Posts Tagged ‘IPO’

CIL sets IPO record; to list on Nov 4

India’s IPO market created history on Thursday with state-owned Coal India share issuer in the becoming the biggest country, beating Reliance Power’s 2008 initial public offering.

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At the time of going to press, the CIL issue was subscribed 15.26 times, collecting Rs 2,36,113.28 crore. The shares will debut on the market on November 4, a day before Muhurat trading that marks Diwali.

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Responding to late rush from retail investors, the company postponed the close of the issue to 9 pm.

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At the upper end of the band, CIL will be the seventh biggest Indian company by market cap, after ONGC, State Bank of India, TCS, Reliance Industries, Infosys Technologies and NTPC, based on Thursday’s closing price. CIL’s Rs 15,474 crore IPO has overtaken Reliance Power’s Rs 11,700 crore issue.

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Buoyant demand from retail and wealthy investors on the final day added to the strong response from institutional buyers. This also signalled success for the government’s upcoming share sales.

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Retail investors, who often take cues from institutions in IPOs, had put in bids for shares 1.44 times or for 28,60,44,375 shares. Retail investors will get a five per cent discount on the final issue price.

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Wealthy individuals had separately bid for 13.89 times the shares available for them.

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Bidding for the mega IPO closed on Wednesday for qualified institutional buyers, including foreign institutional investors, mutual funds and insurance firms. And for the portion reserved for them, the issue was over subscribed by 24.70 times, lead by FIIs.

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The IPO has generated a demand of 493,38,72,050 shares from FIIs. Calculated at the upper end of the price band, this demand is worth Rs 1,20,879.86 crore and at the lower end worth Rs 1,11,012.12 crore. Even at the low end, the demand surpasses the record Rs 1.08 lakh crore pumped in by FIIs into the capital
market.

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India’s largest new issue came amid a flurry of big deals in Asia.

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At the top of its price range, Coal India would be valued at 15.7 times trailing earnings. The issue also got the highest demand for an Indian issue, helped by qualified institutional buyers.

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The demand from QIBs for CIL was at Rs 1,73,398 crore with 100 per cent application amount, compared with Rs 1,88,923 crore with 10 per cent margin for Reliance Power IPO. In case of Reliance Power, the QIB portion was covered 30.68 times.

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“The response to Coal India IPO, from all classes of investors, has surpassed even the most optimistic predictions. It has caught even the biggest optimists by surprise,” SMC Global Securities strategist Jagannadham Thunuguntla said in a note.

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He said the response puts the government on target to achieve its divestment target of Rs 40,000 crore in fiscal 2011 and even exceed it if other issues like the follow-on offering of Power Grid, Steel Authority of India, ONGC, Shipping Corporation of India, Indian Oil Corporation and IPO of Manganese Ore fall in place.

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The government, which has collected Rs 17,500 crore from public issues, including Coal India, may raise its divestment target and get over Rs 58,500 crore, SMC Capital added.

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At the upper end of price range, Coal India issue is worth Rs 15,474 crore and at the lower end it would fetch about Rs 14,211.81 crore.

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The upper band would also give it a market capitalisation of Rs 1.54 lakh crore ($34.7 billion).

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Meanwhile, the broader market recovered from a two-day slump and closed up 1.95 per cent at 20,260.58 points. Now all eyes will be on whether it will be a strong listing on the eve of Diwali.

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RED HERRING PROSPECTUS: A CAREFUL EXERCISE

Initial Public Offering (IPO) is an exercise done by a company for raising capital by going public. IPO is raised generally in two ways either through fixed price or through Book Building. Generally, most of the companies follow the book building process. For this purpose, the company assigns the Merchant Banker as a Book Running Lead Manager (BRLM) for the IPO to handle the responsibility of Book Building Process.

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Book Building is a mechanism through which a consensus price of IPO can be determined on the basis of bids received from the informed investors such as Qualified Institutional Buyers (QIBs), Non-Institutional Buyers (NIBs) and Retail Investors. The process helps in making a correct evaluation of a company’s potential and the price of its shares. In most of the IPOs generally the allocation of the total issue into these 3 categories comprises of 50%, 15%, 35% of the total issue respectively.

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However when the dilution of the promoters stake is less than 25% the minimum allocating proportion for these categories changes to 60%, 10%, 30% of the total issue,respectively. The company aspiring to be public, files Red Herring Prospectus (RHP),framed by merchant banker, to the regulatory body SEBI that is supposed to cover all the important information about the company, its promoters and its businesses with due diligence.

