QIP and its stars: QIBs
What is QIP?
Qualified Institutional Placements (QIPs) are a medium by which companies raise funds from Qualified Institutional Buyers (QIBs), by issuing equity shares or any securities other than warrants, which are convertible into or exchangeable with equity shares. Merchant Bankers play a significant role in aiding companies manage the entire QIP.
QIP was brought to India by SEBI in 2006 to curb the increasing reliance of Indian companies on foreign investments for economic growth and to make way for them to pool funds from the domestic markets itself, fostering in-country progress and reducing foreign debts.
A QIP is one of the most sought after tool for raising funds by companies during bullish market conditions. It pertains to the fact that unlike IPOs, QIPs facilitate fund raising in a shorter span of time, without having to worry about excessive formalities.
Who are QIBs?
Qualified Institutional Buyers (QIBs) are Institutional investors who invest in the companies that raise funds through QIPs. They are one of the 3 main categories of Investors in India, the other two being Retail Investors and Non-Institutional Investors. They comprise of several institutions that are registered with SEBI such as Mutual funds, Alternative Investment Funds, Venture Capital Funds, Foreign Portfolio Investors (Category I & II), Scheduled Commercial Banks, etc. These investors are professionals with expertise in analyzing financial conditions of the companies raising capital through QIP and are capable to invest in financial markets.
There are two ways through which companies can pool funds from QIBs. It depends upon the listing status of the company. QIBs invest in both- in an unlisted company before the opening of its IPO issue and in a listed company who wants to take the route of QIP for expansion, debt reduction and or any other financial purposes.
In an unlisted space, QIBs capture the attention of the issuing company even before an IPO. In case of IPO price evaluation by the book building method, a minimum of 50% shares of the IPO issue is reserved for QIBs of which 5% is allotted to Mutual Funds and the remaining to other QIBs. This process of allotment of shares to QIBs are generally done in Mainboard IPO.
Whereas in the listed space, QIBs invest when a listed company looks to raise huge capital through Qualified Institutional Placement (QIP). There are 3 other tools of raising capital for a listed company but funding through QIBs steal the attention of the issuers due to benefit of quick fund raising and lesser filings.
Gretex acts as an intermediary between companies issuing IPO and the QIBs, in the unlisted category. Before an IPO, Gretex analyzes the company, prepares investor presentations and then approaches QIBs for funding requirements. Our access to QIBs of India, aids a company in finding the right investment before their IPO opens.
Gretex Corporate Services Limited is a SEBI Registered Category I Merchant Banker and awarded by the Bombay Stock Exchange (BSE) as a Top Volume Performer for SME IPO in India in FY 2017-18 and FY 2020-21. We provide a host of Financial and Consultancy services like IPO, Valuation, Private Equity, M&A, Angel Funding, and many more.
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