Qualified Institutional Buyers are those institutional investors who are generally perceived to possess expertise and the financial muscle to evaluate and invest in the capital markets.
The range of entities deemed qualified institutional buyers (QIB’s) include savings and loans associations (which must have a net worth of $25 million), banks, investment and insurance companies, employee benefit plans and entities completely owned by accredited investors. They possess considerable financial heft, with exchange boards recognising them as legal entities.
The (QIP) Qualified Institutional Placement process was introduced by SEBI through a circular dated May 8, 2006 to reduce the excessive dependence of the companies on the foreign market.
It enables the listed companies to raise finance through the issue of securities to qualified institutional buyers (QIBs). It is a tool used by publicly listed companies to raise capital (funds) domestically from institutional investors.
ADVANTAGES OF QIP
- QIP can be settled quickly as it does not requires SEBI’s approval.
- It does not require to hire a team of solicitors, auditors and bankers to invest.
- QIB’s are allowed to trade securities on the market, which increases the liquidity for these securities.
- It is a convenient way for raising capital as compared to using the overseas markets via Foreign Currency Convertible Bonds (FCCB) or American depositary receipt (ADR).
DISADVANTAGES OF QIP
- Since institutional buyers have a substantial stake in the company it may result in reduction in the existing shareholder’s rights.
***SEBI through Guidelines for “Qualified Institutions Placement”- Amendments to SEBI (Disclosure and Investor Protection) Guidelines, 2000 introduced additional mode for listed companies to raise funds from domestic markets in the form of Qualified Institutions Placement.