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RHP is supposed to be the most important document for the company as it acts as a medium of imparting all the critical information regarding the issuer company to the public.Generally prospectus spreads over 300-400 pages. However, investors can concentrate on few key chapters to have the overall understanding of the public issue. Industry Overview, Company Overview, Capital Structure, Objects of the issue, Financial Information and Management discussion and Analysis are some of the chapters that one should necessarily focus on.

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Let’s understand the relevance of each of these topics one by one:

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Industry Overview: This chapter covers the prevailing market scenario of the industry in which the company operates. We get to know that how much the particular industry contributes to the growth of the country’s economy. That is the behavior of the industry with respect to the growth momentum of the country’s economy. Moreover it entails the government plans and initiatives, budgetary allocation in accordance with five year plans for the industry. This gives the picture of potential opportunity in the industry and its key drivers. It also includes the various linkages regarding the relation of industry to the domestic and global economy.

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Business Overview: This compasses all the information related to the business domain of the company – how the business commenced its operations, grown over the period. The product details of the company and where does it lies in the value chain of the industry. The product scope,how the distribution channel works, the marketing strategy, raw material procurement, details about the vendors, clients and their relation withthe company, the revenue generation process, target market, location of operation. All these information helps in knowing the strengths and weaknesses of the company. It also gives information regarding the future aspects of the company.

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How the company is expecting to expand its business, strategies to increase the market share of the company.

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Capital Structure: It tells us about the shareholding pattern of the company. The constituents of the present equity capital of the company, since inception to the present pattern of the shareholding. The details of the how it has raised its capital under the due period. It gives us the details aboutwho are the stakeholders along with their respective stake in the company.

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Objects of the Issue: This chapter assumes high degree of significance in the RHP as it answers the very first question that comes to the mind of the investors that for what reason the company is going public. It entails the objectives of the issue as where and how the company is going to deploy the funds raised from the issue. At times the company induces the fund requirements from the internal accruals that can be from the present business profits of the company or through the debt syndication from banks along with the issue proceeds.

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Company sometimes also utilize the issue proceeds to repay its debt so as to reduce its interest burden. Thus, it contains the purposes of the issue with their respective amount being required.

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Financial Information: This includes all the financial statements of the company on the stand alone and consolidated basis viz. Profit and loss statement, balance sheet, fund flow statement. These statements show the performance of the company from past 4-5 years along with the annexure that details various heads of these statements. Financial Statements helps the investors in knowing the health of the company in numbers.Various ratios and multiples are arrived with the help of these statements.

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Management Discussion and Analysis: This chapter summarizes the company businesses and its development in due course of time. Year-on-year financial comparison is explained in this part of the document. This helps us in knowing the management’s efficiency to grow a company. Certain important events, factors affecting the operations of the company or some specific strategies of the company are explained in this part of the document.To sum up, RHP being the formal document of the company plays an integral role in assessing the company’s business prospects and thus helps investors in taking decision for subscribing an IPO or otherwise.

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However, it is generally perceived as a lengthy exercise by some section of investors.This can be achieved by going through the above discussed topics that can impart all the relevant information of the company leading to a wise investment decision. After all, “Moneywise Be wise”.

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Weekly Update 18th – 22nd October 2010

Most of the world markets rallied in the week gone by on the buzz of further quantitative easing by U.S. Without giving details about the strategies on how the central bank will act its Nov. 2-3 meeting, Federal Reserve Chairman Bernanke said additional monetary stimulus may be warranted because inflation is too low and unemployment is too high.

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Fed is considering ways for raising inflation expectations to encourage people to believe that prices will start rising at a faster pace so that they would spend more of their money now. Retail sales in U.S.climbed more than forecast as purchases rose 0.6 percent following a 0.7 percent gain in August and manufacturing in the New York region expanded in October at a faster pace than anticipated.

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China’s Shanghai Composite Index saw gains of 8.5 percent on the anticipation that China’s banks show strong earnings growth this quarter as the lending has beaten the forecast. Moreover the strong exports growth of 25.1 percent in September mirrors the strong underlying economic momentum. The country’s foreign-exchange reserves, the world’s largest, surged by a record to $2.65 trillion at the end of September.

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India’s wholesale price index rose to rose 8.62 percent in September from a year earlier after an 8.5 percent gain in August. Manufactured product inflation and Food price inflation rose by 0.3 percent and 1.6 percent respectively in September fromthe previous month. RBI Chief Subbarao said that inflation in India is being “quite stubborn,” a sign that controlling prices remains the central bank’s priority.

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Reserve Bank Deputy Governor Subir Gokarn signaled the central bank may intervene in the currency markets to shield exporters from the strengthening rupee. The capital account showed a surplus of $17.5 billion in the quarter to June 30, compared with a record shortfall of $13.7 billion in its current account.

