Understand Qualified Institutional Buyers in IPO

Understand Qualified Institutional Buyers in IPO

A qualified institutional buyer (QIB) is a type of investor with a high level of financial sophistication with regulatory status, and, hence, are exempted from any regulatory protection under the Securities act's registration rules. A variety of investor types are involved in the structuring of initial public offerings ( IPOs). There are four main groups of investors in Initial public offerings: Qualified Institutional Buyers (QIBs), high net-worth individuals (HNIs), Non-Institutional Investors (NII), and Retail Individual Investors (RII). They are equipped with different characteristics and dynamics. Qualified institutional buyers are frequently overlooked, but they are important because they are a major source of revenue for QIB investors who work with financial institutions before retail investors. In this blog, we will learn about what is QIB in IPO, who qualifies, and list of qualified institutional buyers. 

What is a Qualified Institutional Buyer

Qualified Institutional Buyers (QIBs) are experts in the financial sector being non-institutional investors registered with SEBI. These entities have considerable capital, mainly when companies transition to the public domain. QIBs engage in due diligence before committing to investments, leveraging their significant resources and expertise. Their careful analysis allows for informed, low-risk decisions and maximizes potential outcomes. Examples of QIBs comprise pension funds, banks, private equity funds, and various financial institutions. 

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Table of Content

  1. What is a Qualified Institutional Buyer
  2. Qualified Institutional Buyer List
  3. Who is Classified as QIB in an IPO?
  4. How Qualified Institutional Buyers Work?

Qualified Institutional Buyer List

Qualified institutional buyers (QIBs) list generally consists of: 

  • Highly experienced investors
  • Entities with large assets 

Institutions that are listed as QIBs include:

  • Banks like HDFC and ICICI bank
  • Leading insurance company such as LIC
  • Well-established mutual funds like SBI and HDFC Mutual Fund
  • Foreign portfolio investors (FPIs) that meet SEBI criteria.

Who is Classified as QIB in an IPO?

QIBs are primary participants in Initial public offerings before retail investors gain access. SEBI has established standards for entities only if they have the necessary financial resources to participate in these offerings. These entities include:

  • Scheduled Commercial Banks (SCBs)
  • Public Financial Institutions
  • Foreign Institutional Investors (FIIs) registered with SEBI
  • Mutual Funds
  • Foreign Venture Capital investors (VCs) registered with SEBI
  • Domestic Venture Capital investors registered with SEBI
  • SIDCs known as State Industrial Development Corporations 
  • Provident and pension funds with a minimum investment of Rs. 25 crores
  • IRDAI i.e, Insurance Regulatory and Development Authority of India provides insurance products in India, but it doesn’t directly involve investing in IPOs

How Qualified Institutional Buyers Work?

Qualified institutional buyers use a large amount of funds into various debt and equity offerings, making them key players in the IPO landscape. They enjoy the advantage of a large capital base, allowing them to take a large portion of securities offered during IPOs. Due to their pivotal role, they get support to discuss and negotiate favourable terms and gaining early access to upcoming securities. 

Decisions made by QIBs hold considerable influence on market trends and pricing dynamics. Their transactions and purchasing power can create an impact on the valuation of securities and can shape overall market sentiment. In essence, QIBs play an important role in bringing up the market liquidity and encouraging large-scale capital-raising activities like IPOs and Follow-on Public Offers (FPOs). 

Qualified Institutional Buyers (QIBs) play a crucial role in Initial Public Offerings (IPOs). Their involvement not only strengthens the overall health and vivacity of the capital markets but also augments the prospects for an IPO success. Identifying the importance of QIBs is vital for businesses embarking on their IPO journeys. Gain a comprehensive understanding of the financial landscape with BlinkX to make informed investment decisions. Moreover, you can download a share market app to explore more opportunities in trading. 

FAQs for what is QIB in IPO

The QIB category includes commercial banks, mutual funds, insurance companies, and pension funds with high net worth and extensive investment experience.

No, only institutional entities that meet the specific requirements set forth by regulatory bodies are eligible to become QIBs. 

If QIB is not subscribed, the unsubscribed shares will be reallocated to other portions, such as retail or non-institutional investors, or the offer size may be lower. 

IPO shares issued under the QIB category do not have any holding or lock-in period. 

QIB participation is important in an IPO as it signals the confidence of institutional investors in the company going public.