Mumbai: 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.
QIPs raised at least Rs21,209 crore since January this year, while PE funds invested only Rs2,574 crore in listed firms.
Mint on 15 September reported that QIPs have raised close to 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.
Data from Delhi-based investment bank SMC Capitals Ltd shows another 48 QIPs worth Rs43,891 crore are in the pipeline. But analysts do not expect a significant rise in the number of, or funds through, PE deals this year. “There are always a number of deals in the pipeline but a quality one takes time to convert,” said Shweta Jalan, director, Advent India PE Advisors Private Ltd.
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. 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.
Fast forward: Pantaloon Retail (India), which plans to raise Rs1,000 crore, is one of many firms in line. Graphics: Sandeep Bhatnagar, Photo: Ramesh Pathania/Mint
“Since PE is perceptionally intrusive for promoters, QIP serves as a good alternative,” said Pranav Parikh, managing director of Mumbai-based hedge fund Q-India Investment Advisors that also does PE funding.
But Abhijit Bhatt, head of finance, Tricom India Ltd, an information technology-enabled services provider that received board approval in August for a QIP, said giving a board seat was not an issue “for established companies like us”. “At the end of the day, the structure feasible to investors is feasible to us, although in a QIP the window is shorter and money can be raised quickly.”
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. In line for QIPs are Reliance Communications Ltd, Pyramid Saimira Theatre Ltd, which wants to raise at least Rs21crore, Pantaloon Retail (India) Ltd for Rs1,000 crore and HCL Infosystems Ltd, which wants to raise Rs500 crore.
Some firms, though, have taken both routes for their funding needs. Nagarjuna Construction Co. Ltd, which raised Rs616 crore from PE fund Blackstone Group Lp in 2007, in September 2009 got Rs367 crore from a QIP. Educomp Solutions Ltd, which received around $1 million (Rs4.8 crore) from PE fund Gaja Capital in 2005, raised Rs606 crore through a QIP in July 2009.
“Listed companies anyway were not very active with PE investments,” explained Hetal Gandhi, managing director of Mumbai-based PE fund Tano India Advisers Pvt. Ltd. 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. But QIPs don’t cannibalize PE investments, around 80% of which go into the unlisted space.
“In contrast to QIPs, private equity firms seek to improve companies in addition to providing capital, by providing operational and strategic advice, as well as global expertise,” said Nathaniel Taylor, a director of Kohlberg Kravis and Roberts in India.
“Private 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, he said.