Qualified Institutional Placement (QIP) in India

Qualified Institutional Placement (QIP) in India

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Qualified Institutional Placement (QIP) is a prominent fundraising mechanism utilized by Indian companies to meet their capital requirements. It is a means by which listed companies in India can raise capital from qualified institutional buyers (QIBs). QIBs typically include entities such as mutual funds, foreign institutional investors (FIIs), insurance companies, banks, etc. The QIP process allows these institutions to purchase shares or other eligible securities issued by a listed company. This mechanism provides a relatively faster and cost-effective way for companies to access funds from the capital markets.

Securities and Exchange Board of India (SEBI) plays a pivotal role in regulating and overseeing QIPs. The regulatory framework for QIPs is detailed in the SEBI Regulations, 2018. Under the Qualified Institutional Placement SEBI regulations, companies must adhere to specific guidelines. To be eligible for a QIP, a company must have been listed on a recognized stock exchange for at least one year. Additionally, it should not have been referred under the Insolvency and Bankruptcy Code (IBC) and should not violate SEBI regulations. There is typically a one-year lock-in period for shares issued through QIP, which restricts the selling of these shares in the secondary market.

The Qualified Institutional Placement law in India mandates the pricing of QIP shares, ensuring a transparent and fair process. The price must be determined based on the formula prescribed by SEBI, which generally considers the average of the weekly highs and lows of closing prices of the shares over the previous six months. It also mandates that the minimum allotment size in a QIP should not be less than Rs. 10 lakh per QIB.

Although both methods are used by companies to raise funds, there are differences between Preferential Allotment and Qualified Institutional Placement. Preferential allotment involves the issuance of shares to a select group of investors. In contrast, QIPs are specifically targeted at qualified institutional buyers. The pricing of shares in the preferential allotment is generally determined by SEBI regulations, which often rely on the average market price of the shares over a specific period. In contrast, QIPs use a formula-based pricing mechanism, which is more predictable and transparent. QIPs typically come with a one-year lock-in period for the shares issued, restricting their sale in the secondary market. Preferential allotment may have a shorter lock-in period or none at all.