What is Qualified Institutional Placement?

Qualified Institutional Buyers Meaning

A Qualified Institutional Placement (QIP) is a way for a listed company to raise money by issuing new shares or other securities to a select group of investors, called Qualified Institutional Buyers (QIBs). These investors are typically large financial institutions, such as banks, insurance companies, and mutual funds, that are considered to have the expertise and resources to invest in these securities.

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Why do Companies Opt for Qualified Institutional Placement (QIP)?

Companies opt for QIPs for several reasons, including speedy execution, cost efficiency, and control over shareholding structure. QIPs involve prominent financial expert buyers, which results in a simplified approval process by SEBI, making execution faster and less complex.  

Other methods like IPOs, Rights Issues, and Follow-on Public Offer  (FPOs) can be costly endeavors, requiring extensive teams, and involving auditors, lawyers, and other professionals. QIPs enable companies to maintain control over their shareholding structure, which can be advantageous for businesses that want to retain strategic control or avoid the costs and drawbacks of other fundraising methods.

This is done to help the company raise money without going through the hassle of a public stock offering for various reasons like:

  • To raise money quickly and easily.
  • To avoid diluting existing shareholder ownership as new shares are sold to QIB’s
  • To tap into a new source of capital such as Foreign Institutional Investors.

How Does QIP Qualified Institutional Placement works?

Let's see how qualified institutional placement procedure works or QIP impact on share price in the following steps:

  1. The company first appoints an investment banker to manage the process.
  2. The investment banker prepares a placement document, which is a detailed description of the QIP, including the offering, the pricing and the risks involved.
  3. The investment banker then markets the QIP to potential investors.
  4. Once the QIP has been marketed, the investment banker will allocate the securities to the QIBs on a pro-rata basis, based on the amount of their application.
  5. Once the securities have been allocated, the QIP is closed.

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What are the regulations for a Qualified Institutional Placement (QIP)?

To be allowed to raise capital through a QIP, a firm must be listed on a stock exchange along with the minimum shareholding requirements as specified by SEBI. 
Also, the company must issue at least 10% of its issued securities to mutual funds or allottees. Regulations also exist for the number of allottees, the minimum issue size, and the pricing of the issue.

Qualified Institutional Placement Advantages and Disadvantages 

Advantages of QIPs include the ability to tap into a wider investor base, expedited fundraising, flexibility in capital raising, and control over shareholding structure. 

However, companies should carefully assess their suitability and consider the expectations of institutional investors, who are often high-risk investors and may demand higher returns on their investment due to the nature of the placement. Smaller or less-established businesses may find it challenging to attract institutional investors.

QIP Impact on Share Price

Understand impacts on different stakeholders as below:

CompanyCan raise money quickly and easily, which can be used to fund growth, expansion, or acquisitions. It can also help to improve the company’s liquidity and market capitalization.
Existing shareholdersCan benefit from the proceeds of the QIP, which can be used to improve the company’s financial performance.
InvestorsCan get access to a company’s shares at a discounted price. They can also benefit from the company’s growth and expansion.
EconomyCan be boosted by providing companies with the capital they need to grow and expand. Additionally, QIPs can help to create jobs and stimulate economic activity.

Let’s see an example:

CompanyJupiter Wagons
IssuanceMay 10, 2023
Issue PriceINR 109.12 per share
Funds RaisedINR 125 crores
EligibilityThe QIP was open to qualified institutional buyers (QIBs).
Market PriceINR 378 per share as on 4th September, 2023
Record DateMay 17, 2023
RatioFor every 2 shares, investors were entitled to buy 1 new share in the QIP.

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