of time because of its advantages;
The time taken by issuer to complete QIP for capital raising is much lesser than through public shareholders.
The waiting time for document approval and whole process is done by SEBI with in four to five days.
No need to acquire team of bankers, solicitors, advocates and auditors to obtain approvals hence it is cost effective also.
Let’s talk about some negative aspects of these processes because it is also equally important we should always consider the risk and cons involved to understand whole aspects of the process
Although QIP gives opportunity to QIBs to hold major stake in any business but on other hand it also dilutes the stake of shareholders which simply means risking the management and management is losing his control over company.
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