Qualified Institutional Placement (QIP) procedure

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QIP means allotment of equity shares, non-convertible debt instruments and convertible securities by a listed
company to Qualified Institutional Buyers (QIBs) on private placement basis as provided under Chapter VIII of
SEBI (ICDR) Regulation, 2009. We may be familiar with preferential allotment, where securities are allotted to
some selected people by a company which has its shares already listed in a stock exchange. The main
difference between both which we could see at first instance is that QIP allotment can be made only to QIBs and
that Preferential allotment can be made to selected persons/organizations including QIBs. Another difference is
that, QIP comes under Chapter VIII of SEBI (ICDR) Regulations 2009 while preferential allotment comes under
Chapter VII of SEBI (ICDR) Regulations 2009.

QIP scores over other capital raising modes

QIP is a convenient & speedy method of private placement whereby a listed company can issue shares or
convertible securities to selected QIBs. The Securities and Exchange Board of India (SEBI) introduced QIP
through a circular issued on May 8, 2006 to encourage Indian companies to raise funds from within our country
without moving to overseas market. QIP is advantageous when compared to other capital raising methods as the
issuing company does not have to undergo time consuming procedural requirements to raise capital. Raising of
capital through ADR/GDR is time consuming and expensive.

Who is a Qualified Institutional Buyer (QIB)?

The question who all are considered as QIB are clearly met with under the provisions of ICDR regulations. QIB
includes the following persons-

1. a mutual fund, venture capital fund and foreign venture capital investor registered with the Board;
2. a foreign institutional investor and sub-account (other than a sub-account which is a foreign corporate or
foreign individual), registered with the Board;
3. a public financial institution as defined in section 4A of the Companies Act, 1956;
4. a scheduled commercial bank;
5. a multilateral and bilateral development financial institution;
6. a state industrial development corporation;
7. an insurance company registered with the Insurance Regulatory and Development Authority;
8. a provident fund with minimum corpus of twenty five crore rupees;
9. a pension fund with minimum corpus of twenty five crore rupees;
10. National Investment Fund set up by resolution no. F. No. 2/3/2005-DDII dated November 23, 2005 of the
Government of India published in the Gazette of India;
(xi) 2[insurance funds set up and managed by army, navy or air force of the Union of
India;]

Merchant Banker in QIP

Merchant Banker is an organisation that acts as an intermediary between the issuing company and proposed
allottees/applicants in the fresh-securities market. Merchant Banker usually engages itself in the business of
issue management and acts as manager, consultant, advisor or renders corporate advisory service in relation to
such issue management.

A QIP shall be managed by merchant banker(s) registered with SEBI who shall exercise due diligence. The
merchant banker would help the company allot securities under a QIP. The merchant banker shall, while seeking
in-principle approval for listing of the eligible securities issued under qualified institutional placement, furnish to
stock exchange a due diligence certificate stating that the eligible securities are being issued under qualified
institutional placement and that the issuer complies with requirements of Chapter VIII.
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Important Provisions

The ICDR regulations has laid down certain conditions and restrictions for QIP which are to be complied by the
company with out fail. The company shall adhere to the following-

I. Approval of shareholders & validity of S R : The company shall pass a Special resolution approving the
qualified institutional placement. Allotment of securities pursuant to the special resolution referred to in clause (a)
of ICDR regulation 82 shall be completed within a period of 12 months from the date of passing of the resolution.
The provisions of Section 81(1A) of The Companies Act 1956 also would apply to the QIP issue.

II. Listed securities : That same class of eligible securities should have been listed in the stock exchange
having nation wide trading terminal for a period of at least one year prior to the date of issuance of AGM notice to
its shareholders.

Transferee company in a scheme of merger, de-merger, amalgamation or arrangement sanctioned by a High

Court under sections 391 to 394 of the Companies Act, 1956, may make QIP, where the equity shares of the
same class of the transferor company were listed for a period of 1 year as mentioned above.

