Problem of plenty for QIPs

The qualified institutional placement party that started in mid-April with Unitech's highly successful issue is already showing some signs of fatigue.

It's actually a problem of plenty for investors now. Buoyed by the success of the three companies that sold their QIP issues within a day of opening, as many as 32 companies have joined the queue, hoping to raise a combined Rs 40,000 crore (Rs 400 billion).

The amount will be the highest since 2006, when the market regulator allowed promoters to raise money through QIP issues in 2006. In the last one week alone, as many as 14 companies have announced their plans and the list includes Reliance Communications, Essar Oil, LIC Housing Finance, Network18 and Asian Electronics.

Almost 60 per cent of the applicants are real estate companies. QIP refers to private placement of shares or securities convertible into stock by a listed company with qualified institutional buyers such as banks, insurance firms, mutual funds and foreign institutional investors.

The sharp increase in the share prices of some of these companies in the last one month has also made matters more complicated, as promoters' price expectations have increased.  

Result: Potential investors have multiple choices and the time to close transactions is being delayed. "The flurry of such announcements make investors more selective,"

Ravi Sardana, senior vice-president at ICICI Investment Banking said. Yogesh Kapur, senior vice-president at Enam Financial, agreed. "Investors are buying time now in the name of due diligence," he said.

It's easy to understand why promoters, who were at the receiving end when their stocks were languishing, have also increased their price expectations. Stocks of companies such as GMR Infra and Parsvnath Developers, among others, have appreciated by 50 to 100 per cent over the last month.

GMR Infrastructure, which had announced a QIP issue of Rs 5,000 crore (Rs 50 billion) on May 9, is currently trading at Rs 160 after touching a high of Rs 183 per share last week, against Rs 110 on the date of announcement.

Similarly, Parsvnath Developers is trading at around Rs 102 per share. Its share price was below Rs 50 till May 15, 2009. The price has risen 15 per cent since May 25, when the company announced its plan to raise Rs 2,500 crore (Rs 25 billion) through a QIP issue.

Such sharp increases are also acting as  a deterrent for overseas investors, who were keen to invest in Indian markets. "Such a huge increase in such a short period of time is difficult to justify. This in turn delays the transactions," said a CEO of a leading investment bank on condition of anonymity.

Amitabh Chakrabarty, president (equity) at Religare Securities, said the supply hangover was delaying closure of transactions.

"Although the interest of overseas investors in emerging markets, particularly India, have increased significantly, the oversupply of paper has made them more conservative," he added.

Here's a sobering thought for those who are keen on QIPs. Out of the total 65 companies that collectively raised Rs 30,922 crore (Rs 309.22 billion) through QIPs between 2006 and 2008, the market price of as many as 52 companies declined from their offer price.

These stocks are currently valued at Rs 22,702 crore (Rs 227.02 billion), which is 27 per cent lower than the amount raised through the QIP issues.