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Tuesday, December 7, 2010

The legal boilerplate behind WHY companies prefer QIP issues

As per the NSE India website, 29 QIP issues have taken place so far ranging from HDFC to Ansal to Vardhaman. These companies could have gone for rights issue but they chose to go for this option. Besides speed(this gets over faster and no under-subscription problem), there are legal advantages as well.

  1. Presumption of 'Buyer Beware':-Unlike public issues where SEBI regulations safeguard the retail investor, QIP issues contain boilerplate to the effect that You are  a sophisticated investor and have  such knowledge and experience in financial, business and investments as to be capable of evaluating the merits and risks of the investment in the Shares. You are experienced in investing in private placement transactions of securities of companies in a similar stage of development and in similar jurisdictions. You ...(i) are each able to bear the economic  risk of the investment in the Shares, (ii) will not look to the Company.... for all or part of any such loss or losses that may be suffered, (iii) are able to sustain a complete loss on the investment in the Shares, (iv) have no need for liquidity with respect to the investment in the  Shares....This fine print bars any plea of equity by investors in case of issues
  2. Presumption of Due Diligence:- Unlike in a public issue, QIP investors generally perform their own due diligence, or are provided a chance to do so. In making your investment decision, you have (i) relied on your own examination of the Company and the terms of the Issue, including the merits and risks involved, (ii) made your own assessment of the Company and its  subsidiaries, the Shares  and the terms of the Issue based  solely on the information contained in the Placement Document and no other disclosure or representation by the Company or any other party,  (iii) consulted your own independent counsel and advisors or otherwise have satisfied yourself concerning, the effects of local laws, (iv) received all information that you believe is necessary or appropriate in order to make an investment decision in respect of the Company and the Shares, and (v) relied upon your own investigation and resources in deciding to invest in the Issue;
  3. No Liability for Road shows:- You confirm that you have not participated in or attended any investor meetings or presentations....or if you have participated in or attended any Company Presentations, you understand and acknowledge that the Book Running Lead Managers may not have knowledge of the statements that the Company or its agents may have made at such Company Presentations and are therefore unable to determine whether the information provided to you at such Company Presentations may have included any material misstatements or omissions...have advised you not to rely .. on any information that  provided to you at such Company Presentations... 
  4. No Fiduciary Capacity:- Neither the Company nor  any of  the ... are making any recommendations to you or advising you regarding the suitability of any transactions it may enter into in connection with the Issue..no duties or responsibilities to you for providing the protection afforded to their clients or customers or for providing advice in relation to the Issue and are not acting in any fiduciary capacity;
  5. No duty to verify information by Underwriters:-..By participating  in the Issue, you agree to the same and confirm that  the only information you are entitled to rely on, and on which you have relied in committing yourself to acquire the Shares  is contained in this Placement Document, such information being all that you deem necessary to make an investment decision in respect of the Shares, you have neither received nor relied on any other information, representation, warranty or statement made by.......

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