III. Allotment of securities under QIP : Ensure that the following are complied-

1. Compliance with listing agreement.

2. Compliance with FDI norms in case allotment to NRIs

3. Minimum number of allottees : The number of QIBs to whom shares are allotted shall not be less than:

(a) two, where the issue size is <= Rs.250 crores

(b) five, where the issue size is >= Rs.250 crores

4. Issue Size: No single allottee shall be allotted more than 50 % of the issue size.

5. Mutual Funds: Minimum of 10% of eligible securities shall be allotted to mutual funds: Provided that if the
mutual funds do not subscribe to said minimum percentage or any part thereof, such minimum portion or part
thereof may be allotted to other qualified institutional buyers;

6. Promoter shall not be allotted shares: No allotment shall be made, either directly or indirectly, to any
qualified institutional buyer who is a promoter or any person related to promoters of the issuing company.

Promoter means the person(s) who are in control of the issuer or the person(s) who are instrumental in the
formulation of a plan or programme pursuant to which specified securities are offered to public or person(s)
named in the offer document as promoters. A financial institution, scheduled bank and foreign institutional
investor who approaches the issuer company which is its subsidiary company or mutual fund/ company
promoted by it shall be treated as promoter.

The following persons are not promoters/promoter group -

a) a person/ director / officer of the issuer acting merely in his professional capacity promoter:

b) a financial institution, scheduled bank, foreign institutional investor and mutual fund who merely holds 10% or
more of the equity share capital of the issuer.

## Also the QIB s belonging to the same group or who are under same control shall not be considered as
separate allottees but shall be deemed to be a single allottee.

7. Partly paid up securities: The issuer shall not allot partly paid up securities, Provided that in case of
allotment of non convertible debt instruments along with warrants, the allottees may pay the full consideration or
part thereof payable with respect to warrants, at the time of allotment of such warrants: Provided further that on
allotment of equity shares on exercise of options attached to warrants, such equity shares shall be fully paid up.
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8. Bid: The applicants in qualified institutional placement shall not withdraw their bids after the closure of the
issue.

9. Quantum of issue: The aggregate of the proposed qualified institutional placement and all previous qualified
institutional placements made by the issuer in the same financial year shall not exceed 5 times the net worth of
the issuer as per the audited balance sheet of the previous financial year.

10. Pricing: Issue of shares under QIP shall be made at a price not less than the average of the weekly high and
low of the closing prices of the equity shares of the same class quoted on the stock exchange during the two
weeks preceding the *relevant date. Where eligible securities are convertible into or exchangeable with equity
shares of the issuer, the issuer shall determine the price of such equity shares allotted pursuant to such
conversion or exchange taking the relevant date as decided and disclosed by it while passing the special
resolution.

Relevant date

Relevant date means date of the meeting in which the board of directors of the issuer or the committee of
directors of the issuer decides to open the proposed issue of equity shares.

In case of allotment of convertible securities, relevant date means -

1. the date of the meeting in which the board of directors decides to open the issue of such convertible
securities
OR
2. the date on which the holders of such convertible securities become entitled to apply for the equity shares.

The definition of relevant date under DIP guidelines was different from this definition.

11. Prior Approval from stock exchange to be obtained by submitting the following-

1. Certified true copy of the resolution passed by the Board of Directors approving the placement of securities
with Qualified Institutional Buyers (QIBs)
2. Copy of the AGM notice sent to the shareholders of the Company.
3. Certified true copy of the AGM resolution passed.
4. Draft placement document for issue of specified securities to QIBs.
5. Latest shareholding pattern of the Company(LA - Clause 35).
6. Net worth Certificate by the Statutory Auditors of the Company based on the audited figures of the
previous FY.
7. Confirmation from the lead Merchant Banker that the issue is being made in compliance with Chapter VIII of
SEBI (Issue of Capital & Disclosure Requirement) Regulations,2009.
8. The Managing Director/ Company Secretary of the Company shall confirm that the company has complied
with minimum public shareholding under clause 40A & 35 and that issue shall be floated as per chapter VIII of
ICDR Regulations.

12. Tenure of convertible securities: The tenure of the convertible or exchangeable securities issued through
qualified institutions placement shall not exceed 60 months from the date of allotment.

13. Previous QIP: atleast 6 months should have elapsed from the previous QIP. However, special resolution is
mandatory.

IV. QIP Placement document

The company shall submit the Preliminary Placement Document for being uploaded on the website of stock
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exchange before the same is circulated to the QIBs or displayed on the website of the Company.

