Firms choose QIPs amid volatility

Despite volatile market conditions, fundraising by companies through the QIP (qualified institutional placement) route has been fairly robust this year. The amount raised through QIP till August 2013 has already surpassed the total funds mobilised under this route in 2012.
Companies have raised Rs 12,354 crore through 20 issuances in January-August this year.They mobilised only Rs 8,969 crore through 47 issuances in 2012. Axis Bank’s Rs 5,537 crore QIP was one of the key issuances in 2013.
QIP is a capital-raising tool where a listed firm issues equity shares to institutional investors. Introduced in 2006, QIP was aimed at reducing the country’s over-reliance on foreign capital. It reduced the complexity associated with raising domestic capital from a select group of QIBs (qualified institutional buyers), which was a pool of institutional investors such as banks that were deemed to possess the capital as well as the ability to make rational investment decisions.
As the markets have been sluggish since June this year due to various domestic and international concerns, fundraising through QIPs slowed down in recent months.
Though QIP has been a popular fundraising instrument among companies since its launch, the market conditions between 2006 and 2013 have made mobilising money under this route a tough proposition. Funds raised through QIPs, which hit a high of Rs 32,631 crore in 2009, have been declining steadily.
Companies raised a mere Rs 3,459 crore through nine issuances in 2011, the lowest ever, data compiled by SMC Global Securities showed. The QIP market recovered in 2012 and has seen good traction in the current year.
The QIP market would improve further in the coming months due to increased fundraising from banks under this route, said Jagannadham Thunuguntla , head, research, SMC Global Securities. With the government expected to encourage public sector banks to take the QIP route to raise additional capital, fundraising under this mode would get a further boost. The government is likely to allow State Bank of India to raised equity capital either through a QIP or FPO, Thunuguntla said.
It is also likely to allow four other state-run banks, including Syndicate Bank, United Bank of India, and Union Bank of India, to raise capital through the QIP route, he stated.