What is QIP? Meaning, Process and Benefits Explained

Raising capital to support expansion, reduce debt, or strengthen operations is a core objective for many publicly listed companies in India. Among the various mechanisms available, Qualified Institutional Placement (QIP) has emerged as a widely used method to source funds without going through complex regulatory procedures associated with other capital-raising routes. Introduced by SEBI to make fundraising more efficient, QIP allows companies to issue equity shares or convertible securities to institutional investors.

This blog explains what QIP is, how the process works, and the regulatory steps companies must follow.

QIP Meaning Explained

QIP stands for Qualified Institutional Placement. It is a Securities and Exchange Board of India (SEBI)-approved and regulated mechanism that allows publicly listed companies to raise capital. Under this scheme, companies can issue shares directly to a SEBI-specified class of institutional investors in exchange for equity capital. Companies can also issue equity-convertible debentures to the same class of investors through the QIP route.

As the statutory regulator of India’s stock exchanges and securities markets, SEBI introduced the QIP scheme on 8 May 2006. Chapter XIIIA of the Disclosure and Investor Protection (DIP) Guidelines, 2000, applies to issuing shares, such as equity and debentures, to Qualified Institutional Buyers (QIBs). The primary purpose of introducing this scheme was to reduce the dependence of Indian publicly listed companies on foreign equity investors.

Who are QIBs?

Qualified Institutional Buyers are a SEBI-registered special class of domestic institutional investors who own or manage a large corpus of funds. They have the expertise and capacity to assess and evaluate the merits of securities offered through the QIP route. As per the SEBI regulations, the following entities are eligible to register as QIBs.

• Mutual funds
  
• Scheduled commercial banks
  
• Public financial institutions
  
• Life and general insurance companies
  
• Pension funds
  
• Provident funds
  
• SEBI-registered Foreign Portfolio Investors (FPIs)
  
• SEBI-registered Alternative Investment Funds (except Venture Capital and SME funds)
  
• Multilateral and Bilateral Development Financial Institutions (e.g., Asian Development Bank)
  
• SEBI-registered stock market brokers
  

How Companies Undertake a QIP

Raising capital through a QIP is simpler than taking the Follow-on Public Offering (FPO) route. As per the DIP guidelines, here are the key steps involved in issuing securities through QIP:

Step 1 - Getting board approval
A publicly listed company must get approval from its board of directors regarding the amount to be raised, the type of securities to be issued, and the purpose of raising capital.

Step 2 - Getting shareholders’ approval
Once the board approves, the company must seek shareholder approval through a special resolution, passed by a majority vote.

Step 3 - Appointing a BRLM
Book Running Lead Managers (BRLMS) are appointed to oversee the QIP process. These are usually investment or merchant banks responsible for investor outreach, preparation of placement documents, and book building.

Step 4 - Preparing a placement document
A placement document (PD) outlines the terms and conditions along with necessary financial details about the company undertaking the QIP. Though similar to documents prepared for public listing and FPOs, the PD for a QIP does not require SEBI’s approval. The BRLM prepares it in consultation with the company.

Step 5 - Investor outreach
BRLMs organise investor outreach events or meetings to present the PD to potential QIBs, pitch the investment opportunity and respond to queries.

Step 6 - Book building
This step involves collecting bids from interested QIBs, discovering the final issue price and determining how shares will be allocated.

Step 7 - Allotting securities
Shares are then allotted to the successful QIB bidders based on the final bid outcomes.

Step 8 - Listing shares in stock markets
Finally, the allotted shares are listed on stock exchanges if there’s no lock-in period under the DIP guidelines.

Why Companies Opt for QIPs

SEBI introduced QIP to help publicly listed companies raise capital more efficiently and cost-effectively. Previously, companies had to rely on mechanisms like American Depository Receipts (ADRs), Global Depository Receipts (GDRs), or Foreign Currency Convertible Bonds (FCCBs) to bypass FPOs.

Benefits to Companies:

• Companies can raise capital faster QIPs compared to FPOs.
  
• Less regulatory scrutiny for companies and BRLMs.
  
• The cost of book building is much less than FPOs.
  
• The mechanism of price discovery is much simpler.
  
• A successful QIP improves a company’s credibility.
  
• Institutional investors help attract retail investors in subsequent FPOs.
  

Benefits to QIBs:

• It allows QIBs to invest at attractive prices.
  
• It takes a shorter time to invest funds than participating through FPOs.
  
• May allow crucial insights into the fundamentals of a company.
  

Limitations of QIPs

Despite its advantages, QIP comes with certain limitations:

• The number of QIBs is limited compared to retail investors, which may reduce pricing power and cause underpricing.
• The success of a QIP depends on the company’s stock performance and overall market sentiment.
• QIPs may cause short-term dilution of stake for existing shareholders.

Conclusion

Now that the blog answers the question, “What is QIP?” you must know that the Qualified Institutional Placement scheme continues to play a significant role in helping listed companies raise capital efficiently. In 2024 alone, firms in India mobilised over ₹1.2 lakh crore through this method. As market conditions remain favourable and companies seek to fund expansion or reduce debt, QIPs are likely to remain a preferred financing tool in the evolving Indian capital markets landscape.

Sources

The Economic Times Investopedia Cleartax SEBI SEBI