Applications Supported by Blocked Amount (ASBA) and Qualified Institutional Placement (QIP) are two important mechanisms used in the primary market for raising capital. Here are some details about both of these mechanisms:
- Applications Supported by Blocked Amount (ASBA): ASBA is a process that allows investors to apply for shares in an IPO without having to pay the full amount upfront. Instead, investors block the amount they wish to invest in the IPO in their bank account, which remains frozen until the allotment of shares is made. This mechanism allows investors to earn interest on the blocked amount until the allotment is made, and also reduces the time taken for refunds in case of oversubscription. ASBA is mandatory for all retail investors and is optional for institutional investors.
- Qualified Institutional Placement (QIP): QIP is a mechanism that allows listed companies to raise capital from qualified institutional buyers (QIBs) by issuing shares or convertible securities. QIBs include banks, financial institutions, mutual funds, and other institutions that meet certain eligibility criteria. QIPs are typically used by companies to raise capital quickly and efficiently, without having to go through the lengthy process of a public offering. QIPs are subject to certain restrictions, such as a minimum issue size, a lock-in period for promoters, and a limit on the number of times a company can use the QIP route.
In conclusion, ASBA and QIP are two important mechanisms used in the primary market for raising capital. ASBA allows investors to apply for shares in an IPO without having to pay the full amount upfront, while QIP allows listed companies to raise capital from qualified institutional buyers. Both mechanisms help streamline the capital raising process and make it more efficient for both issuers and investors.