Corporate India is never short of ideas. With companies getting starved of funds either because there was no liquidity in the market or the cost of sourcing having become prohibitively expensive, managers have been forced to look elsewhere to beat the slowdown, service debt or to fund expansion – initial public offers (IPOs) are not being held in favour simply because the retail investor is still not ready for them due to sentiment not having reached the extent it was in 2007, and also because they are very expensive.
With the latest GDP figures indicating growth was still adequately strong, on top of fourth quarter corporate performances not being as bad as predicted by the doomsayers, and a host of good tidings coming from the political sphere, there is renewed interest shown by investors, institutional investors, to be precise, to funnel money into productive, and profitable, ventures. The vehicle that both India Inc and institutional investors are eyeing is Qualified Institutional Placement (QIP).
Despite having gained entry into India not more than three years ago, QIP looks set to take off in a big way in India.
Looking to garner funds were companies like Unitech and Indiabulls, troubled by debt and in need of huge infusions to ward off questions on their well-being, these two led the way to raise a total of $1 billion. Others are not far behind if latest figures are something to go by. According to sources, Indian companies have lined up QIPs worth an astounding Rs 30,000 crore.
Securities and Exchange Board of India (SEBI), had encouraged this trend, after issuing guidelines in this regard with effect from 2006 under the Disclosure & Investor Protection (DIP)directive, when it felt that Indian companies were using American Depository Receipts (ADRs), Global Depository Receipts (GDRs) and Foreign Currency Convertible Bonds (FCCBs) to raise funds was resulting in an "export of domestic equity markets”. The market regulator wanted to encourage Indian companies to raise money domestically rather than go abroad to do so.
The board allowed listed companies to raise funds from the domestic markets through QIPs of securities with no pre-issue filings with the regulator. This move was to encourage Indian companies to raise funds from domestic markets instead of tapping overseas markets.
Though companies are hopeful of a smooth sailing, merchant bankers are keeping a close watch on the markets as they think that all would depend on the positive mood of the market.
Companies after raising funds through this process are looking to wipe out the negatives on their balance sheets and present a much more saleable image to the world.
The reason behind the popularity of QIPs has much to do with the current state of markets where shares are trading at 50-100 per cent below their 2007 highs, but with the stock markets rising fast in the current rally, the lows of 2008 have been left very far behind. This enables companies through the QIP process to demand a price for their scrip which is ruling on bourses right now or very close to them.
The going has been very tough over the last year-and-a-half for corporates, but they have shown that, even if they have lost much of their muscle power, they have the brain power to devise strategies to drive their companies into the black and keep them there.