Qualified Institutions Placement

A listed company that needs Rs 1,500 crore in a hurry has a problem: a public issue means a draft prospectus, SEBI observations, marketing, a bidding window and a basis of allotment — months of work.

A QIP is the shortcut the regulator built for companies that are already listed and already disclosing. Because the company has been reporting to the market for at least a year, and because the buyers are professional institutions rather than the public, SEBI permits it to sell shares privately to those institutions with far less process.

SEBI (ICDR) Regulations, 2018 define it as an issue of eligible securities by a listed issuer to Qualified Institutional Buyers on a private placement basis — and the definition also covers an offer for sale of specified securities by the promoters or promoter group on the same basis.

Two eligibility conditions, both examinable:

1. The company must pass a special resolution of its shareholders approving the QIP.
2. Its shares must have been listed on a stock exchange for at least one year before notice of the issue is given.

"Eligible securities" are wider than equity: equity shares, non-convertible debt instruments along with warrants, and convertible securities other than warrants. QIBs include financial institutions, mutual funds and banks, among others.

The mechanics carry three more rules worth memorising. At least 10 per cent of the eligible securities must be allotted to mutual funds — though an unsubscribed portion of that 10 per cent may go to other QIBs. Bids must be placed using ASBA only, and once the issue closes a bid cannot be revised downward or withdrawn. Pricing is not free-form: QIPs are made at a price derived from the share prices by a formula prescribed by SEBI.

After allotment there is a lock-of-sorts: shares allotted in a QIP may be sold by the allottee within one year of allotment only on a recognised stock exchange — no off-market transfer to a chosen buyer during that year.

There is a second use for the same route. A promoter or promoter group may make an offer for sale through a QIP in order to reach the minimum public shareholding of 25 per cent that SEBI requires of listed companies under the Securities Contracts (Regulation) Rules, 1957.

A listed cement company, trading around Rs 615, needs capital for a new grinding unit. It has been listed for nine years and passes a special resolution.

It launches a QIP of Rs 1,200 crore and, at the SEBI-formula-derived price of Rs 600 a share, issues:

1,200 crore ÷ Rs 600 = 2.00 crore shares

Six mutual funds bid for a combined 14 lakh shares — short of the 20 lakh reserved. The 6 lakh shortfall may be allotted to other QIBs, so the issue still closes at Rs 1,200 crore.

A participating insurer allotted 35 lakh shares wants to trim its position four months later. It may sell — but only on the exchange, not by a negotiated off-market block to another institution, because it is inside the one-year window.

Compare the timelines. This Rs 1,200 crore was raised in days. The same amount through a public issue would have needed a draft prospectus with SEBI, a red herring prospectus, a price band announced at least two working days before opening, a bidding period, a cut-off determination and a proportionate basis of allotment.

Chapter 3, section 3.17.1 (Qualified Institutions Placement), which sits under the block on restrictions applying to listed companies. The factual hooks are countable and therefore very examinable: the special resolution, the one-year listing requirement, the 10 per cent mutual fund reservation with its spill-over, ASBA-only bidding with no downward revision or withdrawal after closure, SEBI-formula pricing, the one-year on-exchange-only resale restriction, and the 25 per cent minimum public shareholding that a promoter OFS through QIP can be used to achieve. Expect one or two direct recall questions, usually on the listing period or the mutual fund reservation.

• A QIP is only for a company that is already listed. An unlisted company cannot do one. This is the cleanest way to separate it from a plain private placement, which any company may make.
• One year of listing, not one year of incorporation or one year of profits. And it is measured before notice of the issue, not before allotment.
• 10 per cent to mutual funds is a floor with an escape hatch. If mutual funds do not take it up, the shortfall goes to other QIBs — the issue does not fail.
• Bids cannot be revised downward or withdrawn after closure — but that is not the same as saying they cannot be revised at all before closure.
• The one-year restriction is on the venue of sale, not a lock-in. The allottee may sell the very next day, provided it does so on a recognised stock exchange.
• Do not confuse it with a preferential allotment, which goes to an identified set of investors on preferential terms, or with an Offer for Sale through the exchange mechanism. A promoter OFS through a QIP is a specific, narrower thing aimed at minimum public shareholding.