Fund-raising through the qualified institutional placement (QIP) route has taken a beating as investors are not willing to subscribe to issues at high prices.
Several infrastructure and real estate companies such as GMR Infra, Sobha Developers, HDIL and Hindustan Construction went for roadshows, but are now holding back on the formal launch of QIP issues.
“Many companies have gone for non-binding roadshows for QIPs, but responses from investors were not good because of pricing issues. Companies want prices to cool off before they go ahead with the issue,” according to an investment banker involved in a few QIP issues.
The Mumbai-based real estate developer HDIL, which had recently gone for road shows to mop up around Rs 2900 crore, has decided to keep the equity offering on hold. “Now, we are in no hurry; we will consider the QIP issue after the budget,” says HDIL, MD & CEO, Sarang Wadhawan.
Most of these stocks have run up quite sharply over the past few months, making it unattractive for investors to look at these offerings. Adding to the problem is the pricing formula prescribed by the market regulator Securities and Exchange Board of India (Sebi).
Under the Sebi rule, the floor price for QIP is based on the two-week average price of the stock. Shares prices have gone up sharply in recent weeks, leaving little room for companies to price the issue attractively. Bankers are seeking a change in pricing norms so as to ensure more flexibility in issue pricing.
Merchant bankers have already made representations to the market regulator to allow them to offer at least 10% discount to floor price to make the issues attractive for investors. Domestic corporates jumped onto QIP bandwagon after DLF, Unitech and Indiabulls successfully mopped up funds through QIP issues in the early part of May.
Not a single company has managed to close an issue since then, even though over a dozen companies have lined up QIPs to mop up close to Rs 25,000-30,000 crore.
Even investors have turned quite cautious as the valuation of companies has gone up in the recent rally. “Some of the early birds have managed to raise funds. But it will be difficult for many companies that have announced fund-raising through this route,” says Shankar Sharma of First Global Financial Services.