Qualified Institutional Placement (QIP)

What is QIP?
  • A QIP is a capital raising tool
  • In a QIP a listed company can issue equity shares, fully and partly convertible debentures, or any security (other than warrants) that is convertible to equity shares.
  • Apart from preferential allotment, this is the only other speedy method of private placement whereby a listed company can issue shares or convertible securities to a select group of investors.
  • But unlike in an IPO or an FPO (further public offer), only institutions or qualified institutional buyers (QIBs) can participate in a QIP issuance.
  • QIBs include mutual funds, domestic financial institutions such as banks and insurance companies, venture capital funds, foreign institutional investors, and others.
  • There are a few rules to follow:
      • The market regulator has stated that there should be at least two QIBs if the issue size is less than Rs.250 crore, and at least five investors if the size is more than Rs.250 crore.
      • A single investor cannot be allotted more than 50% of the issue.
Why QIP?
  • For the issuing company, QIPs are less cumbersome than IPOs and FPOs. It doesn’t have to file a pre-issue document with the capital markets regulator, and only a placement document with the stock exchanges, which only has details of the issue.
  • QIP is also a less expensive mode of raising capital than, say, an IPO, FPO or rights issue.
  • For the QIBs, unlike in an IPO where an anchor investor has to stay invested for a month, there are no such restrictions with QIPs.
Why in news?
SBI is going to raise money via QIP

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