QIP for funds may mean 'RIP' for IPOs

But going by the trend in share placements to the Qualified Institutional Buyers, it appears that such placements are all set to replace IPOs as the chosen method in corporate India for raising money.

A stream of companies have used the QIP (Qualified Institutional Placements) route, under which securities are placed with institutions much like private placements, to raise thousands of crores in recent weeks. The big names range from mortgage major HDFC (See table) to exploration major Cairn India to mention a few. Only last week S Kumar Nationawide’s Board approved Rs 1000 crore QIP issue for funding its ongoing expansion plans.  Recently, a slew of companies have announced their intent to the stock exchanges over raising funds through QIP to meet their capex needs or expansion plans.

Bajaj Hindustan, has raised Rs 723 crore through a QIP placement, the only exception to the stream of QIPs that are in the offing is the Bangalore-based GMR Infrastructure which called off its QIP issue on Tuesday last. That apart, Max India has plans to raise Rs 450 crore through QIP in one or more tranches as against its earlier plan — which it shelved — to raise Rs 650 crore through rights issue.  Sobha Developers is set to raise about Rs 527 crore through issue of 25.16 million shares at a price of Rs 209.4 per share to QIBs.
And this QIP flood is only set to increase in the coming weeks. Since January 2009, as many as 50 companies have already announced their plans to raise money through this route, and this list is growing daily.

This includes Hindalco, Cairn, GVK Power, HDFC, JSW Steel, Essar Oil, Lanco Infratech, Parsvanath and Omaxe. The total amount planned to be raised by QIPs exceeds Rs 60,000 crore, according to Prime Database Chairman Prithvi Haldea. Realty giant Unitech started the trend when it raised $325 million through a QIP in April this year. Since then, it has been raining QIPs. Indiabulls Real Estate followed Unitech with its $533 million QIP last month. PTC India raised $106 million in its QIP.

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). While Parsvnath Developers and HDIL have already received board approvals for raising funds through QIPs, others like, Purvankara, Gammon Infra, Sobha Developers, HCC and Omaxe are too considering the QIP route. 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. 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.

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In this context, Haldea of Prime Data Base, which tracks the primary markets, says: “Among others real estate and infrastructure sector, companies are looking at QIPs as a means to either return debt or to fund ongoing projects.”  He also points out that 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.  Besides, the cost of raising funds through a QIP is also less compared to an IPO. While QIPs definitely seem to have emerged as a new opportunity for many cash-strapped companies, some analysts feel the amount that around Rs 25,000 crore can be raised in  2009. 

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 an equity analyst at Kotak Securities.

Meanwhile, the IPO market, which flourished in 2007, has been largely lack-lustre in the current fiscal so far at least. Only one issue has hit the capital market as yet 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 78,000 crore in the Sebi pipeline. But that, says Mr Haldea, will be entirely dependant on the state of the economy and prior to that, what the Budget 2010 has in store for everyone.

*Essar Oil: Rs 10,000 crore.
* Carin India: Rs 5,000 crore.
* Hindalco: Rs 2,400 crore.
* HDIL: Rs 1,688 crore.
* HCC: Rs 1,500 crore.
* S Kumaran Nationwide: Rs 1,000 cr.
* Bajaj Hindustan: Rs 723 crore.
* Sobha Developers: Rs 527 crore.
* Gammon Infra: Rs 500 crore.
* Max India: Rs 450 crore.