India Inc sees gain in institutional placements

India Inc has started warming up to Qualified Institutional Placements (QIPs), which were permitted by the Securities and Exchange Board of India recently.

Delhi-based Spentex Industries was the first company to raise funds through QIPs. Now, at least five more are in queue to make use of the new share issuance route.

These companies include Apollo Tyres, Asian Electronics, Kalpataru Power and Ashapura Minechem.

Through QIPs, listed companies can raise funds by placing shares with Qualified Institutional Buyers such as foreign institutional investors (FIIs), domestic financial institutions, and mutual funds.

Sebi allowed listed companies to use the QIP route in May, after it was felt that several Indian companies were using the global depository receipt (GDR) and foreign currency convertible bonds (FCCB) routes to raise funds, resulting in an "export of domestic equity markets."

While the board of Apollo Tyres will meet on September 4 to decide on QIPs, Mumbai-based Asian Electronics' board met today to finalise plans in this regard.

Two other companies, Kalpataru Power and Ashapura Minechem, have submitted their draft offer documents for QIPs with the exchanges, and another Mumbai-based company, IOL Broadband, is also likely to raise funds this way. Gujarat-based Kalpataru Power hopes to raise about Rs 350 crore.

"We feel that over a period of time, funds raised through QIPs will overtake the mobilisation from the GDR/FCCB route," said Rashesh Shah, CEO and managing director of Edelweiss Capital Ltd, which structured the Rs 64-crore QIP issue for Spentex Industries last month.

Cost is a major factor likely to shift companies' preference from GDRs to QIPs. "The QIP route is at least 50 per cent cheaper for companies," said Shah.

"To begin with, we will see mid-and small-cap companies using it."

"We were initially planning to go in for a GDR issue. But, after Sebi issued rules for QIPs, we have decided to go in for this," said Ramachandran, general manager (finance) of Ashapura Minechem, which plans to raise about $35 million to fund its expansion.

"Sebi deserves credit for pushing through the QIP concept. This will help companies to tap money from the domestic market faster, and in a cost-effective manner," said Shah.

Another factor in QIPs favour is that it allows participation of retail investors through the mutual fund route, an option not permitted in GDR/FCCB issues. Under the rules, a minimum of 10 per cent of the QIP offer should be allotted to mutual funds.

The capital market regulator, while introducing QIP guidelines, said it was concerned about the growing number of Indian listed companies tapping overseas markets for funds, rather than the domestic market.

"Notwithstanding the robust growth of the primary market, an element of concern is the relatively low number of further public offers (FPOs) by listed issuers "" more so in the backdrop of an increasing number of overseas offerings by Indian companies through GDR/FCCB issues. From 2001-02 to 2004-05, the number of FPOs increased from nil to 6, while the number of GDR/FCCB offerings increased nearly 14 times (3 to 42)," Sebi had said.