Fundraising through the qualified institutional placement (QIP) route doubled in 2019 driven by mega-deals, even though the number of deals fell significantly, data from primary market tracker Prime Database shows.
QIP is a capital-raising tool through which listed companies can sell shares, fully and partly convertible debentures, or any securities, other than warrants that are convertible into equity shares, to qualified institutional buyers.
In 2019, corporate India raised ₹35,238 crore, up from ₹16,587 crore in 2018, data shows.
The QIP fundraising in 2019 is the second-highest in the last five years. With 43 deals amounting to ₹56,152 crore, 2017 stood out as a record fundraising year in the QIP market.
However, in terms of deal volume, only 11 companies used the QIP route in 2019, as against 25 in 2018, indicating that only large companies were able to tap the market this year, which was characterized by volatility due to various macro headwinds.
The year saw a few mega-deals such as Axis Bank’s ₹12,500 crore share sale in September and Bajaj Finance’s ₹8,500 crore fundraise in November. Other major deals this year saw DLF raising ₹3,200 crore, Godrej Properties securing ₹2,100 crore and RBL Bank raising ₹2,025 crore.
“We believe that this year we saw the re-emergence of QIP as a product with investors giving a thumbs up to high-quality large issuances like Bajaj Finance, Axis Bank, RBL Bank, Shree Cement, Varun Beverages, PVR, etc. While in 2019 we saw that the number the QIPs were less, the quantum of fund raised was almost double compared to 2018," said Gaurav Sood, co-head-equity capital markets, ICICI Securities.
Given the current appetite for high-quality companies, we feel that large QIPs will find strong interest among investors next year as well, he added.
“QIPs, as a product, is very stock-specific. Most companies are opportunistic in QIPs and will evaluate this product only if there is requirement of capital for organic or inorganic growth, or a balance sheet repair is required. Also, in most cases, promoters evaluate whether their stock is performing well to limit dilution, else other means of funding are also evaluated," said Sood.
According to Jibi Jacob, head of equity capital markets, Edelweiss Financial Services Ltd, more companies could come to tap the QIP market in 2020 if recent moves by the government to push the economy begin to bear fruit.
“The QIP deal momentum will pick up in 2020 only if the effect of recent government measures to boost the economy starts showing results in form of credit offtake, increasing consumer demand and, in turn, pick up in capex cycle. All these should lead to a conducive primary market, as well for more QIP deals to happen, especially in the small-cap and mid-cap space," said Jacob. Companies will primarily raise fresh capital either to deleverage, for fresh capex and inorganic acquisitions, he said, adding that for the latter two, corporate India will take some time as they will wait for a clear pick-up in demand.