Mumbai: Concerned at the drought in qualified institutional placement (QIP) activity, the Securities and Exchange Board of India (Sebi) last week met investment banks to discuss what can be done to facilitate more activity in the product, said three people aware of the development.
QIP is a capital-raising tool through which listed companies can issue equity shares, fully and partly convertible debentures, or any securities other than warrants that are convertible into equity shares, to a qualified institutional buyer.
QIP was introduced in May 2006 by Sebi as a faster alternative for listed companies to raise funds, as it does not involve several common procedural requirements such as pre-issue filings that are associated with other products such as follow-on public offerings.
The need for a product like QIP was felt due to increasing instances of listed Indian companies accessing international funding via various routes such as American depository receipts.
“As a markets regulator, one of Sebi’s mandates is market development. They have been concerned why QIP as a product has lost traction with listed companies and to discuss the same, they had called investment banks for a meeting last week," said one of three people cited above, requesting anonymity, as he is not authorized to speak to the media. Around a dozen investment banks attended the meeting, he added.
An email questionnaire sent to Sebi on Wednesday went unanswered.
So far this year, only five companies have raised funds through QIP, managing just ₹ 708.5 crore, according to data from primary market tracker Prime Database.
This is in stark contrast to the activity seen in the market in the past two years.
In 2015, 32 companies raised ₹ 19,064.9 crore through the QIP route, while in 2014, 33 companies raised ₹ 31,684.2 crore.
The poor show in the QIP market is also in stark contrast to fund-raising in the primary market, where 14 companies have raised ₹ 9,830.4 crore so far this year.
“Sebi expressed its concern to the effect that at a time when unlisted companies are so successful in raising funds from the market through IPOs, why are listed companies finding it so difficult? The regulator wanted to understand from banks if there was anything needed from Sebi’s side to facilitate more activity in the QIP product," said a second person cited above, also requesting anonymity.
The market is not seeing too many QIP discussions, said the third person, requesting anonymity. “Yes Bank is looking at a $1 billion QIP, but apart from that, there is not much activity. There are a couple of smaller transactions that are being discussed," he said.
In June, Mint reported that Yes Bank Ltd had hired Goldman Sachs Group Inc. to help the lender raise as much as $1 billion through a QIP.
In July, Mint reported that microfinance institutions Bharat Financial Inclusion Ltd (earlier known as SKS Microfinance) and Satin Creditcare Network Ltd are in discussions with banks to raise around ₹ 600 crore and ₹ 200 crore, respectively, through a QIP.
At last week’s meeting, no particular recommendations were made by bankers to Sebi with regard to QIP, this person added.
“It is a well-established product and doesn’t need any intervention per se from the regulator. The issue with the drop in activity is more a market phenomenon. We are not seeing too much capex and so companies are not seeing the need to raise capital. That has kept the capital-intensive sectors away from the QIP market," he explained.
Investors too are shying away, he said, as they feel that the Indian market seems to be expensive right now. “Investors are concerned about whether there is more upside left in the market at the current valuations. In a rising market, where investors are already concerned about valuations, a stock that appeared attractive just a month ago can become unattractive," he added.
According to Prithvi Haldea, chairman of Prime Database group, QIP is a bull market product, where an institutional investor is able to buy a stock in a large quantity at the market price or at a discount to the market price.
“While we are not in a hardcore bullish market right now, we are not in a declining market either. While lack of capex requirement is one reason for lower activity in the QIP market, it would be too much of a generalization to say that none of the listed companies is looking at capex. Financial institutions such as banks, which were regular participants in the market, too are staying away," he said.
The benchmark BSE Sensex has gained 7.68% since the start of the year to 28,123.4, as on 18 August.