Eligible securities
The class of securities a listed company may offer in a Qualified Institutions Placement — equity shares, non-convertible debt instruments, and warrants or other convertible securities other than warrants themselves.
In plain language
How it works
Under the SEBI (ICDR) Regulations, 2018, eligible securities for a QIP include:
- equity shares;
- non-convertible debt instruments (along with warrants); and
- convertible securities other than warrants.
A QIP is a private placement of these eligible securities, made by a listed company to identified Qualified Institutional Buyers, and it also includes an offer for sale of specified securities by the promoter or promoter group. To use the QIP route at all, the company's shares must have been listed on a stock exchange for at least one year before the notice of the issue.
A worked example
Devgiri Industries Ltd, listed on the NSE for four years, wants to raise Rs 400 crore quickly from institutions without a full public offer process.
It structures the QIP using eligible securities: Rs 250 crore of fresh equity shares and Rs 150 crore of non-convertible debentures with attached warrants. Both fall within the QIP-eligible category.
Had Devgiri instead wanted to offer plain, unlisted preference shares with no conversion feature through the same route, that would fall outside the defined set of eligible securities for a QIP — preference shares are not among the three categories SEBI's ICDR Regulations name. The company would need a different route to raise capital against that instrument.
Why NISM asks about it
Chapter 8, section 8.2 (Qualified Institutions Placement), where eligible securities is defined in the very footnote explaining what a QIP can be made of. Expect it tested as part of a QIP question — what security types qualify, alongside the one-year listing requirement and the allottee-count rules (minimum 2 allottees for issues up to Rs 250 crore, minimum 5 above that, no single allottee taking more than 50% of the issue size).
Common exam traps
- Eligible securities is a QIP-specific defined term — it does not mean "any security a listed company can lawfully issue" in general.
- Preference shares are not among the three eligible categories named for a QIP.
- Do not confuse the one-year listing requirement (for the company to be eligible to make a QIP at all) with the eligible-securities definition (what it can place once eligible) — these are two separate conditions in the same section.
- A QIP also covers an offer for sale of specified securities by the promoter or promoter group — eligible securities is not limited to fresh issuance.
Check yourself
1.A Qualified Institutions Placement of shares can be made only to Qualified Institutional Buyers. True or false?
- a)True
- b)False
Show the answer
Answer: (a) True
Qualified institutions placement (QIP) is a private placement of eligible securities made by a listed company to certain identified categories of investors known as Qualified Institutional Buyers (QIBs) and includes offer for sale of specified securities by the promoter or promoter group.
Only QIBs — the name states the restriction.
Who they are: qualified institutional buyers (QIB) include financial institutions, mutual funds, alternative investment funds, venture capital funds, scheduled commercial banks, foreign portfolio investors (other than individuals, corporate bodies and family offices) and the like.
Note the exclusion inside the FPI category — an individual, a corporate body or a family office does not qualify even as an FPI.
What may be placed: eligible securities are defined to include equity shares, non-convertible debt instruments along with warrants and convertible securities other than warrants.
Only a seasoned listed company may do it: the shares of the company should have been listed on the stock exchange for a period of at least one year before the notice of such issue is given.
And it must be spread among several buyers: there must be a minimum of 2 allottees under QIP category, if the issue size is less than or equal to Rs. 250 crore; and minimum of 5 allotees, if the issue size is more than Rs. 250 crore. However, no single allottee in a QIP shall be allotted more than 50 percent of the issue size.
The pricing is market-linked: not less than the average of the weekly high and low of the closing prices for the two weeks preceding the relevant date, with a discount of not more than 5 percent... subject to approval of shareholders.
Though the buyers are few, the information is public — a placement document giving all material information will be made available to select investors and on the websites of the company and the stock exchange.
Where this is taught
Free preparation for NISM Series II-ARelated terms
- Convertible debenturesDebentures that turn into equity shares on terms fixed at issue — the investor draws a coupon until conversion, and the company settles the debt in shares instead of cash.
- Floating rate bondA bond whose coupon is not fixed but reset at intervals against a benchmark rate plus a stated mark-up — so the interest paid moves with market rates over the life of the bond.
- Qualified Institutional BuyersThe closed list of institutional investors in the ICDR Regulations — SEBI-registered funds, non-individual FPIs, banks, insurers, large provident and pension funds — with special rights and limits in issues.
- Qualified Institutions PlacementA fast route by which an already-listed company places eligible securities privately with Qualified Institutional Buyers, without the prospectus and timetable of a public issue.