With the market for new share issues still comatose, Qualified institutional placements, or QIPs, have replaced IPOs as the chosen method in corporate India for raising money.
A steady stream of companies have used the QIP route, under which securities are placed with institutions much like private placements, to raise thousands of crores in recent weeks. And the flood is only set to increase in the coming weeks.
About 30 more QIPs with an estimated value of Rs 40,000 crore could hit the Indian market this year, according to estimates by Thomson Reuters, a leading provider of business information.
The biggest QIPs expected to take place are likely to be of Essar Oil (Rs 10,000 crore) and Cairn India (Rs 5,000 crore). The number of issues and the amounts raised could turn out to be a record for the Indian capital markets even when compared with the buoyancy of 2007, when QIP's accounted for Rs 25,000 crore.
India Inc has already raised almost Rs 5,000 crore from three QIPs so far in 2009. Companies doing the fund raising included Unitech, Indiabulls Real Estate and power trading solutions company PTC India.
The money raised via QIPs so far this year has crossed the volumes achieved for the whole of last year. In terms of volumes, this segment has seen an over 17% growth compared with proceeds raised during January to May 2008.
Experts say QIPs were mostly being undertaken by companies which were not in a position to raise money via more traditional avenues . “Especially in the real estate and infrastructure sector, companies are looking at QIPs as a means to either return debt or to fund ongoing projects,” says Prithvi Haldea, CMD of Prime Database, which tracks the primary markets.
Many of the companies raising money through QIPs had taken on debt at high interest rates and were looking for a means to pay these down.
Experts also point out that for many companies strapped for growth capital, the process of raising money through a QIP appears attractive, as it is much quicker and does not require as many approvals from SEBI as an IPO does. The cost of raising funds through a QIP is also less compared to an IPO.
While QIPs definitely seem to have emerged as a window of opportunity for many cash-strapped companies, some analysts feel the amount that could be raised during 2009 may be more in the range of Rs 14,000 to Rs 25,000 crore. The reason: in some cases, the QIP amounts announced bear little link to the size of the company, and are greater than their market capitalisation itself. “While companies may be making such announcements to send strong signals to investors, the decision may not necessarily be practical. Also, they are under no obligation to execute the QIP,” says Jagannadham Thunuguntla, equity head at SMC Global.
Meanwhile, the IPO market, which flourished in 2007, has been largely lacklustre this year. Only one issue has hit the capital market so far this year, a 100% drop in activity compared with the same period a year earlier.
The market of new share issues is, however, expected to see a revival during the latter part of this year, with issues seeking to raise about Rs 77,500 crore in the pipeline. But that, says Mr Haldea, will be entirely dependant on the state of the economy.
Source: Economic Times