QIP (Qualified institutional placement) & FPO (Follow on public offer)

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 In the last blog, we have seen how companies are getting funds from the primary market through IPO but now we will see the different ways for fund generation so we will discuss QIP (qualified institutional placement). Companies can raise funds with help of this QIP. Only qualified institutional buyers can invest in this QIP. When companies need working capital they always prefer to go with QIP which will reduce the time required to raise funds and complications in the documentation. In the past when companies need to improve or expand the business they always used to prefer ADR (American Depository Receipt), GDR (global depository receipt), FCCB (foreign currency convertible bonds).

But when they used to get it in foreign currency for repayment they have to pay it in foreign currency and this will always depend upon the exchange rate of foreign currency to give a solution for this problem in 2006 illegal framework is introduced through QIP it has its own advantages like quick transactions and money-raising. this will only get provided to institutional investors only.

So how we can get benefited from this QIP. if we keep track on this QIP we can able to understand the exact use of QIP by that specific the company from their plans we can able to understand exact use of funds and able to predict the effect on company valuation & from the demand of the QIP we can able to understand the Quality of QIP and can take indirect benefits from this issue by investing in the equity market of that company for long term or short term

Now we will understand FPO (follow on public offer). IPO is from the primary market but FPO is from the secondary market. FPO issuing company has to be already listed in stock exchanges. FPO is following exact procedure as like IPO and everyone can take part in this Issue. after IPO if the company want to raise more money for company expansion then company used to offer one more time fundraising event to the market.

But as like IPO there is no huge response to this FPO as the market already knows about the business model of the company and there is no listing gain from this FPO. but if the company is good with a good business model then institutional investors are interested in such a FPO’s to acquire maximum numbers of shares. the approach of a company is to sell shares to its shareholders to raise funds. this fundraising is get affected by the company profile. all the procedure is followed as like IPO we have to apply for FPO trough broker or directly on company’s website. Due to this FPO Dividend yield will get affected due to extra numbers of shares get floated in the market.  when the company declares FPO we have to sell all our holdings and we can buy them again in FPO for less price. this FPO will cost Share price to fall down a bit. and after some period it may recover again. 

Example: when TATASTEEL is traded around   Rs.780 / share FPO will be issued at Rs.620/ share then the stock price dropped drastically and after some time rally in metal stock recovered this stock.


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