After the initial wave, Qualified Institutional Placements (QIP) are expected to pause as the capital market regulator has rejected proposals made by investment bankers to relax the pricing formula for such issues.
In August last year, the Securities and Exchange Board of India (Sebi) had changed the pricing formula, allowing it to be based on the two-week average share price, so that companies could price the issue closer to the market value of the shares. Earlier, the pricing was based on the higher of the six-month or two-week average share price.
But investment bankers last week requested Sebi to alter the formula and take the current market price as the base, as the two-week average price worked out to be higher than the current market price in case of most companies. Investors to the QIPs have thus been demanding a steep discount to the current market price.
However, senior Sebi officials say the regulator has turned down the proposal on ground that the Indian market is still not prepared for such flexibility in pricing. The logic of the Sebi formula is to prevent companies from issuing shares at a discount to friendly investors.
Last week, the pricing formula forced GMR Infrastructure to scrap its $500 million QIP issue after cutting the amount sought by 80 per cent. With the stock prices of many other aspirants also falling significantly in the last one week, experts said the QIP rush would have to take a long pause.
At least 40 QIP aspirants such as Parsvnath Developers, JSW Steel and Lanco Infrastructure will have to either postpone their QIP issues or be satisfied with a much lower price compared to what they would have got before the Budget.
Parsvnath’s stock price has fallen nearly 10 per cent after the Budget, as has JSW’s. Lanco Infratech is down 5 per cent. This is the case for most of the QIP aspirants.
| NOT TIME FOR CHANGE YET |
| * Proposal turned down on ground that the Indian market is still not prepared for such flexibility in pricing |
| * The logic is to prevent companies from issuing shares at a discount to friendly investors |
| * The pricing formula had forced GMR Infra to scrap its $500-million QIP issue after cutting the amount sought by 80% |
| * With the stock prices of many aspirants falling, the QIP rush would have to take a long pause |
| * Parsvnath’s stock price has fallen nearly 10% after the Budget, as has JSW’s |
| * At least 40 QIP aspirants will have to either postpone QIP issues or be satisfied with a much lower price compared to what they would have got before the Budget |
| * In the next few weeks, the market is set to see many high-profile IPOs |
| * Adani Power and NHPC issues of Rs 3,000 cr each will hit the market this month-end and the second week of next month, respectively |
| * Oil India, MCX and the Bombay Stock Exchange are also waiting in the wings |
“I think the momentum is clearly shifting from QIP to initial public offers,” Dharmesh Mehta, head of broking at ENAM Securities, said.
In the next few weeks, the market is set to see many high-profile IPOs. Adani Power and NHPC issues of Rs 3,000 crore each will hit the market this month-end and the second week of next month, respectively. Those waiting in the wings include Oil India, MCX and the Bombay Stock Exchange.