Investment ManagementQualified Institutional Placements

(QIP)Presented to : Dr. Meena BhatiaFinance – F2 , PGDM 13-15Aastha Agarwal(13DM) Chakshu Gupta (13DM055)Aditya Joseph (13DM) Rayapalli Bhargav Avinash (13DM148)Anjali Goyal (13DM) Sanjay Davis Tony(13DM)Bharath (13DM051) Seshi Kiran Reddy (13DM168)

Introduction

Fund raising is the process for soliciting and collecting voluntary contributions in form of money and resources, by requesting donations from individuals, businesses, government organizations and, charitable foundations

For sole proprietors and partnerships funds can be raised through the following opportunities:

Investment of own saving Raising loans from friends and relatives Arranging advances from commercial banks Borrowing from finance companies

Different methods by which companies can raising funds are

Raising Funds

Domestic Markets

Public Issue

IPO

FPO

Rights Issue

QIP

Foreign Markets ADR/GDR/FCCB

Modes of Fund Raising

Qualified Institutional Placement : According to SEBI guidelines “A QIP is a private placement of equity shares or security convertible into equity shares by a listed company to Qualified Institutional Buyers (QIBs) only in terms of provisions of SEBI (DIP)”.

Public Issue : Public issue means raising funds from public by the sale of shares through any of the recognized stock exchanges.

Right Issue : Right issue means offering of shares to existing shareholders in proportion to their current shareholding, respecting their preemption rights. The price at which the shares are offered is usually at a discount to the current share price, which gives investors an incentive to buy the new shares — if they do not, the value of their holding is diluted.

Modes of Fund Raising

American Depository Receipt - ADR : A negotiable certificate issued by a U.S. bank representing a specified number of shares (or one share) in a foreign stock that is traded on a U.S. exchange

Global Depository Receipt (GDR) : A global depositary receipt (GDR) is a certificate issued by a depository bank , which purchases shares of foreign companies and deposits it on the account

Qualified Institutional Placements

When : SEBI (Securities and Exchange Board of India) introduced Qualified Institution Placements in 2006 which enabled the listed companies to raise funds easily from the domestic markets.

Why : Due to following reasons QIP was introduced Raising funds domestically in India was a cumbersome process Preferential allotment of shares had the lock in period of one year Indian firms raised over Rs.35, 000 crore from overseas issues in 2005 which was more than

Rs.26, 000 crore raised from domestic primary issues

Qualified Institutional Placements

Regulations : The concept of QIP is introduced in May 2006 by SEBI, by announcing the QIP guidelines for the first time. As QIP is a new concept in India, SEBI introduced amendments in 2008 and it was incorporated in 2009 in Chapter VIII-A - Institutional Placement Program (IPP) was inserted.

Eligibility : A listed company may make a qualified institutions placement of its securities if it satisfies the following conditions: AUTHORISATION: A special resolution approving the qualified institutions placement has to be passed by its

shareholders LISTING PERIOD: The equity shares, which are proposed to be allotted through QIP, should have been listed on a

recognized stock exchange for a period of at least one year prior to the date of issuance of notice to its shareholders for convening the meeting to pass the special resolution

MINIMUM PUBLIC SHAREHOLDING REQUIREMENT : At present the minimum public shareholding is specified to be 25 per cent of the paid up share capital.

Qualified Institutional Placements

Pricing : The QIP is required to be made at a price not less than the average of the weekly high and low of the closing prices of the equity shares of the same class quoted on the stock exchange during the two weeks preceding the relevant date

Eligible Investors : A QIP program involves issue of shares to qualified institutional buyers (QIBs). QIBs are those institutional investors who are generally perceived to possess expertise and the financial muscle to evaluate and invest in the capital markets. QIBs related to promoters are not eligible. A minimum of ten per cent of eligible securities is required to be allotted to mutual funds.

