The Qualified Institutional Placements (QIPs) done last year are facing tough times in an uncertain economic scenario now. While close to two-thirds of the QIPs in 2010 are currently trading below their offer prices, more than half of them are at least 25 per cent lower.
According to a report by Crisil, as on June 3, the total return on investments by all QIPs was negative at 19 per cent compared with a positive 2 per cent in the broader index. “Real estate, construction, IT and ITeS and textile companies were the major underperformers,” said the report.
Improvement in the economic scenario led to a significant spurt in QIP activity in 2010 with 50 companies raising Rs 22,500 crore through this route. Financial services, real estate, IT & ITeS, construction and automobile sectors together raised more than half of the total QIP amount at Rs 12,500 crore. Adani Enterprises’ QIP issue of Rs 4,000 crore was the largest last year.
“Unlike an initial public offer (IPO), QIPs provide an easy investment alternative for the institutional investors since there is no lock-in period for the shares allotted through QIP route. Also, investors know the offer price in advance and can earn higher returns if timed appropriately,” says Mukesh Agarwal, senior director at Crisil Research.
Poor performance of last year’s QIPs have impacted fund raising this year. Uncertain markets with monetary tightening processes have affected the market sentiments. Generally, companies prefer to raise funds through QIPs when the equity markets are on the bull run.
However, markets have been bearish this year.
According to Tarun Bhatia, director (capital markets) at Crisil Research, says, “Recent governance-related issues and the RBI’s monetary tightening have dampened investor sentiments. Fund raising through QIPs has dried up in 2011.”