#What Is a Qualified Institutional Placement (QIP)? Secrets of Issuing Shares Through QIP #

Secrets of Issuing Shares Through QIP – Cost Effective and an Alternative to Public Issue

Kotak Mahindra Bank raises ₹7,442 crore via Qualified Institutional Placement (QIP)
What Is a Qualified Institutional Placement (QIP)? Secrets of Issuing Shares Through 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 common in India and other southeast Asian countries. The Securities and Exchange Board of India (SEBI) created the rule to avoid the dependence of companies on foreign capital resources.
Advantages of QIPs
QIPs are helpful for a couple of reasons.
1.Their use saves time as the issuance of QIPs
2. The access to capital is far quicker than through an FPO.
3.The speed is because QIPs have far fewer legal rules and regulations to follow, making them much more cost-efficient.
4. There are fewer legal fees, and there is no cost of listing overseas.
Q3
QIP is a tool used by listed companies to sell shares or other securities, which are convertible into stocks, to qualified institutional buyers such as mutual funds.
Raising Further Capital by Kotak Mahindra Bank
On 22 April, Kotak Mahindra Bank had announced its plan raise capital by selling fresh equity shares through a QIP.
Private lender Kotak Mahindra Bank Ltd.’s board, on Saturday, said it raised at least Rs. 7,442.5 crore via issuance of 65 million shares in a qualified institutional placement (QIP).
Kotak Mahindra Bank Raises Rs 7442.5 Crores through QIP
Following a board meeting, the bank said that shares have been offered to investors at Rs. 1145 apiece, which is at a discount of 6.43% to the current market price of Rs. 1,223.70.
Institutional Investors took major shares in QIP
Institutional investors including Invesco Oppenheimer Developing markets Fund, Canada Pension Plan Investment Board (CPPIB) and ICICI Prudential Asset Management Co. Ltd. have been allotted 8.02%, 7.12% and 6.30% of the total offer size respectively.
ICICI Mutual fund bought shares through 18 of its MF schemes in the QIP, which was opened on 26 May and closed on 29 May.
Avenue Supermarts Ltd Q6
This is the first QIP to hit the public markets since Avenue Supermarts Ltd, which runs supermarket chain DMart, raised Rs4,098 crore in February this year.
KOTAK BANK QIP’s ISSUE
Kotak Mahindra bank had said on 26 May that it had set a floor price of Rs1,147.75 per share for the offering. As per Sebi norms, the bank can offer a maximum discount of up to 5% on the floor price to investors.
Kotak Mahindra will use the funds to bolster its Balance Sheet and to Strengthen its Capital Buffers
Like many other Indian banks, Kotak Mahindra Bank will use the proceeds of the QIP primarily to bolster its balance sheet and strengthen its capital buffers as the lockdown caused by covid-19 pandemic is expected to lead to potentially higher slippages in the coming quarters. The bank may also use the capital to tap opportunities arising out of the crisis.
To Augment Capital Base and Strengthen Balance Sheet Q8
"Subject to applicable laws and regulations, our bank intends to use the Net Proceeds to augment its capital base and strengthen its balance sheet, which would assist our Bank in dealing with contingencies or financing business opportunities (which may be organic or inorganic), or both, which may arise pursuant to the economic events driven by the outbreak of COVID, or otherwise," the bank said in its draft offer document on 26 May.
Kotak Mahindra Bank’s Capital Adequacy Ratio is 18% against Industrial Standard of 9%
The bank’s capital adequacy ratio is around 18% at present. Banks are currently required to maintain a capital adequacy ratio (CAR) of 9%. CAR is the ratio of a lender’s capital as compared to its risk weighted assets (cash, loans, investments etc.) and current liabilities (taxes, interests, expenses, deposits etc.).
If companies wants to strengthen their fiscal position , they may use QIP to raise capital with least cost as successfully shown by Kotak Mahindra Bank and Avenue Supermarts Ltd.

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