What is a QIP?

26 Apr 2009, 0202 hrs IST, Lisa Thomson, ET Bureau

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Qualified institutional placement (QIP) is simply the means whereby a listed company can
issue equity shares, fully and partly convertible
debentures, or any securities other than warrants which are convertible to equity shares to a
Qualified Institutional Buyer (QIB).

Apart from preferential allotment, this is the only other method of private placement whereby
a listed company can issue shares or convertible securities to a select group of persons.
However, 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 it introduced?

The Securities and Exchange Board of India (Sebi) introduced the QIP process in 2006, to
prevent listed companies in India from developing an excessive dependence on foreign
capital.

The complications associated with raising capital in the domestic markets had led many
companies to look at tapping the overseas markets via Foreign Currency Convertible Bonds
(FCCB) and Global Depository Receipts (GDR) to fulfil their needs. To keep a check on this
process and to give a push to the domestic markets, QIPs were launched.

What are some of the regulations governing a QIP?

To be able to engage in a QIP, companies need to fulfil certain criteria such as being listed on
an exchange which has trading terminals across the country and having the minimum public
shareholding requirements which are specified in their listing agreement.

During the process of engaging in a QIP, the company needs to issue a minimum of 10% of
the securities issued under the scheme to mutual funds. Moreover, it is mandatory for the
company to ensure that there are at least two allottees, if the size of the issue is up to Rs 250
crore and at least five allottees if the company is issuing securities above Rs 250 crore.

No individual allottee is allowed to have more than 50% of the total amount issued. Also no
issue is allowed to a QIB who is related to the promoters of the company.

Why have qualified institutional placements been in the news lately?

The latest company which adopted the QIP route to raising capital is the cash-strapped real
estate major Unitech. While Unitech has managed to garner Rs 1620 crore through QIP, the
promoter holding has now come down to 51%. There are also reports that LIC Housing
Finance is mulling over a QIP where it is expected to issue shares of the value of up to 10%
of its total paid up capital.