Introduction to Qualified Institutional Placement (QIP)
Qualified Institutional Placement (QIP) is a method by which listed companies raise capital by issuing equities, or other equity convertible securities to qualified institutional buyers. It is a common method of private placement where the company does not dilute its management stake and also does not need to repeat elaborate paperwork like it did during its IPO.
Understanding Qualified Institutional Placement (QIP)
- In 2006, SEBI saw the growing dependence on American depository receipts (ADRs), global depository receipts (GDR) or foreign currency convertible bonds and in international markets. This was a concern because not only did that restrict the potential of growing markets to see an avenue of funding that continued to remain complicated, but also increased the dependence on foreign entities to fund the company. That may have led to a shift of power towards the foregin entity, if the company relied on one primary source.
- FPOs are a supplementary idea where the listed company may raise capital again through a secondary IPO. However, the legal process and the time it takes to structure one yet again is time consuming. QIPs thus acted as a segue to raise speedy funds than a FPO might, owing to the few regulations that the QIPs have to follow. On the other hand, QIBs are selectively secured to be the buyers of these issues, thoroughly regulated and are a ready source of funds for these companies.
Highlights of Qualified Institutional Placement (QIP)
- QIPs are a lot cheaper in terms of legal fees or raising costs. The process of listing overseas costs more, a price companies were ready to pay, which the QIPs eliminated.
- Regulatory bodies define the price at which the QIP can be priced so as to not avail too much risk for either the QIBs or the company. The already traded stock price is taken for calculation for a period of six months where the price is averaged out, and is then set at the issue price.
- The time it takes to set up a QIP and to subscribe to it by QIBs is a lot quicker than FPOs or other sources of capital raising may show.
