MTM value plunges 73 per cent in two years.
Qualified institutional placement (QIP) deals, which were struck during the bull run at hefty premiums, have now turned sour because of the sharp fall in the valuations of companies.
The mark-to-market (MTM) value of QIP deals raised to date has fallen 73.47 per cent to $1.75 billion (about Rs 8,841 crore) from $6.58 billion (about Rs 33,245 crore), according to data from SMC Capital.
To date, a total of 49 QIP deals have been done, raising $6.58 billion. Data show that all of them are in losses.
Large financial institutions have lost more than Rs 24,000 crore in these QIP issues. These include the likes of HSBC, Deutsche Bank, Citigroup, Merrill Lynch, Fidelity, Goldman Sachs and others who had subscribed to these issuances during the 2006-08 period.
Last August, the Securities and Exchange Board of India had amended pricing norms for QIPs by allowing firms to fix the price based on the average price of two week. Earlier, they had to fix the price based on six-month average prices. However, however not a single QIP issue has hit the market since then.
“In a falling market, nobody wants to go for QIP. Even for investors, there is no incentive because of falling valuations. A lot of them will want it at a discount to the current price, which promoters are not willing to dilute,” said an investment banker who works on such deals.
He further said, “Not only have valuations fallen, but the number of institutions too has shrunk. Those who are present now are facing liquidity issues in their home countries. Private equity funds are facing cash crunch as limited partners are defaulting on their commitments.”
QIPs virtually vanished in the second half of 2008 when large global financial institutions started going bust.
It reduced substantially to $0.53 billion in 2008 as compared to $5 billion in 2007, a year-on-year drop of 86 per cent. Even the number of QIPs fell to 4 in 2008 from 29 in 2007.
Sector-wise, the QIPs that are bleeding badly are real estate and media. The MTM valuation of QIP deals in real estate has plummeted 90.35 per cent, followed by media — 80.99 per cent.
In one of the largest deals in 2007, Peninsula Land Developers did a QIP of shares worth $132.68 million to HSBC, ABN Amro and Franklin Templeton Investments. The issue was done at Rs 120 a share, which has now dropped to Rs 18.20.
Experts say that the outlook remains bleak until the market stabilises and the cloud of uncertainty is over. “A secondary market revival is a must for QIPs to revive,” said Rajiv Dalal, partner, Ernst & Young.
