QIP investments backfire, big investors take a hit

Shares of 33 out of the 50 companies, which raised Rs 225 billion through qualified institutional placements (QIPs) in 2010, are trading below their issue price in the share sale, said a study by rating agency Crisil. The value of the money raised through QIPs in 2010 has eroded 5.3% to Rs 213 billion (Rs 21,300 crore), with shares of almost half of the 50 companies trading at least 25% below the issue price to institutions.

The total return on investments, as measured by the difference in the offer price and the market price on June 3, by all the QIPs was negative 19% against 2% gains in the benchmark Nifty, according to Crisil.

QIPs were among the most sought-after fund raising route by listed companies in 2010 as the bull run helped issuers get the best prices. Financial services, real estate, IT & ITeS, construction and automobile (including automobile components) sectors -- comprising 20 companies -- together raised Rs 125 billion (Rs 12,500 crore) or 56% of the total money garnered through QIPs, the rating agency said. Investors also preferred QIPs over preferential issues, as there is no lockin period for shares allotted through QIPs.

"Investors know the offer price in advance (in QIPs) and can earn higher returns if timed appropriately," Mukesh Agarwal, senior director, Crisil Research , stated in a release. But, few investors have been able to dump shares soon after the QIP as stock prices usually fall after the issue, bankers said. Shares of real estate, construction, IT & ITeS and textile companies, which raised Rs 30.8 billion through QIPs in 2010, saw the maximum erosion in the value since their share sales to institutions.

Most of stocks in these sectors are trading at 30-50% below their QIP issue price, Crisil said. Aksh Optifibre has been the worst performer among companies that raised money through QIPs, with its stock trading 66% below the offer price. Welspun India fetched QIP investors, with the stock trading 72% higher than the issue price. Fund-raising through QIPs has dried up so far in 2011, with only four companies raising Rs 2,478.55 crore due to unfavourable markets.

"Recent governance-related issues and the RBI's monetary tightening have dampened investor sentiments," said TarunBhatia, director, capital markets, Crisil Research, "Given the current market conditions, we expect investors' appetite for QIPs to remain low. This, coupled with the weak perform-ance of the past QIPs, may restrict investors from investing in the upcoming issues and companies may have to search for an alternative route for raising funds," he said.


Source: Economic Times

Thanks and Regards,
Sanchari Sinha,
Intern at DENIP Consultants Pvt. Ltd.