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Sebi building (Photo: Mint)
Sebi building (Photo: Mint)

Covid-19: Investment banks seek QIP pricing norm relaxation to ease fundraising

  • If pricing norms are relaxed, companies will have more flexibility in raising funds at this critical time
  • Sebi has already come out with a proposal to reduce the cooling-off period of six months between two successive QIP offerings

Mumbai: Investment banks have approached markets regulator Securities and Exchange Board of India (Sebi) for relaxation in pricing norms for one of India Inc's most preferred fundraising route -- qualified institutional placements -- to make it easier for listed companies to raise funds amid disruptions caused by the covid-19 pandemic.

Qualified institutional placement (QIP), is a fast track route that allows listed companies to raise capital from institutional investors through equity or equity-linked instruments.

In the five-year period from 2015 to 2019, corporate India raised 1.31 trillion from QIPs, data from primary market tracker Prime Database shows. So far this year, companies have raised 20,360 crore via this route.

"Merchant banks have written to Sebi seeking relaxations in the pricing formula for QIPs. The market volatility seen in the recent times restricts the ability of the companies under the existing norms to price their offerings more attractively for investors," said an investment banker, who spoke on the condition of anonymity.

If pricing norms are relaxed, companies will have more flexibility in raising funds at this critical time, he added.

For QIPs, investment banks demand an increase in the extent of the discount that companies can offer on the floor price calculated under Sebi guidelines. The floor price of the QIP offering cannot be less than the average of the highest and the lowest price of the shares in the past two weeks.

Under existing norms, companies can offer investors a discount of up to 5% on the floor price.

"We are asking for the discount to be increased to up to 10%. This will offer a big relief to companies to raise funds via QIPs," said a second investment banker who too did not want to be named. "Since the actual impact of the lockdown on this quarter's financials will take some time to be known, the extra discount will help in providing some comfort for investors."

Once the economy and markets start recovering post the lockdown, QIPs could emerge as a major fundraising route for companies and so a relaxation on the discount limit will be very helpful, he added.

Sebi has already come out with a proposal to reduce the cooling-off period of six months between two successive QIP offerings. A relaxation on the pricing front, however, will be a bigger boost, investment bankers feel.

Since the lockdown began, the markets regulator has been actively allowing relaxations on various compliance and fundraising norms to make life easy for companies impacted by the economic fallout of the pandemic.

Fundraising options such as rights issues and initial public offerings have already been made easier for companies.

"SEBI has been proactively granting much needed relaxations to support listed entities and therefore public shareholders. The request seems to be in line with relaxation’s the regulator has granted for providing better access to capital," said Moin Ladha, partner at law firm Khaitan & Co.

An email sent to Sebi on Friday evening did not elicit a response.

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