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.
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