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Foreign investors have so far poured approximately $23 billion in stocks and 10 billion indebt this year. Industrial production expanded by 5.6 percent in August after seeingan expansion of 15.2 percent in July.Going next week the main attraction for retail investors would be the primary market with Mega IPO of Coal India slated to open on 18th October. As Infosys has already rung the bell with positive surprise in terms of earning growth, the investors would now look forward to numbers of companies like L&T, HDFC, Bajaj Auto, etc that are scheduled to announce numbers next week.

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Nifty has support between5870-5950 and Sensex between 19200-19640 levels.With expecting second round of monetary easing, investors dumped dollar and endowed other investment avenues. Commodities extended a rally to the highest intwo years and CRB closed near the mark of 300. The dollar fell to its lowest in 10 months against a basket of currencies and breached the mark of 77. Five week continuous downfall enhanced metals and agricultural commodities.

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Gold gave heroic performance and made another life time high. It rose more than 25% in 2010.Silver is also trading near 30 year high. However, being prudent investors, one should book profit in gold and silver, considering safe trading. Base metals are expected to trade in a range. Crude oil should trade in range $80-85 in short run on mixed fundamental. OPEC has decided to keep the production quota unchanged in last meeting. Agro commodities should trade with high volatility ahead of expiry of October contract.

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SEBI Chief Bhave Displeased with Overpricing of IPOs

CB Bhave, the Chairman of Securities and Exchange Board of India (SEBI), has voiced his concern over the unrealistic pricing of initial public offers (IPOs) by investment bankers. The chairman stated  that the bankers should not overlook the interests of investors at large just to maximize returns for promoters, as it is they who feel the brunt when the steeply priced shares of companies decline when market tide overturns. Bhave stated “in a bid to maximise returns for promoters, they (investment bankers) are not looking at the interests of investors…. You need to introspect whether it is a healthy practice. If you keep investors disappointed day in and day out, the cause of investors will only be a lip service.”

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Bhave’s displeasure on the IPOs by companies at prices disproportionate to their revenues, profits and net worth came after a recent report by one of the leading rating agency showed that out of the 116 IPOs that surfaced between August 2007 and August 2010 as high as 62% of the IPOs are trading lower than their respective price bands. In addition, the BSE IPO index which gained 14.5% in the last 12 months underperformed against the Sensex which increased by 19.45%.

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The investment banker’s ploy of quoting near-zero fees to garner divestment issuances too has not gone down well with the SEBI Chairman who expressed reservations over the prcatice as he stated “they need to decide as to whether they can go on charging zero fees for doing work. What mechanism they evolve is for them to decide.”  He also is of the belief that a code of conduct or ethics should be put into practice to avoid such competition. ‘The industry body can do this by bringing in a certain degree of quality and behaviour,’ said Bhave.

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Standard Chartered IDR : “Opportunity in Crisis”

Standard Chartered IDR : “Opportunity in Crisis”

By Jagannadham Thunuguntla

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The bad market conditions are putting pressure on the ongoing IPO of Standard Chartered IDR. However, if one closely observes, there is some opportunity emerging in the Standard Chartered IDR.

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What’s the trade?

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When the price of Indian IDR was fixed, the trading price of the Standard Chartered Plc share on London Stock Exchange was trading in the range of GBP 15.5.

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However, thanks to the stabilization of the global equity markets in the past 2 to 3 trading sessions, the price of the Standard Chartered Plc on London stock exchange has reached to the tune of GBP 16.82 on Thursday closing. Hence, the Indian rupee translation of the trading price in London stock exchange works out to the equivalent price of Rs 1140. As, there is 10:1 exchange rate, the effective equivalent price of Standard Chartered Indian IDR works out to Rs 114.

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If one observes, the Standard Chartered IDR issue book is getting built at the lower end of Rs 100.

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So, the institutional investors and large HNIs can take this opportunity, by simply applying for IDRs in the Indian public issue; and shorting the share in the London stock exchange. Hence, there is a spread of Rs. 14 (that is, between Rs. 114 and Rs. 100), that is 14%.

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This trade is more fascinating, especially, on the back of the fact that recently the listing days from the closure of the issue have been reduced to 12 days from the erstwhile 22 days. So, 14% is the spread available for a trade of just 12 days.

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Further, it is appearing that the IPO book will at best get barely subscribed one time. Hence, there is no risk of oversubscription. So, whoever applies is assured of allotment. Hence, as there is no spill-over risk due to oversubscription, this trade can really work well.

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It seems there is a clear 14% opportunity in just 12 days for institutions and large HNIs.

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Even if we assume that the final issue price will be in line with the Rs 104 per IDR, as applied by the Anchor investors, still there is Rs 10 spread (that is, between Rs 114 and Rs. 104), that is to the tune of about 10%.

