Until a few years back, domestic companies faced lot of difficulties in raising capital for their business operations. This prompted many leading Indian companies no alternative but to access the foreign markets for funding their capital needs by issuing securities like the American Depository Receipts or ADRs in markets outside India. The QIP process was launched by the SEBI in order to encourage Indian companies to access funds domestically without any difficulty.
What is Qualified Institutional Placement?
When a listed company issues equity shares or fully and partly convertible debentures or any securities other than convertible warrants to a Qualified Institutional Buyer, the process is called as QIP or Qualified Institutional Placement. This mode is the only quickest way of the companies to issue equity shares or convertible securities to a select group of individual raising private equity capital, other than making a preferential allotment of shares. This process allows investors without having to undergo any extended procedural requirements for raising capital.
Benefits of Qualified Institutional Placement
A QIP can be raised faster than a FPO or a rights issue. In a QIP there are very few formalities with regard to rules and regulations unlike a FPO or a rights issue.
What is Share Buyback
When a company buys its own shares back from the general public, it is called as a buyback share transaction. The shares so purchased form the shareholders results in the reduction of the share capital and at the same time involves outflow of cash from the company to the extent of the shares purchased from the shareholders.
Companies buy back shares when they have surplus cash reserves and there is a lack of good investment opportunities. In such circumstances, the company may use the situation to buy its own shares in order to increase their own value. Likewise, a company opts for a share buyback when it wants to increase the promoter's holdings in the company. Apart from this, there are a number of other reasons as well for a company to opt for a share buyback.