Posts Tagged ‘qualified institutional placements’

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, QIPsΒ  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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β€œThe 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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QIPs account for 60% of funds raised by India Inc

Qualified Institutional Placements (QIP) contrib-uted Rs 6 out of every Rs 10 raised by Indian companies from domestic sources in January-November 2009. Simply put, Indian companies raised Rs 47,419 crore from domestic sources in the 11 months of this year with QIP funds accounting for Rs 28,726 crore (about 60 per cent).


In the same 11 months of 2008, India Inc raised Rs 2,104 by means of QIPs out of the total Rs 48,807 crore garnered from domestic so-urces, shows a study by New Delhi-based SMC Capitals. This means that in 2009 QIPs account for more than half of total funds raised. Just to put the things in perspective, QIPs am-ounted for only 4.3 per cent of the funds raised during January to November 2008. This underlines the kind of domination QIPs have sho-wn in 2009; and QIPs have truly come to the rescue of cash-starved Indian corporates, said Jagannadham Thun-uguntla, Equity Head at SMC Capitals.

The funds raised thro-ugh IPOs as a percentage of total funds raised through domestic sources is to the tune of 31.7 per cent during January-November, at Rs 15,043 crore compared to that in January-November 2008, which was 34.8 per cent at Rs 16,995 crore, supported heavily by the Reliance Po-wer mega IPO of 2008. The funds mopped up from ADRs/GDRs have jumped up by more than 29 times from $0.1 billion in January to November 2008 to $ 3.15 billion in January to November 2009.

QIPs Outstripped PE Funding & IPOs in Fund Raising Process ;)

QIP-investments-outpace-PEfunds

Qualified institutional placements (QIPs) have outstripped private equity (PE) funding since January by at least eight times, making it by far the most popular fund-raising route for firms this year.

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QIPs raised at least Rs. 21,209 crore since January this year, while PE funds invested only Rs. 2,574 crore in listed firms.

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QIPs have almost raised more than twice of initial public offerings.

A QIP is a private placement by a listed company of shares or securities convertible to equity with qualified institutional buyers approved by market regulator Securities and Exchange Board of India(SEBI).

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Data from Delhi-based investment bank SMC Capitals Ltd shows another 48 QIPs worth Rs.43,891 crore are in the pipeline.

But analysts do not expect a significant rise in the number of, or funds through, PE deals this year.

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Typically, PE investments take up to six months to complete, whereas a QIP can be done in up to four weeks, making the fund-raising process faster and more reliable since the institutional buyers are selected carefully.

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Also, in a QIP, the institutional buyers rarely seek a seat on the company board, or management control, a common practice in large PE deals.

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Since PE is perceptionally intrusive for promoters, QIP serves as a good alternative.

However this QIP structure is liked by investors and firms as in a QIP the window is shorter and money can be raised quickly.

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While real estate firms typically prefer QIPs for their need of capital at short notice, the companies currently waiting to do QIPs are across sectors, including telecom, entertainment, retail and information technology.

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In line for QIPs are Reliance Communications Ltd, Pyramid Saimira Theatre Ltd, Pantaloon Retail (India) LtdΒ  and few more.

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Some firms, though, have taken both routes for their funding needs.

Historically, PE investments in India have been in the form of private investments in public enterprises, or PIPEs, which also happen to the only firms eligible for QIPs.

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β€œPrivate equity investors have missed the boat,” Jagannadham Thunuguntla, head of SMC Capitals, said in a statement.

Companies that are in the pipeline for QIPs may also look for American depository receipts or global depository receipts for funds, heΒ  added.

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Positive Returns keeps Investor Interest in QIPs, Intact :)

QIPs

Thanks to a strong broad market rally, the share prices of the companies that have raised money through qualified institutional placements (QIPs) have recovered.

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According to SMC Capitals, of the 24 companies, which raised money through QIPs, only five gave negative return while the remaining 19 stocks were trading well above their QIP issue prices.

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However, they have underperformed the BSE benchmark index.

As against 62 per cent return posted by the BSE Sensex (since the beginning of the current fiscal), the companies’ return stood at just 35 per cent.

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β€œOn an aggregate, the current mark-to-market (MTM) value of all QIPs put together works out to an amount of Rs 23,208 crore, marking current MTM return of 35.17 per cent,” said a SMC Capitals study.

