Qualified Institutional Placement (QIP) may be defined as the allotment of securities by a listed company to Qualified Institutional buyers on a “private placement basis”.
Private Placement means an offer of securities or invitation to subscribe securities to a select group of persons by a company (other than by way of public offer) through the issue of a private placement offer letter.
The Securities and Exchange Board of India (SEBI) introduced QIP in 2006 as a way to help Indian companies raise money domestically rather than relying too much on foreign funding. It’s become a popular tool for companies to quickly get the capital they need without going through the lengthy process of a public offering.
QIB method is used by corporates to raise capital by selling equity shares, convertible debentures, or other securities to qualified institutional buyers (QIBs).
Qualified Institutional Buyers, or QIBs, are the only entities allowed to participate in QIPs. These are big, experienced investors with the knowledge and resources to make informed investment decisions.
Some examples of QIBs include:
1. Mutual funds
2. Banks
3. Insurance companies
4. Pension funds
5. Foreign portfolio investors
6. Venture capital funds
These institutions are thought to better understand the risks and complexities of investing in QIPs than individual retail investors, so QIPs are limited to these types of buyers.
How it works?
The company which wants to manage the QIP process appoints a Lead Manager. Lead managers is a Qualified Institutional Placement (QIP) and are responsible for coordinating the entire process, including:
Resolving queries on the SEBI Complaints Redress System (SCORES) platform
Disclosing the equity shares allotted to successful allottees on the stock exchange websites
Providing the allottee with a confirmation of allotment note (CAN) and a serially numbered PD, (Placement Document) including the final QIP price, issue period details, etc.)
Appoint Lead Managers: The Company hires investment banks or other financial institutions to manage the QIP process.
File Placement Document: The Company prepares and files a placement document with the stock exchanges. This document contains all the important information about the company and the QIP.
Set the Floor Price: The Company determines the minimum price for shares. This is usually based on the average stock price over a certain period.
Book Building: Interested QIBs submit their bids, indicating how many shares they want to buy and at what price.
Allotment: The Company decides how to allocate the shares among the bidders and issues the securities.
Listing: The new shares are then listed on the stock exchanges.
This process can often be completed in just a few weeks, which is much faster than a traditional public offering.
