What is QIP

QIP - Qualified institutional placement

Qualified institutional placement (QIP) is a capital raising tool, whereby a listed company can issue
Equity share
Fully and partly convertible debentures, or
Any securities other than warrants
Which are convertible into equity shares, to a qualified institutional buyer (QIB).

Apart from preferential allotment, this is the only other speedy method of private placement for companies to raise money.

It scores over other methods, as it does not involve many of the common procedural requirements, such as the submission of pre-issue filings to the market regulator

Why was QIP introduced?

To enable listed companies raise money from domestic markets in a short span of time, market regulator SEBI introduced the concept of QIP in 2006.

This was also done to prevent listed companies in India from developing an excessive dependence on foreign capital.

Prior to introduction of QIPs, the complications associated with raising capital in the domestic markets had led many companies to look at tapping overseas markets via foreign currency convertible bonds (FCCB) and global depository receipts (GDR).

This has also helped issuing companies price their issues closer to the prevailing market price.

Who can participate in the issue?

The specified securities can be issued only to QIBs, who shall not be promoters or related to promoters of the issuer.

The issue is managed by a Sebi-registered merchant banker. There is no pre-issue filing of the placement document with Sebi.

The placement document is placed on the websites of the stock exchanges and the issuer, with appropriate disclaimer to the effect that the placement is meant only for QIBs on private placement basis and is not an offer to the public.

Why there is a sudden rush for QIPs?

Several companies, especially real estate, were starved of money in the recent slowdown and were finding it difficult to stay afloat.

The revival in market sentiment came as a boon to these companies, which are rushing to raise money, mainly to retire expensive debt and restructure their balance sheets.

For these companies QIP has emerge as excellent tools, where they can raises thousand of Crores Rupee in a period less than a month.

In 2008 by way of QIP Indian company has raised more than 3500 Crores and expecting more in coming future.