QIP fundraising hits record high this year; 71 firms mobilise Rs 88,678 cr

Fundraising via qualified institutional placements (QIPs) has hit a record high this year with favourable valuations and liquidity support prompting big-ticket launches by large corporates.

QIP is a fundraising mechanism where a company issues new shares to a select group of investors at a discount to the prevailing market rate.

It is the preferred mode for raising follow-up fresh capital in a bull market as it is time efficient and inexpensive.

So far this year, 71 firms have raised Rs 88,678 crore through this route, the highest in a calendar year.

The gains in the equity markets, powered by robust flows from foreign and domestic investors have helped stocks command higher valuations.Higher valuations, in turn, help companies raise capital with lower dilution.

“Both rights issues and FPOs are long-drawn processes dependent on retail interest. QIPs involve only institutional investors and are completed with much shorter processes. Equity for growth capital is being preferred as the growth based on leverage is not considered appropriate,” said Mahavir Lunawat, managing director, Pantomath Capital Advisors.

This year's broad-based rally in equity markets mitigated concerns about investors' ability to absorb additional fresh paper and boosted the morale of firms looking to raise funds. 

"QIP is a bull market product. Whenever there is a bull run in the secondary market, you will find QIPs being launched as companies would like to dilute at a higher valuation, which you can get in a rallying market,” said Pranav Haldea, managing director of Prime Database Group.

Unlike last year, when banks dominated QIP fundraising, everyone from automobiles to textile firms raised funds this year.

Sectorally, the biggest fundraising was from power generation companies, which raised Rs 15,653 crore, followed by housing and real estate firms, which cornered Rs 12,446 crore.

Four banks have raised Rs 12,100 crore, of which three were state-owned.

 

"Banks and financial services dominate QIP issuances because they require fresh capital to meet the credit demand. One would typically find capital-intensive sectors like infrastructure, real estate and energy using the QIP route to raise funds," said Haldea.

The biggest QIP so far this year was that of Vedanta, which raised Rs 8,500 crore, followed by Adani Energy Solutions, which raised Rs 8,373 crore and Samvardhana Motherson International (Rs 6,438 crore). More recently, Adani Enterprises also raised Rs 4,200 crore via this route.

The QIP pipeline for the remainder of the year looks robust.

“The trajectory of the QIP market will now hinge on how well the secondary market continues to do going forward. We are seeing many board and shareholder fundraising resolutions happening," Haldea explained.

Pranjal Srivastava, partner of investment banking at Centrum Capital, said the QIP pipeline will be robust as long as the liquidity support from domestic and foreign investors remains intact.

"There could be a temporary blip if a major disruption occurs and foreign investors stop investing. But we have seen so far this year that whenever there is some slowdown, things come back to action sooner than later," Srivastava added.