With equities up, QIPs back in vogue

Companies raise Rs 400 crore through this route more firms in the process of seeking board nod

With equity markets holding ground and a significant amount of foreign funds flowing in, Indian firms are again looking at raising money through the fast-track qualified institutional placement (QIP) route.

While a couple of companies have successfully raised money through this route, the boards of some other firms are mulling raising funds through QIPs. Development Credit Bank and Dewan Housing Finance have raised Rs 94 crore and Rs 304 crore, respectively, through QIPs. Tata Group’s retail unit Trend Ltd’s Rs 225-crore QIP issues would open on Monday. LIC Housing Finance recently said it will take board approval to raise money through this route.

Others who took board approval last year but could not find buyers due to weak market conditions are reviving their QIP plans. SKS Microfinance’s nine-month-old plan to raise up to Rs 900 crore through QIPs may also see fruition by end of this month. South Indian Bank, which had to hold back its plan to raise funds through the QIP route last year, is also scouting for buyers again. The QIP pipeline had dried out last year with only eight companies managing to raise a cumulative Rs 3,451 crore, a fraction of the Rs 30,000 crore raised in each of the previous two years.

With the Sensex gaining nearly 14 per cent this year and foreign institutional investors (FIIs) pumping close to $8 billion into stocks, India Inc’s fund raising prospects are turning positive and a sizeable chunk of it could come from the QIP route in 2012, say experts. Experts see an uptick in QIP issuances if fund flows persist and share prices are supportive. “Liquidity is coming back into the market, as the first wave of block share sales gets completed. You will see a shift towards QIPs,” said

V Jayasankar, executive director and head (equity capital market) at Kotak Investment Banking.

The Indian market has seen more than Rs 25,000 crore worth of large share sales, including that of ONGC and HDFC, so far in 2012. “Among the fund-raising instruments available for corporates, QIP will be the most preferred route given its quick and easy nature” said Jagannadham Thunuguntla, strategist & head of research, SMC Global Securities. “If the secondary market conditions continue to remain positive, we can issue more QIPs this year.”

Due to the slide in stock prices last year, institutional investors were wary of participating in QIP issues to avoid mark-to-market losses. By the Securities and Exchange Board of India’s pricing formula, shares allotted under this route have to be priced higher than their two-week average price. In most cases, the two-week average prices worked out to be higher than the prevailing market price, thus making it an unattractive proposition for potential investors.

“Last year, as the market saw a sharp fall investors were worried about mark-to-market losses. At present, there is a certain comfort level as far as market direction is concerned and hence, investors are willing to participate,” said Jayasankar.