QIP route set to lose sheen

QIP route set to lose sheen
The Financial Express, July 15, 2009, Page 4

fe Bureau, Mumbai

Raising money through the qualified institutional placement (QIP) route is expected to get tougher in coming days as almost 75% of the QIPs made in 2009 have given negative returns with 10 out of 13 of them trading below their offer prices.

With the success of Unitech, which raised a total of Rs 4,400 crore in two tranches in 2009, QIP has become the most favoured instrument for fund raising by corporates. So far in the calendar year 2009, 13 companies mobilised Rs 12,500 crore through the QIP route.

In view of the current down trend in the equity market where majority of the QIPs made have seen significant erosion in value, experts argue that raising funds through this route would either slow down or get delayed.

A study by Crisil Equities shows that total return on investments by all the QIPs is marginally negative despite significant gains registered from the first QIP of Unitech, which has delivered a positive return of around 75%. The study reveals that around one fourth of the QIPs are trading 20% below their offer prices.

In absolute terms, Unitech's second tranche of QIP of Rs 2789 crore at an offer price of Rs 81 has lost over Rs 450 crore. However, Unitech's first QIP of Rs 1,620 crore in April 2009 at an offer price of Rs 38.5 is the largest wealth creator for QIPs with total gains of Rs 1220 crore.

“The significant run up in the stock prices before the 2009-10 Budget made QIP deals unattractive as the inherent fundamentals of most companies which queued up for QIP have not changed materially. With the recent decline in prices and the consequent erosion in the QIP investment value, we expect raising capital through the QIP route may slow down significantly,” said Chetan Majithia, head of Crisil Equities.

Going forward, another 23 companies have lined up to raise Rs 43,887 crore through the QIP route. Of this, GMR Infrastructure has already withdrawn its QIP of Rs 5,000 crore owing to poor investor response.

Citing the example of GMR Infrastructure, Jagannadham Thunuguntla, head of equity, SMC Capital Ltd, said: "Only good companies with reasonable valuations will be able to successfully complete their QIP process. Whatever valuations the companies are offering to potential investors should also be justified by their fundamentals".

However, experts also argue that the significant fall in the prices of QIPs is also on account of profit taking by qualified institutional buyers (QIB). "Since there is no lock-in period for investment in QIPs, most of the institutional investors have sold heavily after subscribing to the QIPs making hefty profits", said a senior executive at a leading institutional broking firm.

Unitech, through its two QIP issues, raised around Rs 4,400 crore, accounting for 35% of the total QIP amount. Among sectors, the real estate, with five companies, has raised a total of Rs 9,500 crore, 76% of the total QIP amount.