Investment Management Qualified Institutional Placements (QIP)

Presented to : Dr. Meena Bhatia Finance F2 , PGDM 13-15

Aastha Agarwal(13DM) Aditya Joseph (13DM) Chakshu Gupta (13DM055) Rayapalli Bhargav Avinash (13DM148)

Anjali Goyal (13DM)

Bharath (13DM051)

Sanjay Davis Tony(13DM)

Seshi Kiran Reddy (13DM168)

Introduction

Fund raising is the process for soliciting and collecting voluntary contributions in form of money and resources, by requesting donations from individuals, businesses, government organizations and, charitable foundations For sole proprietors and partnerships funds can be raised through the following opportunities:

Investment of own saving

Raising loans from friends and relatives Arranging advances from commercial banks

Borrowing from finance companies

 Different methods by which companies can raising funds are

Modes of Fund Raising

Qualified Institutional Placement : According to SEBI guidelines A QIP is a private placement of equity shares or security convertible into equity shares by a listed company to Qualified Institutional Buyers (QIBs) only in terms of provisions of SEBI (DIP).
Public Issue : Public issue means raising funds from public by the sale of shares through any of the recognized stock exchanges. Right Issue : Right issue means offering of shares to existing shareholders in proportion to their current shareholding, respecting their preemption rights. The price at which the shares are offered is usually at a discount to the current share price, which gives investors an incentive to buy the new shares if they do not, the value of their holding is diluted.

Modes of Fund Raising

American Depository Receipt - ADR : A negotiable certificate issued by a U.S. bank representing a specified number of shares (or one share) in a foreign stock that is traded on a U.S. exchange Global Depository Receipt (GDR) : A global depositary receipt (GDR) is a certificate issued by a depository bank , which purchases shares of foreign companies and deposits it on the account

Qualified Institutional Placements

When : SEBI (Securities and Exchange Board of India) introduced Qualified Institution Placements in 2006 which enabled the listed companies to raise funds easily from the domestic markets. Why : Due to following reasons QIP was introduced

Raising funds domestically in India was a cumbersome process Preferential allotment of shares had the lock in period of one year
Rs.26, 000 crore raised from domestic primary issues

Indian firms raised over Rs.35, 000 crore from overseas issues in 2005 which was more than

Qualified Institutional Placements

Regulations : The concept of QIP is introduced in May 2006 by SEBI, by announcing the QIP guidelines for the first time. As QIP is a new concept in India, SEBI introduced amendments in 2008 and it was incorporated in 2009 in Chapter VIII-A - Institutional Placement Program (IPP) was inserted. Eligibility : A listed company may make a qualified institutions placement of its securities if it satisfies the following conditions:

AUTHORISATION: A special resolution approving the qualified institutions placement has to be passed by its shareholders
LISTING PERIOD: The equity shares, which are proposed to be allotted through QIP, should have been listed on a recognized stock exchange for a period of at least one year prior to the date of issuance of notice to its shareholders for convening the meeting to pass the special resolution MINIMUM PUBLIC SHAREHOLDING REQUIREMENT : At present the minimum public shareholding is specified to be 25 per cent of the paid up share capital.

Qualified Institutional Placements

Pricing : The QIP is required to be made at a price not less than the average of the weekly high and low of the closing prices of the equity shares of the same class quoted on the stock exchange during the two weeks preceding the relevant date Eligible Investors : A QIP program involves issue of shares to qualified institutional buyers (QIBs). QIBs are those institutional investors who are generally perceived to possess expertise and the financial muscle to evaluate and invest in the capital markets. QIBs related to promoters are not eligible. A minimum of ten per cent of eligible securities is required to be allotted to mutual funds.

Qualified Institutional Buyers (QIB)

Qualified Institutional Buyers are those institutional investors who are generally perceived to possess expertise and the financial muscle to evaluate and invest in the capital markets. In terms of clause 2.2.2B (v) of DIP Guidelines, a 'Qualified Institutional Buyer' shall mean:

Public financial institution as defined in section 4A of the Companies Act, 1956.

Scheduled commercial banks; Mutual funds; Foreign institutional investor

registered with SEBI; financial institutions; with SEBI. with the Insurance Regulatory and Development Authority (IRDA).

