Explained: The concept of QIPs!

Qualified Institutional Placement (QIP) is a way of raising capital domestically from institutional investors.

Companies require funds for various purposes such as purchasing a new plant, machinery, or for expansion and diversification. The funds for these goals can be secured in different ways such as going public (IPO), issuing equity shares, debentures or by taking loans from a bank.

Qualified Institutional Placement (QIP) is a way of raising capital domestically from institutional investors.

How does QIP work?

In this method, listed companies can issue equity shares or non-convertible debt instruments along with warrants and convertible securities other than warrants to a select group of institutional buyers who follow certain regulations and rules formulated by SEBI. This group of buyers is known as qualified institutional buyers (QIB).

Who is a QIB?

As per SEBI, “Qualified institutional buyers are those institutional investors who are generally perceived to possess the expertise and the financial muscle to evaluate and invest in the capital markets.”

QIBs comprise entities such as scheduled commercial banks, mutual funds, foreign institutional investors registered with SEBI, multilateral and bilateral development financial institutions and venture capital funds registered with SEBI.

Bottomline

This method of raising capital is less time-consuming and the issuing firm does not have to undergo elaborate procedural requirements to raise this capital. Moreover, it enables QIBs to buy a significant stake in a company at a discounted price, which would otherwise not be possible through buying in an open market. All these benefits give QIP an edge over other ways of raising funds.