Raising money just got easier for Indian corporates. Last fortnight, the Securities and Exchange Board of India (SEBI) relaxed pricing norms for qualified institutional placements (QIPs). Such a preferential allotment can now be made on the basis of a two-week average price from the relevant date (the date when shareholders meet to approve the issue).The market regulator has also reduced the period to complete a rights issue by almost a third, from 109 days to 43 days. Before the amendment to the QIP norms, the floor price for such issues was the higher of the two: either the average of the weekly high and low of the closing price of stock in the two weeks preceding the relevant date, or a similar average price over six months prior to this date. Now with the markets having lost nearly 28 per cent since January, investors would obviously prefer to pick up shares at current low levels than opt for QIPs at higher prices (those prevailing six months ago). Result?
Since January, only six companies raised Rs 3,397 crore through QIPs. In 2007, 17 companies had raised Rs 8,360 crore till July. “We noticed that advanced markets across the globe are able to price such issues on the day the issue opens. We have kept the current market situation in the context, but the aim is to get closer to the international practice,” says C.B. Bhave, Chairman, SEBI.
Many companies that had temporarily shelved plans of raising money through this route are likely to go ahead now. Yet, it may not be all hunky-dory. “This removes clear regulatory hurdles for companies to raise money. But it needs to be seen if the promoters will be willing to raise money at lower valuations,” says Girish Nadkarni, Executive Director, Avendus Capital, a domestic investment bank.