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The couple of assumptions that need to be highlighted are:

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(a) The IDR issue will be able to get closed successfully and will not get called off; and

(b) The currency risk is properly hedged

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Conclusion

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As this is the first ever IDR issue in India, the learning curve will be steeper for every one associated in the value chain, regarding the concept and nuances of the modus operandi. As always, the “first mover advantage” can prove to be invaluable.

Investment Opportunities for Non Resident Indians (NRIs)

Hello Friends here we bring you guys a write up on “Online Non Resident Indian (NRI) Trading” and info on “SMC’s state-of-the-art Online Trading facility“.

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Investment Opportunities for Non Resident Indians

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With Indian economy, witnessing a phenomenal growth since the last decade and after being touted as a success story even after downturn of last year, more and more of NRI corporates and Investors, beside multinationals, are lining up to enter the Indian share market.

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But it becomes very important for NRIs to select investment avenues with due diligence as situation is turning better but still somewhere delicacy remains.

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The challenge for NRIs here is to recognize best-in-class investment products and facilitators to help their investment needs in India.

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Most of the reputable and registered brokers in India offer Online Trading facility in various financial products for NRIs.

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One of the India’s largest and experienced provider of online trading services,

SMC Group is also now providing an online trading platform for NRI’s (based

all across the globe) in various products for eg; Equities, derivatives, apply

online for IPOs and invest online in Mutual Funds.

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SMC Online, no doubt, is having a range of online investment products.

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With a SMC’s state-of-the-art Online Trading facility, buying and selling of shares is now just a click away.

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With this SMC’s state-of-the-art Online Trading facility platform, NRI’s all over

the world can receive benefits in as below:

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🙂

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1. Online trading account in NSE & BSE

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2.  Online trading account in Equity, Futures & Options through NRO account

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3.  Online IPO & Mutual Fund Investments facility through NRO account

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4.  Online trading account in DGCX

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5.  Online Back-office support

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6.  Research reports on email

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7.  Investment in Insurance

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Through this SMC’s NRI Online trading platform, non resident Indians living around the world, can enjoy a hassle free investing process in India.

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Moreover, SMC’s state-of-the-art Online Trading facility is fast, safe and secure.

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Whether, one is an experienced securities trader or new to securities trading, he/she will be happy to have a long term investment association with SMC.

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🙂

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Next Blog we would try to read about the SMC categorized Online trading services on the basis of its customer’s investment needs.

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Stay Tuned for more on this 🙂

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To know more about the state-of-the-art Online Trading facility, click here.

Corporate India set to prefer QIPs for Funds Raising in 2010

Corporate India set to prefer QIPs for Funds Raising in 2010

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Merchant bankers are of view that Qualified institutional placements (QIPs) are expected to still be the preferred route to raise money in 2010.

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Earlier, QIPs  had gained traction during the middle of the year but ran into valuation headwinds in the last quarter of 2009.

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In 2009, Indian companies had raised close to Rs 33,000 crore by way of 45 QIP issuances.

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Also, about 33 QIP issuances are trading above the issue price, while 12 issuances are trading below the issue price.

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2009 was the year of the QIPs.

QIPs are expected to rule the roost, as there is serious interest and appetite in the overseas markets for instruments like converts/ADRs/GDRs.

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QIP, which was introduced in May 2006, picked up momentum in 2007 and then stagnated in 2008 when the market was in a bear grip.

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Delhi-based real estate company Unitech successfully raised $325 million through a QIP in mid-April 2009.

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Later, Indiabulls Real Estate and PTC India raised Rs 2,657 crore and Rs 500 crore, respectively, through such placements.

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QIP is a private placement by which a company sells its shares to qualified institutional buyers (QIBs) on a discretionary basis with the two-week average price being the floor.

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In a QIP, unlike an IPO or PE investment, the window is shorter (four weeks) and money can be raised quickly.

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According to a study by SMC Capital, the 45 QIP issuances have resulted into a mark-to-market (MTM) return of about more than 21.60 per cent, amounting to a profit of about Rs 7,050 crore.

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Some of the QIP issuances trading significantly above the issue price are Unitech (first round of QIP issuance), Emami, Shree Renuka Sugars, HCC , United Spirits, Dewan Housing, etc.

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Those trading below the issue price are Network 18 Fincap, REI Agro, Indiabulls Financial Services, Punj Lloyd, Delta Corp.

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“The overall positive listing performance of QIPs in 2009 will encourage investors as well as Indian corporates to access this route for fund-rising in an aggressive manner,” says Jagannadham Thunuguntla, equity head, SMC Capitals.

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QIPs had hit a pause button when a large percentage of them ran into valuation headwinds, resulting in companies raising a much smaller amount than what was initially proposed.

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🙂

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