Corporates take QIP route to raise funds amidst lockdown
At a time when businesses are struggling to sustain, a few big corporates have succeeded in raising money for expansion by way of Qualified Institutional Placement (QIP).
Eight big corporate houses, including banks, have collectively raised more than ₹76,000 crore using QIPs amidst the COVID-19 lockdown.
Kotak Mahindra Bank raised ₹7,442 crore in May by issuing 6.5 crore shares in the QIP. The bank said it was raising money to strengthen its capital buffers as it expected slippages in the balance sheet due to the pandemic.
Axis Bank, a major private sector lender, too launched a sale of QIPs worth ₹10,000 crore in the first week of August. The bank’s share price surged 10 per cent after the announcement.
HDFC Limited has launched a sale of QIPs worth ₹ 14,000 crore and ICICI Bank plans to raise approximately ₹15,000 crore by means of QIP and FPOs (follow-on public offers). Investment banker JM Financial too raised ₹770 crore by selling 11 crore equity shares in June.
Lenders and bankers have a common purpose of augmenting long-term finances and to fund organic as well as inorganic business opportunities.
Patanam Uma Maheshwaran, a banker and management consultant, said, “QIP is the most convenient route for banks to raise money. Stability of banks attracts potential investors, who are looking at long-term investment goals.”
Maheshwaran said QIPs helped banks to raise capital which, in turn, increases their lending capacity. This money also helps to compensate for the possible deterioration of assets. “Non-banking sector companies mainly use such fundings for projects or operations expansion or even to manage existing debts,” Maheshwaran added.
Besides banking and finance companies, agri-science major PI Industries and consumer-internet company Info Edge have also opted for the QIP route to raise funds amid the lockdown. The two companies are in the process of raising ₹2,000 crore and ₹1,875 crore, respectively.
PI Industries will use the funds mainly to expand the current business and scale up newer technologies as well as for other expansion purposes, a Livemint report said.
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InfoEdge, which owns popular portals like naukri.com and shiksha.com, is also looking for strategic acquisitions post the COVID-19 crisis, said a report by Moneycontrol.
The country’s biggest domestic airline, Indigo, aims to use QIPs to raise liquidity in the time of crisis. Indigo also plans to sell and leaseback its aircraft to raise the required funds. The airline has reported a loss of ₹28.49 billion in the last quarter.
Banker-turned-cybersecurity consultant Nagarajan Subbu said, “Raising funds when people are losing confidence in the economy is a very difficult task. Such fundraisers do increase the confidence of shareholders and stakeholders of the company.”
Subbu quoted Reliance Jio’s latest strides to justify his argument. “Jio’s fundraising from tech giants across the world has helped boost the common investor’s confidence. The impact is such that this might oust one of Jio’s competitors out of business.”
Subbu, however, pointed out that QIP fundraising is possible only for giant corporations and not for smaller companies.