The following shall be submitted to Stock exchange-

1. Hard copy of the preliminary Placement document

2. Soft copy of the Preliminary Placement Document
3. Due diligence Certificate of the lead Merchant Banker in compliance with ICDR regulations.

There is no pre-issue filing of the placement document with SEBI. The (final) placement document shall be
serially numbered and copies shall be circulated only to QIBs. The placement document shall contain a
disclaimer to the effect that it is in connection with a qualified institutions placement and that no offer is being
made to the public or to any other category of investors.

However, a copy of the placement document shall be filed with the Board for its record within 30 days of the
allotment of eligible securities.

Disclosures in placement document

Following disclosures are required to be made in the placement document-

Disclaimer that no offer is being made to the public or any other class of investors.
Details of Financial statements ie. Consolidated balancesheet & profit and loss account, CFS, Related party
transactions etc.
Merchant bankers to the placement and other advisors
Details of securities to be issued eg. Convertible securities, equity shares etc.
Risk factors that is likely to affect our business eg. Increase in price of raw material would affect the business
etc.
Market price information ie. stock price high & close of previous FY ending March 31.
Use of proceeds after deduction of (estimated) mgt fees, offer fee, commissions etc.
Capitalization & Indebtedness Statement
The audited consolidated or unconsolidated financial statements prepared in accordance with Indian GAAP.
Report of Independent Auditors on the Financial Statements.
Managements Discussion and Analysis of financial condition and results of operations
Industry & Business description
Organizational structure and major shareholders
Board of directors and senior management
Taxation aspects relating to the eligible securities
Legal proceedings against company and directors both as plaintiff & defendant under Income tax, excise,
customs, Cr. pc etc. which would materially affect the assets/revenue or financial position of the company.
Proceedings against promoters.
Accountants
General information eg. details of shareholder approval, principal objects of company, consolidated financial
position etc.
Any material information which would enable the investors to take an informed decision.

The various penal provisions relating to misstatement in prospectus would apply here also where the
director/promoters is found to have made untrue statements in the placement document.

V. Certificates to be issued by CS

The company secretary shall issue the following certificates to the merchant banker for necessary filings with
SE-

a. Certificate that the issue will be in compliance with the prescribed requirements of Clause 40A and 35 and

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that the minimum public shareholding is maintained.

b. Certificate that the aggregate of the proposed QIP made by the issuer in the same financial year shall not
exceed 5 times the net worth of the issuer as per the audited balance sheet of the previous year.

c. Certificate that the issue will be in compliance with the Chapter VIII of SEBI (ICDR) Regulations, 2009.

d. Certificate that the new shares to be issued will rank pari-passu with existing equity shares in every respect
including dividend.

VI. Non-transferability of securities allotted under QIP

The securities allotted under qualified institutions placement shall not be sold by the allottee for a period of 1
year from the date of allotment, except on a recognised stock exchange.

VII. Listing of securities under QIP

The Merchant banker shall submit the following for listing of securities-

1. Certified true copy of BoD resolution.

2. Certified true copy of AGM/GM notice.
3. Certified true copy of AGM/GM resolution.
4. Final Placement document copy.
5. Certificates from CS as given in (V) above.
6. Certificate that the issue will be in compliance with the chapter VIII of SEBI(ICDR) Regulations, 2009.
7. Statutory auditors/PCA/PCS on calculation of floor price.
8. Certificate of confirmation from CS that/on.

a. complied with cl.40 A of Listing agreement.

b. Issue size is 5 times of net worth.
c. Relevant date.

9. Details of issue- opening date & closing date .

10. List of allottees.
11. In-principle approval from SE.
12. Listing fee & processing fee .
13. Shareholding pattern- certified true copy.
14. Certified true copy of amended MOA +AOA.
15. Confirmation that III (6) given above is complied (marked as ##).
16. Copy of forms filed with ROC.
17. relevant documents asked for by the SE.

As said earlier there are many benefits for QIP. However, the success of QIP depends upon the potential of the
company, perception of investors about the company, managerial efficiency and general economic conditions.

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