Tags:
Journalism of Courage
India Inc is no longer interested in follow-on offerings. QIP Qualified Institutional Placements issues are the flavour of the season with most companies preferring this cheaper and faster route with minimum disclosures. As many as 40 companies are getting ready to launch QIPs in the current year which may lead to mobilisation of over Rs 10,000 crore from big investors.
According to merchant bankers, the queue is likely to increase as more and more companies are joining the QIP bandwagon, much to the chagrin of retail investors. In 2006, 16 companies raised Rs 3,935 crore from big investors through QIPs. 8220;It8217;s cheaper and faster to raise money through QIPs. There8217;s no lock-in and the whole process takes little time. You will find more companies taking the QIP route in the current year,8221; said a merchant banker.
One result of this drive has been the edging out of retail investors from the market. There8217;s no chance of retail investor participating in the QIP issues as they are meant for big investors. 8220;QIPs mean further marginalisation of the retail investors. Our public market is gradually becoming a private market,8221; said Prithvi Haldea of Prime Database.
Companies which were earlier planning GDR issues are now looking at the QIP option to raise resources. The main reason seems to be that QIP rules are issuer-friendly. For each placement, there should be at least two atlottees for an issue of size up to Rs 250 crore and at least five allottees for an issue size in excess of Rs 250 crore.
In addition, there8217;s no lock-in for shares issued through QIPs. There is no pre-issue filing of QIP document with the Sebi, thereby enabling companies to save time and money. The aggregate funds that can be raised through QIPs in one financial year should not exceed five times of the net worth of the issuer at the end of its previous financial year.
As per current rules, an issuer should 8220;prepare a placement document containing all relevant and material disclosures8221; which will be placed on the website of exchanges. 8220;This is a private placement to big investors like FIIs and private equity funds. This document does not contain exhaustive details about the company, use of funds, financial details. Sebi doesn8217;t vet this document. On top of this, big investors get shares in bulk,8221; said a merchant banking source.
Sebi rules say that 8220;a copy of the placement document shall be filed with the board for record purpose within 30 days of the allotment of specified securities.8221; Sebi also says that the placement document should be a private document provided to select investors, through serially numbered copies.
Nobody raises any questions about the placement document and how the money is being utilised. Though the merchant banker handling the QIP is required to certify the whole process, the issue rarely comes under public scrutiny. QIP proposals are routed through shareholders meetings, but with promoters holding brute majority in most companies all hurdles are smoothly removed.
Real estate, construction and infrastructure companies have been active in mobilising money through QIP. Two realty companies had raised almost Rs 1,200 crore through this route recently 8212; Ansal Properties Rs 681 crore and Mahindra Gesco Rs 480 crore. Several companies, including Bartronics India, Ganesh Housing, Kew Industries, Sanghi Industries and Yes Bank, are looking at the QIP option in the current year.
