Why is Draft Red Herring Prospectus important?
Many companies have come out with their Initial Public Offering recently. In order to understand a firm fully, one of the most important tools is the Draft Red Herring Prospectus (DRHP).
1. What is a DRHP?
A Draft Red Herring Prospectus, or offer document, is when a company that is planning to raise money from the public provides detailed information about its business operations and financials. This includes details about its promoters, reason for raising money, how the money will be used, risks involved with investing in the company and so on. Investors should bear in mind that it does not provide information about the price or size of the offering.
2. How do companies prepare a DRHP?
The issuer company approaches a merchant banker to prepare the offer document. Merchant bankers take care of the legal compliance issues as well ensure that prospective investors are aware and kept in the loop of the public issue .
3. Why is it important for companies to file a DRHP?
The Securities and Exchange Board of India, or Sebi, has made it mandatory for companies to file a DRHP before going to the Registrar of Companies (RoCs). Sebi reviews the offer document and checks if adequate disclosures are made. Sebi's observations or recommendations are given to the merchant banker, who makes the changes and files the final offer document with Sebi, the ROC) and stock exchanges. Again the document is reviewed and observations are given to be implemented. Once that is done,final approval is provided and the document then becomes a RHP (Red Herring Prospectus).
4. Where can investors find a company's DRHP?
Investors can access a company's DRHP on various platforms — the company website, the merchant banker website, stock exchange websites or the Sebi website. Announcements are also made in newspapers in multiple languages as per the rules.
5. How is the DRHP useful to investors?
It is a very powerful tool that provides them with all the necessary information about the company in order to help make an informed decision. Investors must go through the document carefully and can go ahead and do some research on their own about performance of other companies in the space and so on.
6. What can investors do if they notice discrepancies?
If there is any inaccurate or incomplete information in the DRHP, investors can register a complaint either with the merchant banker or Sebi.