What is Qualified Institutional Placement (QIP)?

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What is Qualified Institutional Placement (QIP)?

Zomato’s shares have been in focus as it has launched QIP to raise Rs. 8,500. The QIP has been launched with a floor price of Rs. 265.91/share. Now, a lot of you might be wondering what QIP even means. QIP full form is Qualified Institutional Placement. It is a way through which companies can raise money. Generally, QIP is used in India and other parts of Southeastern Asia. This blog post will explain pretty much everything you need to know about QIP. Enjoy reading!

What is Qualified Institutional Placement?

QIP is a method used by companies listed on Indian stock exchanges for raising funds by selling their shares or other securities to qualified institutional buyers (QIBs). QIBs refer to large financial institutions having the required financial expertise and resources to make investments in securities. Some examples of QIBs are banks, foreign portfolio investors, venture capitalists, etc.

Being the Indian securities market regulator, the Securities and Exchange Board of India (SEBI) oversees the Qualified Institutional Placements in India. In fact, it was SEBI itself that introduced QIP in 2006 to assist Indian companies to raise funds domestically rather than depending too much on foreign funding. Since then, QIP has become a popular way for publicly listed enterprises to raise funds whenever required.

Why do Companies opt for QIP?

Many companies opt for QIPs for fulfilling their business expansion requirements. They prefer to raise funds through QIP rather than from the general public as the latter can be time-consuming and expensive. To raise funds through QIP, the companies can sell their shares directly to QBIs. It is a much faster and often cheaper process as compared to other methods for raising funds.

Prerequisites for Issuing QIP

Before issuing QIPs, the company must fulfill the following prerequisites:

• The company must be listed on a recognized Indian stock exchange, such as National Stock Exchange (NSE) or Bombay Stock Exchange (BSE) for at least a year before it can issue QIPs.

• It must meet the minimum shareholding requirements specified in its listing agreement.

• In one financial year, the company can raise up to five times its net worth with the help of QIPs.

• A single allottee cannot be allocated more than 50% of the issue.

• QIP-issued shares come with a one-year lock-in period, so it is important to note that they cannot be sold for a year after allotment.

• Company’s promoters cannot participate in Qualified Institutional Placements.

• At least 10% of the issue must be allotted to mutual funds. If mutual funds don’t take up the entire 10%, the rest can be allotted to other QIBs.

• At least two allottees must be there for issues up to Rs. 250 crore and at least five for issues which are larger.

Conclusion

Qualified Institutional Placement is a popular tool for Stock Exchange-listed companies to raise capital in a speedy and efficient manner. While traditional public offerings can be time-consuming and expensive, QIPs are often quicker and cheaper as they allow the listed companies to issue securities directly to qualified institutional buyers like mutual funds, foreign portfolio investors, and so on.

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