QIPs fail market test

Nearly two months after the Securities and Exchange Board of India (Sebi) amended the pricing norms for qualified institutional placements (QIPs), the market has seen no new QIP issues.

In the last Sebi board meeting, the regulator had said that QIP issues could be priced on the basis of the average price of two weeks before the issue, against the earlier requirement of taking the higher of the average previous six months’ or 15 days’ price.

Bankers said that even now the minimum time between issue opening and the listing of those shares is about 10 to 15 days. “If some company prices its QIP issue at 20 per cent below the market price, there will be takers. But companies are preferring to wait and watch rather than place shares at that price,” said a banker, who did not wish to be named.

After the amendment in pricing norms, it was expected that most companies that had postponed their QIP plans due to the market uncertainty may look at tapping the market again as it would be easy to arrive at the average base price. However since mid-August, the benchmark index, Bombay Stock Exchange (BSE) Sensex, has fallen nearly 20 per cent till October.

Earlier in the year, large companies such as real estate firm Unitech Ltd, who had planned a $ 1.5 billion issue, pulled it back. According to Thomson Reuters data, $ 5.8 billion worth of QIP issues are pending in 2008. Nineteen companies that include Essar Oil, Northgate Technologies in September and Jet Airways, Karnataka Bank, Lok Housing and Constructions had announced QIPs. Among those that had disclosed their plans include Essar Oil ( $ 2000 million), Northgate Technologies ($ 113 million), Akruti City ($ 500 million), Syndicate Bank ( $ 1.9 million).

All of them are pending because of pricing issues, say bankers. In fact, even Syndicate Bank announced recently that though the bank has applied for approval from the finance ministry, the bank is not pressing the ministry for an early approval since market conditions were not favourable.

“While the regulators are making all the right noises, the main issue is there is no liquidity in the market,” said Ranu Vohra, managing director of Avendus Advisors. In the first nine months of 2008, FIIs sold stocks worth $9.2 billion, driving the rupee to a five-and-a half year low, partly on account of the global financial crisis.