US securities laws contain a number of exemptions from the requirement of registering securities with the US Securities & Exchange Commission (SEC). Pursuant to Rule 144A of the Securities Act of 1933, issuers may target private placements of securities to QIBs. Although often referred to as Rule 144A offerings, as a technical matter, transactions must actually involve an initial sale from the issuer to the underwriter and then a resale from the underwriters to the QIBs. A QIB is defined under Rule 144A as having investment discretion of at least $100 million and includes institutions such as insurance agencies, investment companies, banks, etc.
Rule 144A was adopted by the SEC in 1990 in order to make the US private placement market more attractive to foreign issuers who may not wish to make more onerous direct US listings. Whereas the US regulators by enacting Rule 144A sought to make the domestic US capital markets more attractive to foreign issuers, the Indian regulators are seeking to make the domestic Indian capital markets more attractive to domestic Indian issuers.
Therefore, in order to encourage domestic securities placements (instead of foreign currency convertible bonds (FCCBs) and global or American depository receipts (GDRs or ADRs)), the Securities Exchange Board of India (SEBI) has with effect from May 8, 2006 inserted Chapter XIIIA into the SEBI (Disclosure & Investor Protection) Guidelines, 2000 (the DIP Guidelines), to provide guidelines for Qualified Institutional Placements (the QIP Scheme).
The QIP Scheme is open to investments made by “Qualified Institutional Buyers” (which includes public financial institutions, mutual funds, foreign institutional investors, venture capital funds and foreign venture capital funds registered with the SEBI) in any issue of equity shares/ fully convertible debentures/ partly convertible debentures or any securities other than warrants, which are convertible into or exchangeable with equity shares at a later date (Securities).
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