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The QIP windfall

As stock markets soar, India Inc. has found a slick way to raise capital on the double. But a few dodgy promoters may join the party.

     Print Edition: June 28, 2009

Rs 37,000 crore and counting. As a new-look Business Today went to press, that was the amount a swarm of Indian companies was gearing up to raise via qualified institutional placements (QIPs). A QIP is a capitalraising instrument that allows companies to place securities (other than equity shares they could also be debentures that are fully or partly-convertible into equity) with institutions. The cue: The stock market’s buoyancy, with the benchmark index up 24 per cent since the results of the General Elections were announced.

So, why are promoters gravitating towards QIPs, and not more conventional means of financing like initial public offerings (IPOs) or rights issues? Very simply, QIPs are a quick way of raising funds, relatively hassle-free and in-volves fewer regulatory requirements. For instance, such placements do not call for pre-issue filings with the market regulator, as is the case with IPOs and rights issues. “QIP gets you money faster,” avers Parvez Umrigar, Managing Director, Gammon Infrastructure Projects. “Political stability has enthused the market and helps companies to raise funds,” he adds. The Mumbai-headquartered project developer hopes to get a good price, now that his stock is up 207.5 per cent from its March low.

The QIP window, which opened up in 2006, is, indeed, manna from heaven for liquidity-starved promoters of India Inc. A clutch of companies, mainly from the reeling real estate sector, wants to use the fresh funds to retire their high-cost debt. Others aim to use funds raised to expand their operations and grab opportunities as asset prices fall.

Even companies that evidently don’t need cash in a hurry are using the opportunity to fill up the war chests. Anant Raj Industries, a real estate player, says it does not need any money now—which is rare for a realty company— but is putting in place an enabling resolution. “We have cash of Rs 800 crore. But prices have fallen in the property market and one gets this kind of opportunity only once or twice in a decade,” says Amit Sarin, Executive Director, Anant Raj Industries.

Market experts point out that QIPs are a win-win proposition, benefitting institutions as well, which stand to get more shares of a company at a better price. “Institutional investors get reasonable quantity of shares at reasonable valuation,” says Prithvi Haldea, Managing Director, Prime Database, an independent primary market monitor.

Haldea, who is also on the primary markets committee of the Securities & Exchange Board of India, says another attraction is that such shares do not have any lock-in clause so the investor can sell immediately after listing. Haldea, however, cautions that the absence of a lock-in period can prompt dubious promoters to make some money via front companies that sell immediately after allotment.

Of course, QIPs make sense only in a rising market, and not a falling one. In the last financial year’s tumble, there were just two issues, raising a total of Rs 189 crore. In the bull run of the year before that, the money raised was Rs 25,709 crore.

For the moment, though, all fundraising ambitions seem to have stopped at QIPs. But if the bull run persists beyond the Union Budget, a string of IPOs could also hit the market. And then, there might just be a disinvestment party to look forward to. Over to the Finance Minister.

Virendra Verma

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