DEFINITION of Qualified Institutional Placement - QIP
A qualified institutional placement (QIP) is, at its core, a way for listed companies to raise capital, without having to submit legal paperwork to market regulators. It is mostly used in India and other southeast Asian countries.
BREAKING DOWN Qualified Institutional Placement - QIP
A qualified institutional placement (QIP) is a designation of a securities issue given by the Securities and Exchange Board of India (SEBI) that allows an Indian-listed company to raise capital from its domestic markets without the need to submit any pre-issue filings to market regulators. Companies are only permitted to raise capital through issuing securities.
The SEBI instituted the guidelines for this relatively new Indian financing avenue on May 8, 2006, in order to keep India from developing an outsized dependence on foreign capital. Prior to the QIP, there was concern from Indian market regulators and authorities that Indian companies were accessing international funding via issuing securities, such as American depository receipts (ADRs), Foreign Currency Convertible Bonds (FCCBs) and Global Depository Receipts (GDR), in outside markets. This was seen as an undesirable export of the domestic equity market, so the QIP guidelines were introduced to encourage Indian companies to raise funds domestically instead of tapping into overseas markets.
Regulations for Qualified Institutional Placements (QIPs)
To be permitted to engage in a QPI, a company must be listed on an exchange with terminals across the country, and must have the minimum shareholding requirements specified in their listing agreement. The company must issue at least 10% of its securities it is issuing to mutual funds. There are different regulations for number of allottees depending on different factors. Additionally, no one allottee is permitted to own more than 50% of the total issued. Allottees must not be related to promoters of the country in any way. There are more regulations on who QIP securities can be issued to, too.
Qualified Institutional Placements (QIPs) and Qualified Institutional Buyers (QIBs)
The only parties eligible to purchase QPIs are qualified institutional buyers (QIBs), which is basically an accredited investor, as defined by whatever securities and exchange governing body presides over it. This is because QIBs are generally perceived as institutions with expertise and financial power that allows them to evaluate and participate in capital markets, at that level, without the legal assurances of a follow-on public offer (FPO).
Benefits of Qualified Institutional Placements
QIPs are helpful for a couple reasons. QIPs save time, and can be issued and raise capital far quicker than an FPO. This is because QIPs have far fewer legal rules and regulations. And ths makes QIPs much more cost-efficient— there are fewer legal fees, and there is no cost of listing overseas.