Mumbai: Fund-raising through qualified institutions placement (QIP) showed signs of recovery in 2017 after two years of muted growth. Funds raised through the QIP route in the year gone by were nearly 13 times the money raised in the previous year.
According to data provided by Prime Database, listed companies found the QIP route very attractive, with 44 companies mobilizing Rs61,118 crore, the highest ever. Funds raised via QIPs in 2017 were also at a record high, beating the earlier high of Rs36,676 crore in 2010.
According to Anil Gupta, vice-president and sector head - financial ratings, ICRA Ltd, QIP as a fund-raising route is preferred by issuers because of faster capital raising process. “Apart from buoyancy in equity markets, the rise of QIP issuance has also been driven by increasing capital requirement for financial sector entities. While public sector banks need capital to meet the increasing regulatory capital requirements as well as offset the losses during the year, the capital requirement of private banks and non-banking financial companies (NBFC’s) has been driven by their strong growth and future growth opportunities," he said.
The year also saw the largest QIP issue ever with State Bank of India (SBI) raising Rs15,000 crore accounting for 25% of the total QIP amount. Top five companies that contributed over 75% of total QIP raised in the year are SBI (Rs15,000 crore), Kotak Mahindra Bank (Rs5,800 crore), Bajaj Finance (Rs4,500 crore), Interglobe Aviation (Rs3,800 crore) and Federal Bank (Rs2,500 crore).
“QIPs in 2017 were dominated by banks with their contribution being 63% or Rs38,282 crore of the overall amount," said Pranav Haldea, managing director, Prime Database.
While 32 private firms contributed to the total amount raised through QIPs in 2017, eight government-run companies also used the QIP route, the highest participation of PSUs in at least 10 years. In the previous year, only one PSU used the QIP route to raise funds, while none did so in 2015.
Collectively, three banks (SBI, Punjab National Bank and Union Bank) accounted for 90% of the QIP issuance during 2017, said Gupta. He added that while SBI’s QIP issuance in May 2017 was driven by its weakening capital levels post the merger of its associate banks with weak asset quality, the other banks also raised capital to meet the increasing capital requirements under Basel III.
“With weak internal capital generation because of mounting credit provisions, fresh equity raising was the only possible option for these banks to meet regulatory capital requirements. Further these banks were relatively better banks under PSU banks, where there was some investor appetite for their equity issues unlike other PSU banks, which had very weak financial position with limited investor appetite for their equity issuance," he said.
Gupta said the QIP issuance will remain strong in FY2018 and will continue to be dominated by the financial services sector as the government has budgeted capital raising of Rs58,000 crore for banks under bank recapitalisation programme through market issuance, a large part of which is likely to be raised in the second half of 2018.