What ails the qualified institutional placement market?

The primary market is buzzing with activity. There are road shows, press conferences and the media is flooded with should-you-subscribe stories and other recommendations. Bonds, non-convertible debentures and shares are all up there for grabs.

Yet, one segment seems to have gone to sleep. The debacle of YES Bank’s $1-billion Qualified Institutional Placement (QIP) reinforces the downward spiral these issues have faced over the past couple of years. In 2014-15, a total of 44 QIPs raised about Rs 28,000 crore, more or less what 39 Initial Public Offers of equity (IPOs) & Offers for Sale (OFS) raised that year. The following year, the number of QIPs fell to 20 and raised a little under Rs 20,000 crore, while 42 IPOs and OFS raised a little over Rs 34,000 crore.

In the first five months of this financial year, before the No for YES, investors subscribed to only six QIPs raising a measly Rs 645 crore. The other instruments raised 12,939 crore in the same period, in 20 issues.

Of late, big companies seem to have lost the appetite for QIPs, especially amid the uncertainties in the macro environment and volatility in the market. In fact, several are looking to take advantage of lower prices to initiate stock buybacks. There have been several open offers, too, under the takeover regulations, suggesting promoters are more interested in buying than selling shares.

This year’s source for fresh paper seem to be restructuring and unlocking of value in subsidiaries. While ICICI Bank is set to list its insurance subsidiary, the Larsen & Toubro group is into its second listing of the year. The Aditya Birla and Max groups have gone for a restructuring that would result in newer entities getting listed.

QIPs are one of the rare successful instruments introduced in the Indian markets. Since it allowed quick capital-raising from institutions without much impact on the market, it gained popularity among both issuers and investors. Over the decade, QIPs helped corporate India raise nearly Rs 1.7 lakh crore in equity capital, across 280 issues.

An analysis of annual numbers suggests the slump could be cyclical. QIPs have gone through a boom and bust cycle every other year. For example, after the worst-ever year in 2008-09, QIPs clocked their best-ever year in 2009-10, raising a record Rs 43,968 crore. The haul fell for the next two years, before bouncing back.

Incidentally, this slump in QIPs has coincided with the coming into force, last December, of the Securities and Exchange Board of India’s regulations on Listing Obligations and Disclosure Requirements (LODR). YES chief Rana Kapoor and his men have blamed the misinterpretation of these provisions for last week's volatility in their stock.

Of the 11 QIPs (excluding YES Bank) that hit the markets after the new regulations came into force, only that of Strides Arcolab (closed on December 21) raised over Rs 1,000 crore. All the others were smaller issues and many raised less than Rs 100 crore.

This is not the first time the regulations have changed. Since the route came into being in 2006, the regulator has added several disclosure requirements and safeguards, to make it more transparent without affecting its efficiency. Is this LODR requirement, not a QIP-specific one, playing in the mind of big issuers? Is this a minor irritant, that Kapoor and his friends tried to blow out of proportion? Or a major hurdle that is not getting enough attention amid all the schadenfreude floating around? Those are questions that cannot be lightly brushed away.