QIP rush: 10 companies launch issues in December

There is a rush to tap funds from qualified institutional placement (QIP) route with 10 companies, including banks, have launched QIP issues in December thus far, the highest in past seven years in terms of number of issues.

Total eight companies that include Punjab National Bank (PNB), Mahindra & Mahindra (M&M) Financial Services, Natco Pharma and Union Bank of India have already raised Rs 11,037 crore via QIPs in the current month.

Most of these companies intend to use the proceeds primarily for repayment or pre-payment of outstanding indebtedness and towards capital expenditure. The financials proposed to use funds for augment their long-term resources for meeting capital requirement and to augment their capital adequacy ratios.

In April 2010, total 10 companies had raised Rs 2,723 crore, while in September 2009 (Rs 6,245 crore) and in December 2008 (Rs 9,412 crore) 10 firms mobilized more than Rs 6,000 crore through QIP. In value terms, during June 2017, three companies had raised Rs 17,505 crore via this route, the PRIME Database data show.

Kridhan Infra and Srikalahasthi Pipes have opened their QIP issues on Wednsday, December 20, 2017. These two companies propose to raise Rs 400 crore, taking total tally by 10 QIPs to Rs 11,437 crore. Of these 10 companies eight have mobilised Rs 9,667 crore in past two weeks alone.

"After a very long time, the buoyance in the markets has sustained. Investors - both domestic and foreign - have redeployed funds in the equity market. Till the markets remain vibrant, people / promoters will like to collect money for future growth, and this trend is likely to continue in CY18 as well. We can expect this to change only if there is a change in the market conditions," explains A K Prabhakar, head of research, IDBI Capital.

QIPs, after two muted years, have shown signs of revival, with capital raised via 41 QIPs reaching a new high of Rs 56,800 crore (12 times higher than CY16) thus far in calendar year 2017 (CY17). This number has surpassed the previous year's Rs 4,712 crore, and is the highest till date, beating the earlier peak of Rs 34,676 crore raised by 53 companies in CY09.

In the banking space, HDFC Bank, the country's second-biggest lender by assets, said on Wednesday it would raise up to Rs 24,000 crore to fund growth by selling shares to investors, including a preferential issue to its parent Housing Development Finance Corporation (HDFC). Canara Bank, too, is reportedly considering raising funds via this route.

"As regards HDFC Bank, I think it is creating a war chest for the next five years. Promoters want to make the most of the market conditions right now," Prabhakar adds.

And the decision to raise funds via QIPs has been proven right. Given the market conditions, stocks of 28 out of 40 companies that raised funds via this route are trading above their QIP price. Minda Industries (up 208%), Deepak Nitrite (122%) and Delta Corp (101%) have seen their market price more than double as compared to the QIP prices. Ramkrishna Forgings and Camlin Fine Sciences have rallied by 65% and 51%, respectively.

"The trend of raising money via QIPs is likely to continue. From a period where people were doing a lot of off-market transactions to give private equity players an exit route, we are now talking about growth capital. This underlying trend is likely to continue. PSU banks took this route as they wanted to position themselves before the recapitalisation by the government," says Munish Aggarwal, director - capital markets, Equirus Capital.