A Draft Red Herring Prospectus (DRHP) is a registration document filed with SEBI by a company that wishes to release its IPO. Also known as the offer document, it contains information about the company’s business, finances, why it wants to raise capital, how it will utilize the money, risks involved for the investors, etc.
DRHP is essentially a preliminary document prepared by underwriters for the book-building issue and may not contain the price per share. However, it contains a price and is available to the general public who can submit their comments to SEBI.
How is a DRHP prepared?
After a company gets initial approval from SEBI on the registration statement, it needs to prepare a DRHP. The underwriters draft the prospectus and ensure complete due diligence and legal compliance. The draft prospectus must be submitted at least 21 days before the launch of the IPO. During this period SEBI reviews the document and suggests changes to the company.
After the company makes these revisions the DRHP extends and officially becomes the ‘Red Herring Prospectus’ which is the final prospectus of the IPO and contains the IPO dates, price, and is updated with the latest information.
What is the need for a DRHP?
It is a mandatory requirement of SEBI that all companies reaching the Registrar of Companies (RoC) to release an IPO have a DRHP. Not only is it a requirement for the company, but a DRHP is also referred to by the investors and it supports them in making an investment decision. It protects the rights of the investors by providing them all the necessary details.
Where can a company’s DRHP be found?
A company’s DRHP can be found on the underwriter website, the company’s website, the official websites of the stock exchange (s), and SEBI. In the case of famous IPOs, it may also be found on various other news and media platforms.
An IPO is a complex process for both the company and the investors. It must be noted that a DRHP is not the final prospectus offering securities but a document that aids both parties by furnishing all the details that are necessary for SEBI compliance (for the company) and understanding the risks involved in the investment (for a potential investor).