Qualified Institutional Placements (QIPs) in 2010 have given negative returns- Two-thirds of 2010 QIPs trade at discount: Crisil

June 13, 2011:

A study by CRISIL Equities reveals that two-thirds (66%) of Qualified Institutional Placements (QIPs) in 2010 have given negative returns, with 33 out of the 50 QIPs trading below their offer prices. The total return on investments, as measured by the difference in the offer price and the market price as on June 03, 2011, by all the QIPs was negative 19% (median value of returns yielded by all the QIPs) compared to positive 2% in the broader index, S&P CNX NITFY and negative 1% in the S&P CNX 500, during the same period. Real estate, construction, IT and ITeS, and textile companies were the major underperformers.

Improvement in the economic scenario led to a significant spurt in QIP activity in 2010, with 50 companies raising Rs 225 bn through this route. Financial services, real estate, IT & ITeS, construction and automobile (including automobile components) sectors - comprising 20 companies - together raised Rs ~125 bn or 56% of the total QIP amount. Adani Enterprises Ltd’s Rs 40.0 bn QIP issue in August 2010 was the largest during the year. According to Mukesh Agarwal, Senior Director, CRISIL Research “Unlike an initial public offer (IPO), QIPs provide an easy investment alternative for the institutional investors since there is no lock-in period for the shares allotted through the QIP route. Also, investors know the offer price in advance and can earn higher returns if timed appropriately.”

CRISIL Equities further analysed that while two-thirds of QIPs are trading below their offer price, almost half are trading at least 25% lower. In absolute terms, the market value of the funds mobilised through QIPs has eroded by ~5.3% to Rs 213 bn. Real estate, construction, IT & ITeS, and textile sectors, which raised Rs 30.8 bn, have seen 31% erosion (maximum) in the value of funds mobilised with most of the stocks trading 30-50% below their offer price.

Mr. Tarun Bhatia, Director - Capital Markets, CRISIL Research adds, “Companies generally prefer the QIP route for fund raising when the market is on a bull run. However, recent governance-related issues and the RBI’s monetary tightening have dampened investor sentiments. Fund raising through QIPs has dried up in 2011; given the current market conditions, we expect investors’ appetite for QIPs to remain low. This coupled with the weak performance 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.”

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