Qualified Institutional Placement (QIP)

Qualified Institutional Placement allows a listed company to raise funds by issuing shares or other eligible securities directly to institutional investors. SEBI introduced the QIP framework in India in 2006.

• Only Qualified Institutional Buyers, such as mutual funds, banks and insurance companies, can participate.
• Retail investors cannot directly invest in a QIP.
• A QIP generally involves fewer procedures than an Initial Public Offering.
• Companies may issue equity shares, convertible securities or other securities permitted under SEBI regulations.
• Issuing new shares may reduce the ownership percentage of existing shareholders.
• ICICI Bank raised ₹15,000 crore through a QIP in 2020.

• HDFC Ltd raised ₹10,000 crore through an equity QIP in 2020.

  
  
  

Qualified Institutional Placement is a fundraising method through which a listed company issues eligible securities to Qualified Institutional Buyers on a private placement basis.

The securities issued through a QIP may include:

• Equity shares
• Fully or partly convertible debentures
• Non-convertible debentures with warrants
• Other securities permitted under SEBI regulations

SEBI introduced the QIP framework in 2006 to help listed companies raise funds from institutional investors through a regulated process. QIP issues are currently governed by the SEBI Issue of Capital and Disclosure Requirements Regulations.

QIP is available only to QIBs. These may include mutual funds, banks, insurance companies, eligible foreign portfolio investors, pension funds and venture capital funds.

Retail investors cannot directly participate in a QIP. This makes it different from an IPO or FPO, which may also be open to retail investors.

Advantages of QIP

• Efficient fundraising: A QIP generally involves fewer procedures than an IPO. This may help a company raise money more quickly.
• Lower costs: A company may spend less on marketing, underwriting and other public issue-related activities.
• Targeted investors: Securities are offered only to eligible institutional investors with experience in financial markets.
• Flexibility: Depending on SEBI regulations and the company’s requirements, it may issue equity shares, convertible debentures or other eligible securities.

Disadvantages of QIP

• Dilution of equity: When a company issues new shares, the ownership percentage of existing shareholders may decrease.
• Limited investor base: Retail investors cannot directly take part in a QIP.

• Possible market impact: A large QIP or its issue price may affect the company’s share price and existing shareholders’ expectations.

  
  
  

SEBI introduced QIP in 2006 to provide listed companies with a regulated method of raising money from institutional investors. The process is governed by the SEBI Issue of Capital and Disclosure Requirements Regulations.

Some important requirements include:

• Eligibility criteria: The company must be listed, and the same class of equity shares must be listed on a recognised stock exchange with nationwide trading terminals. The company must also meet applicable public shareholding requirements.
• Qualified Institutional Buyers: Securities can be allotted only to investors recognised as QIBs under SEBI regulations. Retail investors are not eligible to participate.
• Pricing guidelines: The floor price is generally calculated using the average of the weekly high and low closing prices of the company’s shares during the two weeks before the relevant date. Therefore, it is not simply the average share price for the previous two weeks.
• Disclosure requirements: The company must prepare a placement document containing information about the issue, its financial position, risks and the proposed use of funds.
• Issue limits: The size and structure of a QIP must follow the limits and conditions prescribed under the SEBI regulations. The claim that a company can issue only 25% of its post-issue capital through QIP in one financial year is not a general QIP rule.

QIP vs IPO, or Initial Public Offering

• Process: An IPO generally involves detailed public issue procedures, marketing and underwriting. A QIP is offered privately to eligible institutional investors.
• Investor base: An IPO may be open to retail and institutional investors. A QIP is available only to QIBs.
• Cost: An IPO may involve higher marketing, underwriting and compliance-related costs than a QIP.

QIP vs FPO, or Follow-on Public Offer

• Purpose: An FPO allows an already-listed company to issue additional securities to the public. A QIP also allows a listed company to raise additional capital, but only from QIBs.
• Investor base: An FPO may be open to retail and institutional investors. A QIP is restricted to Qualified Institutional Buyers.
• Process: An FPO is a public issue, while a QIP is a private placement to institutional investors.

QIP vs QIB, or Qualified Institutional Buyer

• Definition: QIB refers to an eligible category of institutional investor that can participate in certain securities issues.
• Mechanism: QIP is the method used by a listed company to raise funds. QIBs are the institutional investors that purchase securities through the QIP.

Companies must assess their funding requirements, costs and target investor group before choosing a fundraising method.

Several listed Indian companies have used QIPs to raise capital. Examples include:

• ICICI Bank: In August 2020, ICICI Bank raised ₹15,000 crore by issuing equity shares through a QIP. The bank stated that the funds would support its capital adequacy and general corporate requirements.
• HDFC Ltd: In 2020, Housing Development Finance Corporation raised ₹10,000 crore by issuing equity shares through a QIP. The wider fundraising approval was for up to ₹14,000 crore, but the equity QIP itself amounted to ₹10,000 crore.

These examples show how listed companies may use QIPs to strengthen their capital position or meet other business funding requirements.

Qualified Institutional Placement is a fundraising method that allows listed companies in India to issue eligible securities directly to Qualified Institutional Buyers. It generally involves fewer procedures and lower costs than a public issue. However, issuing new shares may dilute the ownership of existing shareholders, and retail investors cannot participate directly. Companies must follow SEBI’s eligibility, pricing, disclosure and allotment requirements before raising funds through a QIP.