Red Herring Prospectus – UPSC Prelims

A company which wants to raise funds from public via public issues (IPO) is needed to file a draft prospectus with SEBI (Securities and Exchange Board of India).

This prospectus has most information related to company’s operations, its directors, its past record etc. except some key details such as issue price.

There is a bold disclaimer which mentions that the information is preliminary and subject to change.

This is called Draft Red Herring Prospectus.

SEBI reviews and ensures that adequate disclosures are made by the issuer to enable investors to make an informed investment decision in the issue.

SEBI does not ‘vet’ and ‘approve’ the offer document.

SEBI does not recommend the shares or guarantee the accuracy or adequacy of DRHP.

SEBI’S observations on the draft offer document are forwarded to the merchant banker, who incorporates the necessary changes and files the final offer document with SEBI, Registrar of Companies (RoC) and stock exchanges.

After reviewing the DRHP, the market regulator gives its observations which need to be implemented by the company.

Once the observations are implemented, it gets final approval & the document then becomes RHP (Red Herring Prospectus).

When RHP’s registration with RoC becomes effective, a final prospectus which contains IPO price and issue size is released.