Qualified institutional placement (QIP) is a capital-raising tool, primarily used in India and other parts of southern Asia, whereby a listed company can issue equity shares, fully and partly convertible debentures, or any securities other than warrants which are convertible to equity shares to a qualified institutional buyer (QIB).
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 persons.
QIP scores over other methods because the issuing firm does not have to undergo elaborate procedural requirements to raise this capital.
(QIBs) are those institutional investors who are generally perceived to possess expertise and the financial muscle to evaluate and invest in the capital markets.
In terms of clause 2.2.2B (v) of DIP guidelines, a ‘qualified institutional buyer’ shall mean: g) foreign venture capital investors registered with SEBI.
The QIP Scheme is open to investments made by “Qualified Institutional Buyers” (which includes public financial institutions, mutual funds, foreign institutional investors, venture capital funds and foreign venture capital funds registered with the SEBI) in any issue of equity shares/ fully convertible debentures/ partly convertible debentures or any securities other than warrants, which are convertible into or exchangeable with equity shares at a later date (Securities).
In addition, the target audience of both regulations is different -while the impetus behind Rule 144A was to encourage non-US issuers to undertake US private placements, the impetus behind the SEBI QIP Scheme was to encourage domestic Indian issuers to undertake domestic Indian private placements.
For a QIP, company’s audited results are more than enough Cost-efficient: The cost differential vis-à-vis an ADR/GDR or FCCB in terms of legal fees, is huge.
Lock-in: It provides an opportunity to buy non-locking shares and as such is an easy mechanism if corporate governance and other required parameters are in place.