Sebi considers more disclosure standards for QIP funds

Bombay : Markets regulator Securities and Exchange Board of India (Sebi) is considering more comprehensive disclosure requirements for companies raising funds through the Qualified Institutional Placement (QIP) route, three people with knowledge of the development have said.

The enhanced disclosure requirements being considered relate to the use of fundraising proceeds in QIP offering documents, one of the people quoted above said.

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Clarity please

QIP is a tool used by listed companies to quickly raise capital by selling shares, fully or partially convertible debentures, to institutional investors without having to submit lengthy documents for Sebi’s approval.

“Unlike IPOs and FPOs, which require a lot of information in the offering documents, QIPs have always been a very flexible and fast way for companies to raise capital,” said the person on condition of anonymity.

“Disclosure requirements for product use do not currently require companies to specify amounts for product use and detailed information on how the money will be deployed. The current regime grants the board discretion in the use of proceeds, and this flexibility is also something that makes QIPs an attractive fundraising channel.”

For example, the use of proceeds from the recently completed transaction A 2,000 crore QIP from AU Small Finance Bank Ltd states that the bank intends to use the net proceeds to (i) support the growth aspirations of the bank; (ii) meet regulatory requirements by improving its Tier I capital base; and/or (iii) general business requirements or for any other purpose permitted by applicable law and approved by the Board of Directors.

The people quoted above said Sebi could require companies to provide specific reasons instead of generic statements and leave whether the product is used up to the board’s discretion. According to the people quoted above, this will reduce the flexibility that the QIP product offers businesses and could impact fundraising through QIPs.

“It will take away the flexibility in deploying money, which obviously changes in a volatile market,” the second person quoted above said, speaking on condition of anonymity.

It can also increase turnaround times for a QIP, which typically take 1-2 months or less currently, he added.

Admittedly, the third person quoted above said that the banks had asked Sebi to make sure that even if it seeks tougher disclosure requirements, it should give companies some leeway.

An email sent to a Sebi spokesperson did not elicit a response.

The proposed changes to the QIP scheme come at a time when fundraising through QIPs has seen an 82% drop in the first seven months of the year, with just seven companies raising 5,039.5 crore. In comparison, 26 companies raised 28,177 crore in the first seven months of 2021, according to data from primary market tracker Prime Database.

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