In terms of the provisions of the US Securities Act of 1933, Sec Rule 144 A allows sale or resale of securities through private placement in bulk with any qualified institutional buyer (QIB) instead of public registration for offering those securities to the public. QIBs are large scale institutional investors with at least a portfolio of $ 100 million. Private placement with such large scale bulk purchaser of securities is far more expeditious and cost effective than public issue/offer. This is because public issue results in allotment of stocks among shareholders who are widely dispersed throughout the length and breadth of the country, in contrast with Rule 144 A offerings for institutional investment in bulk confined to qualified investor alone.
Foreign companies use this Rule 144 A route to raise capital by privately selling their securities in bulk without public issue/offer to large scale US institutional investors including banks, insurance companies, investment companies, employee benefit plans, banks and financial institutions.
Public companies also raise capital by private placement of stocks with such qualified investor as a stepping stone towards a US initial public offer (IPO). With private placement capital at their disposal for growth, these companies can look forward to a more successful IPO to tap the US capital market.