Qualified Institutional Placement (QIP)
Candlefocus EditorQIPs were developed out of the need for Indian companies to raise necessary capital without relying on foreign resources. This fundraising process enables companies to sell their existing stocks to QIBs, including domestic mutual funds, venture capitalists, and insurance firms. While QIPs provide a route towards capital-raising, they only allow Indian companies to sell their shares to qualified institutional investors, limit their fundraising opportunities.
To obtain a QIP, an Indian company must provide an offer letter to the Securities and Exchange Board of India (SEBI), stating their intention to issue QIPs to potential investors, as well as the number of shares they want to issue and the amount of capital they hope to raise. The offer letter must also provide a detailed prospectus to potential investors, highlighting the salient features of the offer.
Once the offer letter and prospectus have been approved by the SEBI, the company can then proceed with offering their shares to the public. Those investors interested in purchasing a company’s QIPs must be registered as qualified institutional buyers and must have the necessary capital to purchase the QIPs. After the company has sold their shares and achieved the required capital, the SEBI must still approve the issuance and ensure that the terms of the offer have been met.
Since QIPs are less regulated than IPO’s, they lack the liquidity of regular stock exchange investments and leave investors with fewer exit options. Additionally, the lack of regulatory compliance limits the potential of Indian companies to access foreign investors, meaning their fundraising potential can be restricted.
Qualified institutional placements are the most popular way for Indian companies to raise capital without relying on foreign resources. Although usually beneficial to the company’s capital-raising, QIPs often come with some restrictions, including the need to register as a qualified institutional investor before they can invest in a QIP, as well as limited security and liquidity.