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β€œThe biggest contributor to the positive performance is the first QIP issuance by Unitech. The issuance was made at Rs 38.5 a share and the current market price is Rs 113.4, indicating a current MTM return of 194 per cent,” the report said.

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Other prominent QIP issuances include Indiabulls Real Estate, Shree Renuka Sugars, HDIL and Emami.

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A day before, the share prices of Network 18 Fincap, Bajaj Hindustan, and REI Agro were trading below their QIP issue prices.

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Such positive returns will make sure that investor interest in QIPs will continue and many more companies will raise fund through this route, said Mr Jagannadham Thunuguntla, Head of Equities at SMC Capitals.

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As IPO Market Falters,Companies Eye New Funds !!

Market falters

The post-listing dismal performance of the initial public offering ( IPO) of public sector power major NHPC Ltd is set to force many companies to rework their fund- raising strategies in the coming months.

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Qualified institutional placements (QIPs), global depository receipts (GDRs) or those shares issued to overseas investors and listed on exchanges abroad are likely to be the most favoured means for these purposes, leading investment bankers said.

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Some of the companies are already planning to revise their issue prices downwards to ensure that offerings will not fall through.

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Oil India Ltd (OIL), which is open for subscription now, is the first to draw lessons from the NHPC episode and revise its issue price.

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OIL has revised their price band to Rs 950- 1,050 per share, from Rs 1,250- 1,400, after the NHPC episode as per few bankers.

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NHPC fixed the price of its IPO at Rs 36 per share last month.

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Though the stock listed on September 1 at eight per cent premium to the issue price, at Rs 39, it closed just 70 paise or 1.94 per cent above the issue price.

Over the last two days, the premium further narrowed to just 10 paise.

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Jagannadham Thunuguntla, equity head of SMC Capitals Ltd, cites heavy selling, coupled with no follow- up buying as the reasons for the lacklustre listing of NHPC.

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NHPC’s IPO price was 30 times its earnings per share (EPS).

“In fact, well- established companies like NTPC are available at much lower valuations. Hence, there was no follow- up buying from the investors on NHPC listing,” Thunuguntla explained.

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Further, majority of the oversubscription is not due to genuine investor interest but is due to the borrowed funding through ‘IPO financing“.

Naturally, all such investors were forced to sell on the day of listing as these involve a lot of interest cost. This resulted in heavy selling on the day of the listing,” he added.

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After the market rebound since March 2009, fundstarved companies started tapping the market.

And when the elections gave a more convincing victory to the UPA combine, the market gathered greater strength.

Since March, companies were able to raise funds to the extent of Rs 21,191 crore through 22 QIPs; and $ 1.88 billion through four GDRs/ ADRs (funds raised from US- based investors and listed in the US).

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However experts maintained that these are the sources of funds for which few institutional investors are to be convinced, rather than working on creating confidence among the whole investor community.

At the same time such companies should have a high corporate governance track- record as well.

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Lack of PSU divestment roadmap stalls IPO market

Jagannadham Thunuguntla, equity head of SMC Capitals.

In the absence of a roadmap for divestment of public sector units (PSUs), many private companies that were getting ready to raise funds through initial public offerings (IPOs) may now decide to wait. The market fall on Monday (the budget day) and Wednesday has made matters only worse.

However, investment bankers see light at the end of the tunnel in the finance minister Pranab Mukherjee’s announcement on the need for mandating a minimum 25 per cent public holding in all listed companies.

“Excitement is a bit down as there is no roadmap for PSU divestment. This initiative would have created an ecosystem for several public issues of private sector companies hitting the market,” said Jagannadham Thunuguntla, equity head of SMC Capitals.

“The divestment programme is unlikely to be as effective as was expected to be before the budget,” Thunuguntla added.

However, there is an air of expectation that companies would revive their plans to float initial public offerings (IPO) once the market revives.

The falling market, post-budget, has also put a question mark on the companies that were planning to raise funds through qualified institutional placements (QIPs), is a corporate fund raising instrument that enables completion of the process within a month against four months taken for a typical IPO.

According to a report published by Enam Securities While eleven companies have raised Rs 12,000 crore through QIPs before the budget, about 20 companies are planning to raise Rs 36,500 crore through this route, post- budget.

This list is liberally sprinkled with real estate companies, which have been facing a severe funds crunch since the outbreak of the global financial crisis in September 2008.