Multilateral and bilateral development Venture capital funds registered Insurance Companies registered

Provident

Funds with minimum corpus of Rs.25 crores

Pension Funds with minimum corpus of Rs.25 crores

Comparison of QIP over others

Less Time Consuming : The QIPs have very limited regulatory restrictions and hardly takes a week to raise the needed fund whereas in other modes of fund raising like public issue, rights issue etc. it takes few months to complete all the regulatory process. Guarantee of Allotment: In the process of QIP the QIB has a fixed price at which he can purchase the shares and the allotment is guaranteed whereas in open market due to fluctuation of share price, there is no guarantee of same number of shares in return. Lock-in Period: . In case of the preferential allotment, there is a one-year lock in period, where as in the case of a QIP there is no such period for selling in a Stock Exchange but has a one year lock-in period if the QIB wants to sell to another QIB.

Comparison of QIP over others

Price Calculation: In case of a preferential allotment, the price at which the preferential allotment has to be done is the average of six months or two weeks whichever is higher. However, in the case of a QIP, the pricing is the average of the last two week which is a good estimate of the current market rates. Cost-efficient: The logic is simple in an IPO or FPO it is required to convince a wider group of prospective investors which invites high marketing costs and also it needs underwriters, auditors who charge fee where as in case of a QIP it is easier to convince a single or few large investors and thus there disappears the cost of marketing and no need of an underwriter. Thus the cost of coming out with a QIP issue is largely reduced.

Growth of QIPs in India

The number of QIP issues in India since its guidelines were laid in 2006 have grown during its first initial years i.e. 2006-07 and 2007-08 this can be attributed to the bull market we have observed during those years

However due to the bear market in the year 2008-09 due to the global recession and revelation of Satyam scam, investors were skeptical about the returns and risks involved in investing in corporate securities which led to the significant decrease in the number of issues by 94.73% in that period 2008-09. But thanks to the necessary actions taken up by RBI and government India was not affected as adverse as the investors thought and the capital markets started to see recovery in the markets and there was a very high increase (3250%) in the number of QIP issues in the period 2009-2011.

No. of QIP Issues from 2006-2014

80 70 60 50 40 30 20 11 10 25 14 6 38 67

47

2
0 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 (as on 28/02/14)

Funds raised through QIP(Rs. cr)

AMOUNT(Rs. cr)
2013-14 (as on 28/02/14) 2012-13 2011-12 2010-11 2009-10 2008-09 189 25,770 1,713 24,550 43,968 9,402 10,818

2007-08
2006-07

4,963

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

Average Amount of QIPs/issue from 20062014

2013-14 (as on 28/02/14) 2012-13 2011-12 2010-11 2009-10 2008-09 2007-08 2006-07 198.52 94.5 678.1578947 155.7272727 522.3404255 656.238806 772.7142857 1567

200

400

600

800

1000

1200

1400

1600

1800

Industry Wise fund raised through QIP from 2006-2010

Others Infrastructure Retail BFSI Real Estate

Engineering & Construction

Media Energy Manufacturing IT & ITes 0 1000 2000 3000 4000 5000 6000 7000 8000 9000

2010

2009

2008

2007

2006

Funds raised through QIP & ADR/GDR from 2006-2010

35000 30000 25000 20000 15000 10000 5000 0 2006 2007 QIP 2008 ADR/GDR 2009 2010 4744.67 2,104 434.1 20,011 32,631

16632.4
13171.51 7978.08

4,298
977.61

Funds raised through QIP, IPO, Rights from 2006-2014

Funds raised through QIP, IPO, Rights from 2006-2014
45000 40000 35000 30000 25000 20000 15000 10000 5000 0 QIP IPO Rights Issue 2006 4744.67 20040.96 3531.05 2007 20,011 33,782 14,085 2008 2,104 16,995 31,054 QIP 2009 32,631 15,654 3,626 IPO 2010 4,298 5,416 52 Rights Issue 2011 25,850 35,559 9,503 2012 2,163 41,515 2,375 2013 15,996 6,528 8,945 2014 5,203 1,022 2,075

Conclusion

Indian corporate has gone through a period of cash-flow crunch, in the backdrop of the global meltdown during the calendar year 2008 and up to first quarter of the calendar year 2009. In such backdrop, once the recovery has commenced starting April 2009, the QIP instrument has proved to be a great source of funding for Indian corporate. Even the pipeline is appearing strong. Even going forward, the instrument can prove to be very favourite instrument amongst the issuing companies and the investors. Lot of credit should go to SEBI for creating such flexible, timely and effective instrument.

Thank you..