What is Qualified Institutional Placement (QIP)?3 min read
Who can participate in QIP? Benefits of QIP? What can retail investors infer from QIP? What is QIP (Qualified Institutional Placement )?
Let us answer some of the fundamental questions related to qip investors like What is Qualified Institutional Placement, What is a Qualified Institutional Placement issue, what QIP means, Who are QIBs, what are its benefits, and what should a retail investor infer from QIP through this post.
In the last month, we have heard companies/ banks like HDFC Limited, ICICI Bank, Axis Bank raising ~INR 35,000 crore through the Qualified Institutional Placement (QIP) route. Before this, companies like Avenue supermart, Kotak Mahindra Bank, Bharti Airtel, etc., have also opted for this route to raise capital. In this blog, let us understand qip ip management in detail.
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Qualified Institutional Placement
What is QIP in the stock market?
qip definition stands for Qualified Institutional Placement.
qip process means in the stock market; it is a fundraising tool that can raise capital from institutional investors. The buyers involved in this process are called QIBs. QIB’s full form is Qualified Institutional Buyers, and these QIBs in India are registered with SEBI. Indian companies used to prefer raising funds from foreign markets as raising capital in domestic markets involved a lot of complications. So, to avoid dependence on foreign capital resources, SEBI came up with the route of QIP to issue shares. This route does not involve many complications like IPO, FPO, rights issues, etc.
Why do companies opt for Qualified Institutional Placement?
● Faster Execution
It is comparatively more rapid because it involves lesser complications. Since well-known and financial expert buyers (QIBs) invest in this process, SEBI does not need to scrutinise this process much.
● Price discount
Institutional investors usually want a significant stake in the company. If they plan to buy this stake from the open market, it will cost them much higher. This route allows these investors to buy a significant stake at a comparatively lower price.
● Provides access to longer-term capital
Since the money raised in QIP is used longer-term, it helps banks/ companies overcome difficult times.
For example, banks have raised capital through qualified institutional placement shares definition to be well prepared if NPAs rise after the moratorium period. Similarly, companies like Avenue supermart have opted for this route to reduce promoter holding below 75%, and Bharti Airtel opted for QIP to reduce debt on its books.
Thus, there are various motives behind a QIP offer, and they vary from one company to another.
Rules for Issuing QIP
- If the issue size is up to INR 250 crores, there should be at least two buyers, that is, 2 qib full form in the share market. On the other hand, if the issue size is above INR 250 crores, there should be at least 5 buyers (QIBs).
- Similarly, if the qualified institutional investor institutional placement issue means the QIP size is more than INR 250 crores, a single buyer cannot be allotted over 50% stake.
- Promoters of the company cannot participate in this type of issue.
- The company should issue a minimum of 10% of the total allotment to Mutual Funds.
What can a retail investor infer from this?
Even in these uncertain times, if a company can successfully raise money from qualified institutional buyers (QIBs) on the share market, it reflects its sound financial health. The business model is backed by institutional investors. QIP also increases the company’s QIP share price once a company successfully completes the program. Shareholders of the company are generally positive about the impact of QIP on share price.
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