Stars sparkle for QIPs as banks troop in

There seems to be a definite upside to qualified institutional placements (QIPs), an important mechanism for listed companies to raise money. 2013, in particular, looks promising as more and more private and public sector lenders queue up to tap this route.

Look no farther than January figures – The month has seen companies already raising more money through this channel than they did in each of the previous two calendar years. Riding on QIPs, Axis Bank and PI Industries together mopped up Rs4,843.33 crore last month. Compare this with Rs3,459.49 crore and Rs4,704.61 crore raised in 2011 and 2012, respectively. Also, in a recent QIP, Jaiprakash Associates managed to scoop up Rs530 crore.

Axis Bank’s placement has turned out to be one of the blockbuster share issuances in recent times, at a mobilisation of Rs4,726 crore. In the fund-raising programme, preferential allotments have been made to the Life Insurance Corporation (LIC) and other public sector insurers like New India Assurance, United India and National Insurance.

“The Corporation will participate in such selective placements in future as along as it gives good returns for us,” said an LIC official.

Private sector banks like IndusInd and Kotak Mahindra are also looking to opt for such placements. Their big- and mid-sized public counterparts have gone a step further, waiting for government approval to raise funds through this route. IDBI bank is the latest in this growing list that announced its QIP plan and tapping LIC and other pension funds.

There is also a willingness in some quarters to try out other two methods – rights issue and preferential allotment of shares – to mobilise funds. Take state-owned Union Bank of India, which last week announced its intention to mop up Rs1,000 crore through QIP/preferential/rights issue route or a combination of all three. As a matter of fact, the government had made a budgetary approval of Rs12, 517 crore in its efforts to recapitalise 10 public sector banks by March 2013.

Since the government appears to have less room for capital infusion in state-owned banks in the coming fiscal, most experts feel the clamour for QIPs and their subsequent approval is only going to go up. “PSU banks are likely to get approval from the government for institutional placements. The government cannot set aside required funds for recapitalisation of PSU banks in a big way for the next fiscal. So, this will be the preferred route for fund raising,” a banking analyst predicted.

The urgency to shore up capital has assumed added significance as the 6-year phase of Basel III kicks in from April 2013. This will make banks stock up their tier I capital. Which is why public sector banks would step on the pedal to secure more money. “Private sector banks are better positioned compared to PSU banks in terms of capital requirements,” added the analyst.

The LIC, the biggest domestic institutional investor, along with private insurance companies and pension funds, has been the prominent allottee in such placements and preferential allotments. These will continue to pick up shares in such issuances.