Private Equity is when a firm's shares are held privately and not traded in the public markets. PE includes shares in both mature private companies and, as venture capital in newly started businesses. As it is less liquid than publicly traded equity, investors in private equity expect on an average to earn a higher equity risk premium from it. In 2003 the global private equity markets started emerging from the ravages of the Internet era and the subsequent US economic slowdown. India felt the ripple effects of the Internet bust just as hard as the US -more than 90 per cent of the country's private equity money came from the US. In addition, like in the US, investors had lost millions of dollars in futile dotcom investments.
[...] A Qualified Institutions Placement is a private placement of equity shares or securities convertible in to equity shares by a listed company to Qualified Institutions Buyers only in terms of provisions of Chapter XIIIA of SEBI (DIP) guidelines Need for QIP Indian listed companies had the following options to raise money- Follow-on offer- Preferential allotment- GDR / FCCB Cumbersome procedure Companies attracted to GDR & FCCB- Tap high quality investors- Flexibility- No Lock in period Guidelines Issuers to allocate a minimum of 10 per cent of placements to mutual funds No allotment is permitted even indirectly, to promoters or persons related to promoters For each QIP, there shall be at least two allottees for up to Rs 250 cr issue At least five allottees in excess of Rs 250 cr issue No single allottee shall be allotted in excess of 50 per cent of the issue size A company can do 2 QIPs at a 6-month interval in a year Aggregate funds that can be raised through QIPs in one fiscal year should not exceed five times of the net worth of the issuer at the end of the previous year Placement Document Issuer shall prepare a placement document containing all the relevant and material disclosures. [...]
[...] In addition, like in the US, investors had lost millions of dollars in futile dotcom investments 2005 : The definitive year in terms of sheer activity globally shifting the focus to globalisation in the aftermath of the ‘nuclear winter' China and India are top emerging PE market destinations The India Opportunity In the last three years, India has emerged as a growth capital market In 2005, private equity firms invested $ 2.3 billion in India. In 2006, billion was likely to be invested. [...]
[...] As it is less liquid than publicly traded equity, investors in private equity expect on an average to earn a higher equity risk premium from it The Global Scenario US is the leading PE player In Asia-Pacific, China is the leading investment destination, it received billion in funding in the last three years India's kitty is just of the global pie per cent of India's funds come from overseas, notably the US 2003-05 : PE and VC firms invested $505 billion globally 2005: PE and VC firms invested $130 billion in the US alone. [...]
[...] India focuses on technology and services while China deals across multiple industries Despite differences, both countries will continue to benefit from globalization They represent different markets and are not rivals Nature of entrepreneurship is entirely different which will reflect in businesses each develops True promise lies in ‘developing internal markets' Venture Capital Venture Capital In the Indian market, private equity has dominated VC accounted for just $482 million of the $ 2.3 billion that was invested in India in 2005 Case of Silicon Valley VC requires:-investor-lawyers, bankers, accounting firms and recruitment specialists -customer Entrepreneur's future depends on : investor and first customer IT: most investors are successful entrepreneurs, they can bet on startups more easily. [...]
[...] Pricing The floor price of the specified securities shall be determined on a basis similar to that for GDR / FCCB issues and shall be subject to adjustment in case of corporate actions such as stock splits, rights issue, bonus issue etc QIP Vs Public Issue & GDR No Lock in period Less disclosures and procedural requirements Huge legal fees in case of ADR & GDR Cost efficient For QIPs audited results are enough as against IFRS required for GDR/ADRs Investors Recent Developments Since QIP was launched in August 2006, around 16 companies have raised Rs crore through QIP issues In 2006, Rs crore were raised through equities from the overseas market, almost 38% lower than Rs crore raised in the previous year. [...]
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