Qualified Institutional Placement (QIP)

What Is a Qualified Institutional Placement (QIP)

A qualified institutional placement (QIP) is, at its core, a way for listed companies to raise capital without submitting legal desk work to market regulators. It is common in India and other Southeast Asian countries. The Securities and Exchange Board of India (SEBI) made the rule to keep away from the reliance of companies on foreign capital resources.

How a Qualified Institutional Placement (QIP) Works

A qualified institutional placement (QIP) was initially a designation of a securities issue given by the Securities and Exchange Board of India (SEBI). The QIP permits an Indian-listed company to raise capital from domestic markets without the need to present any pre-issue filings to market regulators. The SEBI limits companies to only fund-raising through giving securities.

The SEBI put forward the rules for this unique road of Indian financing on May 8, 2006. The primary reason for creating QIPs was to keep India from relying too much upon foreign capital to fund its economic growth.

Before the QIP, there was a developing concern from Indian regulators that its domestic companies were accessing international funding too promptly through American depository receipts (ADRs), foreign currency convertible bonds (FCCBs) and global depository receipts (GDR), instead of Indian-based capital sources. Specialists proposed the QIP rules to urge Indian companies to raise funds domestically as opposed to taking advantage of overseas markets.

QIPs are useful for a couple of reasons. Their utilization saves time as the issuance of QIPs and the access to capital is far faster than through a follow-on public offer (FPO). The speed is on the grounds that QIPs have far less legal rules and regulations to follow, making them considerably more cost-proficient. Further, there are less legal fees and there is no cost of listing overseas.

In India, 47 firms together raised Rs 551 billion ($8 billion) through QIPs in the fiscal year 2018. This figure is the highest ever in a financial year. Nonetheless, as of mid 2019, 30 of those 47 QIPs were trading below their original issue prices.

Regulations for a Qualified Institutional Placement (QIP)

To be permitted to raise capital through a QIP, a firm must be listed on a stock exchange along with the base shareholding requirements as determined in their listing agreement. Likewise, the company must issue no less than 10% of its issued securities to mutual funds or allottees.

Regulations likewise exist for the number of allottees on a QIP, contingent upon the specific factors inside an issue. Additionally, no single allottee is permitted to possess over half of the total debt issue. Moreover, allottees must not be connected at all to advertisers of the issue. Several additional regulations direct who could conceivably receive QIP securities issues.

Qualified Institutional Placements (QIPs) and Qualified Institutional Buyers (QIBs)

The only gatherings eligible to purchase QIPs are qualified institutional buyers (QIBs), which are accredited investors, as defined by anything that securities and exchange administering body direct it. This limitation is due to the perception that QIBs are institutions with skill and financial power that permits them to assess and partake in capital markets, at that level, without the legal confirmations of a follow-on public offer (FPO).

Features

Qualified institutional purchasers (QIBs) are the only elements permitted to purchase QIPs.
The practice is generally utilized in India and other Southeast Asian countries.
Qualified institutional placements (QIPS) are a method for giving shares to the public without going through standard regulatory compliance.
QIPs were made to keep away from dependency on foreign resources for raising capital.
QIPs rather follow a looser set of regulations yet where allottees are all the more profoundly regulated.