PRIVATE PLACEMENT

Subject: Economics

Context : The National Payments Corporation of India (NPCI) has completed private placement of 4.63% of its equity shares worth ₹81.64 crore.

Concept :

• When a company issues financial securities such as shares and convertible securities to a particular group of investors (not more than 49 in number) it is known as private placement.
• There are mainly two kinds – preferential allotment and qualified institutional placement.

Preferential allotment:

• Under the preferential allotment, a listed company issues securities to a select group of entities, which may be institutions or promoters, at a particular price.
• Usually for a preferential allotment, companies are required to take permission of shareholders.

QIP:

• In a QIP a listed company can issue equity shares, fully and partly convertible debentures, or any security (other than warrants) that is convertible to equity shares.
• But unlike in an IPO or an FPO (further public offer), only institutions or qualified institutional buyers (QIBs) can participate in a QIP issuance.
• QIBs include mutual funds, domestic financial institutions such as banks and insurance companies, venture capital funds, foreign institutional investors, and others.
• The market regulator has stated that there should be at least two QIBs if the issue size is less than Rs.250 crore, and at least five investors if the size is more than Rs.250 crore.
• A single investor cannot be allotted more than 50% of the issue.