Qualified Institutional Buyers (QIB)

Qualified Institutional Buyers are those institutional investors who are generally perceived to possess expertise and the financial muscle to evaluate and invest in the capital markets. In terms of clause 2.2.2B (v) of DIP Guidelines, a 'Qualified Institutional Buyer' shall mean:

Public financial institution as defined in section 4A of the Companies Act, 1956. Scheduled commercial banks; Mutual funds; Foreign institutional investor registered with SEBI; Multilateral and bilateral development financial institutions; Venture capital funds registered with SEBI. Insurance Companies registered with the Insurance Regulatory and Development Authority (IRDA). Provident Funds with minimum corpus of Rs.25 crores Pension Funds with minimum corpus of Rs.25 crores

Comparison of QIP over others

Less Time Consuming : The QIPs have very limited regulatory restrictions and hardly takes a week to raise the needed fund whereas in other modes of fund raising like public issue, rights issue etc. it takes few months to complete all the regulatory process.

Guarantee of Allotment: In the process of QIP the QIB has a fixed price at which he can purchase the shares and the allotment is guaranteed whereas in open market due to fluctuation of share price, there is no guarantee of same number of shares in return.

Lock-in Period: . In case of the preferential allotment, there is a one-year lock in period, where as in the case of a QIP there is no such period for selling in a Stock Exchange but has a one year lock-in period if the QIB wants to sell to another QIB.

Comparison of QIP over others

Price Calculation: In case of a preferential allotment, the price at which the preferential allotment has to be done is the average of six months or two weeks - whichever is higher. However, in the case of a QIP, the pricing is the average of the last two week which is a good estimate of the current market rates.

Cost-efficient: The logic is simple in an IPO or FPO it is required to convince a wider group of prospective investors which invites high marketing costs and also it needs underwriters, auditors who charge fee where as in case of a QIP it is easier to convince a single or few large investors and thus there disappears the cost of marketing and no need of an underwriter. Thus the cost of coming out with a QIP issue is largely reduced.

Growth of QIPs in India

The number of QIP issues in India since its guidelines were laid in 2006 have grown during its first initial years i.e. 2006-07 and 2007-08 this can be attributed to the bull market we have observed during those years

However due to the bear market in the year 2008-09 due to the global recession and revelation of Satyam scam, investors were skeptical about the returns and risks involved in investing in corporate securities which led to the significant decrease in the number of issues by 94.73% in that period 2008-09.

But thanks to the necessary actions taken up by RBI and government India was not affected as adverse as the investors thought and the capital markets started to see recovery in the markets and there was a very high increase (3250%) in the number of QIP issues in the period 2009-2011.

2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 (as on 28/02/14)

0

10

20

30

40

50

60

70

80

25

38

2

67

47

1114

6

No. of QIP Issues from 2006-2014

2007-08

2009-10

2011-12

2013-14 (as on

28/02/14)

0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 50,000

4,963

25,770

189

43,968

24,550

1,713

10,818

9,402

AMOUNT(Rs. cr)

Funds raised through QIP(Rs. cr)

2006-07

2007-08

2008-09

2009-10

2010-11

2011-12

2012-13

2013-14 (as on 28/02/14)

0 200 400 600 800 1000 1200 1400 1600 1800

198.52

678.157894736842

94.5

656.238805970149

522.340425531915

155.727272727273

772.714285714286

1567

Average Amount of QIPs/issue from 2006-2014

IT & ITes

Manufacturing

Energy

Media

Engineering & Construction

Real Estate

BFSI

Retail

Infrastructure

Others

0 1000 2000 3000 4000 5000 6000 7000 8000 9000

2010 2009 2008 2007 2006

Industry Wise fund raised through QIP from 2006-2010

2006 2007 2008 2009 20100

5000

10000

15000

20000

25000

30000

35000

4,745

20,011

2,104

32,631

4,298

7978.08

13171.51

434.1

16632.4

977.61

QIP ADR/GDR

Funds raised through QIP & ADR/GDR from 2006-2010

2006 2007 2008 2009 2010 2011 2012 2013 201405000

1000015000200002500030000350004000045000

Funds raised through QIP, IPO, Rights from 2006-2014

QIP IPO Rights Issue

Funds raised through QIP, IPO, Rights from 2006-2014

Conclusion

Indian corporate has gone through a period of cash-flow crunch, in the backdrop of the global meltdown during the calendar year 2008 and up to first quarter of the calendar year 2009.

In such backdrop, once the recovery has commenced starting April 2009, the QIP instrument has proved to be a great source of funding for Indian corporate.

Even the pipeline is appearing strong. Even going forward, the instrument can prove to be very favourite instrument amongst the issuing companies and the investors.

Lot of credit should go to SEBI for creating such flexible, timely and effective instrument.

Thank you..