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Thursday, May 11, 2006

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Markets - Investor Grievances

Quibbling over QIBs

D. Murali

Chennai , May 10

The latest quip for the markets is, "Hi, QIB! Ready for QIP?" Because SEBI (the Securities and Exchange Board of India) has opened a new avenue for companies to raise funds through QIP (qualified institutional placement) with QIBs, that is, the `QI' buyers.

A fast track, this is promised to be, lest companies go shopping for funds in overseas markets, be it in the form of GDRs (global depository receipts) or ADRs (American depository receipts).

"But GDRs and ADRs are not issued only to beat time," points out Mr S. Murlidharan, a Delhi-based chartered accountant. "They serve more serious purposes. First, they allow companies to access hard currency. And second, often they are issued at a premium to the prevailing quotations in the Indian bourses. Moreover, the fear of capital market being exported is quite unfounded, if not chimerical, given the two-way fungibility of these instruments."

Why the new regime when private placement was already possible under Section 81(1-A) of the Companies Act, asks Mr Murlidharan. Safeguards now spoken of are currently provided for in the case of preferential allotments too. "Has the SEBI overstepped its brief by mandating private placements to be made only to QIBs, whereas Section 67 imposes no such restriction?" wonders Mr Murlidharan.

While that is a legal angle to be studied, what can be worrying for investors is the further narrowing of the primary market. "It has now become of the QIBs, for the QIBs and by the QIBs," frets Mr Murlidharan. "As much as 65 per cent of an initial public issue is reserved for institutional investors and high net worth individuals. What the SEBI has now desired is that even follow up issues should bypass the public."

Where do retail investors go then to whet their appetite for equity? Secondary market and mutual funds? "Conventional wisdom, however, is that small investors should hone their skills in the primary market rather than in the secondary market," says Mr Murlidharan.

That should leave the small investor squabbling about QIBs.

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SEBI opens new avenue for cos to raise funds

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