Buoyant market conditions, strong signs of economic recovery and the depreciating US dollar are inducing more and more companies to take Qualified Institutional Placements (QIPs) route to raise funds.
Fundraising through QIPs in January –September 2009 period jumped over 10 times from last year’s levels, and crossed Rs. 21,000 crore.
QIPs refer to issue of shares to cash-rich institutional investors, akin to private equity sales. Companies are using these to fuel growth while raising funds from the primary market through initial public offers (IPOs) and follow-on offers is a difficult task in the current market conditions.
The trend for QIPs indicates improved confidence and enthusiasm for fund raising among India Inc, say experts. “Improving domestic economy and depreciating dollar are the two main drivers that turned QIP into a preferred mode of raising funds,” said Lakshmi Narayanan Vice President – Equity and Institutional Sales, Bonanza Portfolio Ltd.
Fund raised through QIP jumped over Rs 21,209 crore in January to September period of 2009, from Rs 2104 crore in the same period of 2008. While the January-March 2009 period saw no QIP issues, month of June saw the highest fund raising of Rs 6195.69 crore, followed by Rs 4122.97 crore in September.
“With the economy showing signs of recovery, coupled with the capital market bounce, companies are queuing up to raise funds,” said Jagannadham Thunuguntla, Equity Head of SMC Capitals Limited.
There are at least 49 companies who are in the process of fund raising through QIP issues with the total proposed amount to be raised at about Rs 44,000 crore.
Some of the prominent names in this list include Tech Mahindra, Essar Oil, Hindalco, Reliance Communications, Omaxe, Pantaloon Retail, Parsvnath, Ansal, Jet Airways, RNRL, JSW Steel, L&T, etc.
While some companies choose to raise funds through alternative instruments such as American Depository Receipts or Global Depoistory Receipts (GDRs) with underlying shares, QIPs in general are looking strong this year.
“Almost every QIP has done well and has given good returns,” said Narayanan adding, “Promoters find it easy to market QIPs and those who are purchasing it also finding it relatively easier to other instruments.”