QIP in the stock market stands for Qualified Institutional Placement. For listed companies, a Qualified Institutional Placement (QIP) is a way where companies can raise their capital without the need to submit any legal paperwork to any market regulators.
Qualified Institutional Placement (QIP) was introduced mainly in India and Southeast Asian countries to prevent their dependencies on any foreign resources or overseas resources for raising their capital.
Working Of Qualified Institutional Placement (QIP)
From the above information, we know that the Qualified Institutional Placement (QIP) was introduced so that the Indian listed companies could raise capital from the domestic resources rather than depending on foreign resources.
When Qualified Institutional Placement (QIP) was not introduced, Indian regulators were concerned about the domestic companies that depended on international funders to raise their capital rather than choosing available Indian capital sources.
So, authorities then introduced Qualified Institution Placement (QIP) to encourage Indian companies to move forward and raise funds domestically instead of depending on international funding markets.
Qualified Institutional Placement (QIP) use will save time for companies as issuing and accessing the capital is faster. QIP is faster as it has lesser legal paperwork rules and regulations that have to be followed.
And QIPs legal fees are also fewer. The important thing is that there is no cost of listing overseas.
Qualified Institutional Placement (QIP) Regulations
There are a few regulations that have to be followed to be able to raise funds through QIP.
A firm that wants to raise funds through QIP must be listed on any stock exchange. Along with that, it should have at least minimum shareholding requirements as specified in its listing agreement.
The company must also issue a minimum of 10 percent of issued securities to allottees.
There are also some regulations for the number of allottees on Qualified Institutional Placement (QIP), which depend on some specific factors within the issue.
More importantly, not a single allottee can own more than 50 percent of the debt issued.
Qualified Institutional Placements And Qualified Institutional Buyers
There’s a condition in Qualified Institutional Placements (QIP) that only parties belonging to Qualified Institutional Buyers (QIB) are eligible to purchase QIPs.
Qualified Institutional Buyers (QIBs) are the investors who follow the rules and regulations of the Securities and Exchange Board of India (SEBI). QIBs are institutional investors who have the necessary expertise and financial strength to invest and evaluate capital markets conscientiously.
So, in simpler terms, Qualified Institutional Placement (QIP) was introduced to avoid domestic companies’ dependency on foreign resources to raise capital.
And Qualified Institutional Buyers (QIB) are the entities that are the only entities that are allowed to purchase Qualified Institutional Placements (QIP).
Examples of Qualified Institutional Buyers (QIB) are Mutual Funds, domestic financial institutions like insurance firms and banks, foreign institutional investors, and venture capital funds.
Some Key Facts Of Qualified Institutional Placement (QIP)
1. Qualified Institutional Placement (QIP) was introduced because of the growing concern in the authorities of the domestic companies’ dependency on foreign resources.
2. Qualified Institutional Placement (QIP) takes less time than FPOs, as its legal rules and regulations are lesser than FPOs. QIP needs lesser paperwork.
3. Qualified Institutional Placement (QIP) needs lesser legal fees. As the listing overseas costs a lot more with QIP, this problem has been eliminated with the help of QIPs. There are no costs for the listing overseas.
4. Only Qualified Institutional Buyers (QIB) can purchase Qualified Institutional Placement (QIP). Or you can say only listed companies can use QIP to raise funds from the domestic market.
5. QIP takes less time to set up and subscribe to it than FPOs or any other capital raising sources.
6. Only investors who are accredited by the Securities and Exchange Board of India (SEBI) can purchase Qualified Institutional Placements (QIP).
7. QIPs are mainly used in India and other Southeast Asian countries.
Using lesser legal paperwork, cost-efficient, and no cost for listing overseas seems somewhat looser rules and regulations but allottees here are highly regulated.
Conclusion
So this is all about QIP. I hope you understand. If you are a beginner in the stock market, consider joining a good stock market institute. The Thought Tree is one such institute that can help you learn the stock market.
