Indian companies have been on a spree to raise funds through qualified institutional placement (QIP) – a shorthand for privately placed shares to professional investment firms – since March, but less than half of the amount approved by boards has been raised. This is because firms price the issues too high or talk of more funds than they need, say market experts.
“There have been cases where companies have not been able to raise money due to wrong valuation. Stock prices sometimes are way ahead of fundamentals and markets behave in a certain manner on news of QIP, affecting fund raising,” said Hitesh Agrawal, Head-Research with Angel Broking.
“Often companies do not raise the total approved amount and keep a part of it for later fund raising. This way companies do not have to seek board approval again and raise funds in a hurry to benefit from market conditions,” said Agrawal. The process of shareholder/board approval could take around 40 days.
Jagganadhum Thunuguntla, equity head at SMC Capital, said the absence of any regulation by the Securities and Exchange Board of India (SEBI) to limit the amount raised was making the corporate sector “get carried away”. He said real estate developer Parsvnath raised only Rs. 168 crore after getting board approval for Rs. 2,500 crore.
Resolutions to raise capital are often passed with a “buffer” and carry a 12-month validity period, market experts say.
“This gives a wrong indication to investors. When companies raise huge amounts, investors feel the company is doing well, but this need not be the case,” said Thunuguntla.
Among the companies that have raised funds much less than approved through QIPs are Parsvnath, GVK Power, REI Agro, HCC, Glenmark Pharma, Punj Lloyd, Axis Bank, Bajaj Hindustan.