Indian companies raising funds through QIP route

NRI Biz Matters

- HP Ranina

Question: I believe that many banks and large companies in India are raising funds by tapping the primary market through what is called the QIP route. Some well-known private companies are raising funds to finance greenprojects. I would appreciate it if you could throw some light on this fund raising exercise.

ANSWER: QIP stands for Qualified Institutional Placements. It is an avenue for raising capital that allows listed companies to issue equity shares, fully and partly convertible debentures or any other security. The equity shares, debentures and other securities are subscribed by Qualified Institutional Buyers (QIBs).

However, warrants which are convertible into equity shares cannot be issued under this route. The Securities and Exchange Board of India considers QIBs as institutional investors that possess the experience and financial muscle to evaluate and invest in the capital market. It has been observed that there is a spurt in QIP activity when the secondary market is bullish.

A few weeks ago, Indian banks, Punjab and Sind Bank and Indian Overseas Bank raised capital through the QIP route. A few well-known private companies listed on the Indian stock market have also raised substantial funds through this route in the recent past. Public sector banks have been raising funds through QIPs to bolster their capital base, raise capital to finance their expansion plans and comply with shareholding regulations of the Reserve Bank of India.