Indian companies raising funds through qualified institutional placement route

Khaleej Times

2 days ago

Question: I believe that many banks and large companies in India are raising funds by tapping the primary market through what is called the QIP route. Some well-known private companies are raising funds to finance green projects. I would appreciate it if you could throw some light on this fund raising exercise.
ANSWER: QIP stands for Qualified Institutional Placements. It is an avenue for raising capital that allows listed companies to issue equity shares, fully and partly convertible debentures or any other security. The equity shares, debentures and other securities are subscribed by Qualified Institutional Buyers (QIBs). However, warrants which are convertible into equity shares cannot be issued under this route. The Securities and Exchange Board of India considers QIBs as institutional investors that possess the experience and financial muscle to evaluate and invest in the capital market. It has been observed that there is a spurt in QIP activity when the secondary market is bullish.
A few weeks ago, Indian banks, Punjab and Sind Bank and Indian Overseas Bank raised capital through the QIP route. A few well-known private companies listed on the Indian stock market have also raised substantial funds through this route in the recent past. Public sector banks have been raising funds through QIPs to bolster their capital base, raise capital to finance their expansion plans and comply with shareholding regulations of the Reserve Bank of India.
Question: With India putting emphasis on clean energy, will it be able to get access to minerals and metals which are critical for production of turbines, solar panels and electric vehicle batteries?
ANSWER: India holds two licences from the International Seabed Authority (ISA) which is a body set up under the UN Convention on the Law of the Sea that regulates all mineral related activities on international sea beds. The first licence is for an area spread over 75,000 square kilometres in the Indian Ocean which is considered to be rich in polymetallic or manganese nodules, which are packed with minerals like iron, manganese, nickel, cobalt and copper. The second licence, valid till 2031, covers 10,000 square kilometres where three tectonic plates converge. This zone holds polymetallic sulphides, which are rich in nickel, cobalt, zinc, manganese, copper rare earth and platinum-group elements. Experts believe that minerals can be extracted from the oceans to meet future demands of rare minerals with minimal ecological impact.
Researchers are mapping biodiversity to establish a baseline for assessing environmental impact and ensure sustainable mining. The Ministry for Earth Sciences is building an indigenous research vessel which will deploy buoys and submersibles to collect samples and use seismic waves to locate minerals on the sea bed. A Deep Ocean Mission has been set up to develop a deep sea mining system and cutting-edge technologies. This is the only way by which India can become self-sufficient in minerals and rare earths which are critical to clean energy transition.
Question: Recently there was a report on Indian television channels in respect of a company which defrauded two state run financial institutions and diverted funds received as loans for personal purposes. Are auditors of the company not responsible for exposing this diversion of funds? What steps are being taken in this regard?
ANSWER: Auditors are certainly responsible for detecting frauds and bringing them to the notice of shareholders and regulatory authorities. In the past, The Institute of Chartered Accountants of India has taken firm measures to bring the errant auditor to book. Likewise, ICAI will now review through the Financial Reporting Review Board the financial statements and statutory audit reports of the company which has allegedly committed the fraud. If allegations are found to be true, the disciplinary committee of the Institute will take action against the auditor. Stringent measures are being taken by the Institute from time to time in appropriate cases to ensure auditor accountability.
In this financial year, the audit rotation policy will come into play and mandatory rotation will have to be done so that the same firm of auditors does not audit the financial statements of the company for more than ten years. Well governed companies listed on stock exchanges in India are currently in the process of evaluating different audit firms. These companies are adopting a more structured and competitive process than a decade ago before selecting the new firm of auditors.
Firms are being evaluated based on multiple dimensions like the quality and credibility of the audit team, especially the lead partner. Prior experience with similar businesses is given due weightage. Technology is another key differentiator. Companies now expect automation, analytics, and tech-enabled audits. Another key factor which audit committees of companies are taking seriously is the independence of auditors by ensuring that apart from the audit assignment, the same firm does not get other professional work which would compromise their independence.
The writer is a practising lawyer, specialising in corporate and fiscal laws of India.