IPO Prospectus

The IPO prospectus is a pivotal document that furnishes implicit investors with comprehensive perceptivity into a company, enabling informed investment opinions. Serving as a legal preface to the company, the prospectus is vital in the IPO process and must stick to SEBI guidelines.

Understanding the IPO Prospectus:

• The prospectus isn’t an agreement but a process for the public to buy shares, allowing investors to make opinions grounded on thorough analysis.
• Filed primarily as a Draft Red Herring Prospectus( DRHP) during IPO application, it evolves into the Red Herring Prospectus( RHP) and culminates in the Final Prospectus after SEBI favor.

Types of IPO Prospectus:

Draft Red Herring Prospectus (DRHP):

The acronym DRHP stands for Draft Red Herring Prospectus frequently referred to as a draft offer document in the financial landscape.

DRHP: A Preliminary Glimpse

• The DRHP serves as the initial prospectus submitted by the issuer to set the wheels in motion for the IPO journey.
• Approval by SEBI/stock exchanges, depending on whether it’s a mainboard IPO or SME IPO, is a prerequisite for the DRHP.
• Comprehensive in nature, the DRHP encapsulates vital facets such as the company overview, IPO structure, offering details (new issue or offer for sale), management and promoter insights, shareholder structure, related risks, utilization of proceeds, financial statements, and more.
• Noteworthy is the absence of specific details regarding the offering size, price, or the number of shares in the DRHP.
• Public accessibility is pivotal; the DRHP is posted on the websites of the issuing company, SEBI, stock exchanges, and merchant bankers for public review and feedback.

DRHP Validity and Filing Dynamics

• For mainboard IPOs, SEBI issues an observation report within 30 days from the receipt of the draft offer documents.
• The observation letter from SEBI holds validity for 12 months, mandating the issuing company to address comments, make clarifications, and initiate the IPO within this timeframe.
• SEBI, requiring an additional 15 days, issues an observation report on clarifications/responses received from commercial banks concerning the original observation letter.
• The DRHP filing process is a collaborative effort between the issuer and a merchant banker, adhering to guidelines:

•    No IPO issuance is permitted without filing a draft offer document with SEBI/Exchange through a merchant banker (lead manager).
• Amendments based on SEBI/Exchange observations precede the filing of the prospectus with the Registrar of Companies (RoC).
• In case SEBI seeks clarifications from a regulator or other agencies, subsequent amendments or observations hinge on the comments or responses received.

SEBI’s Role and Process Dynamics

• SEBI issues observations or stipulates changes in the draft offer document post the receipt of an in-principle approval copy from the exchange(s) where the issuer plans to list the proposed issue.

Red Herring Prospectus (RHP):

• Red Herring Prospectus, denoted by the acronym RHP, represents an evolved and refined version of DRHP, specifically tailored for book-building scenarios.

Navigating RHP’s Essence

• RHP steps into the limelight following the approval of the IPO application, taking its place in submissions to SEBI, stock exchanges, and the Registrar of Companies (RoC).
• A repository of the most recent and upgraded financial statements, RHP encapsulates all alterations to the offering structure, corporate details, and other enhancements carried forward from the DRHP.
• A comprehensive document, RHP retains all information with the notable exception of specific details regarding the issue’s price or the number of shares.

IPO Final Prospectus:

• The IPO conclusive prospectus serves as the ultimate and comprehensive offering document, encompassing all pertinent details for investor consideration.

Incorporating Vital Information

• This conclusive document discloses crucial elements, prominently featuring the offering price, the total number of shares on offer, and the magnitude of the net offering.

Divergent Registration Processes

• For fixed-price issuances, this critical document finds its place in the Company Register before the issue’s commencement.
• Conversely, in the realm of book-building issues where price discovery unfolds, the conclusive prospectus secures its registration with the Registrar of Companies post the issue’s closure.

Abridged Prospectus:

• Concise Presentation:An abridged prospectus, a condensed rendition of the comprehensive offering document, is jointly dispensed with the application form. This concise version serves as a quick reference, ensuring investors swiftly grasp essential elements without overlooking critical details.
• Time-Efficient Resource: Designed under the purview of the Companies Act, the abridged prospectus is a time-efficient resource, presenting investors with a snapshot of vital information. Its aim is to prevent oversight by encapsulating key aspects of the full prospectus in a user-friendly format.
• Pertinent Contents: Contained within are pertinent details encompassing promoter particulars, price range, minimum bid lot, provisional deadlines, details of Book Running Lead Managers (BRLM), intermediary names, business overview and strategy, board specifics, the objective of the issue, financial statements, and a summarized overview of claims and regulatory actions.
• Sections for Rapid Grasp: For investors seeking swift comprehension, the abridged prospectus prioritizes sections like terms and conditions, pricing specifics, application procedures and deadlines, market outlook, and any legal disputes involving the company or its directors.

IPO prospectus requirements

An IPO prospectus, a pivotal legal document aligned with SEBI guidelines, demands meticulous content adherence. The prospectus undergoes distinct phases: Draft Red Herring Prospectus (DRHP), Red Herring Prospectus (RHP), and the final version. Comprising crucial elements, it ensures comprehensive disclosure for potential investors.

Key Guidelines and Requirements

Document Presentation:

• The cover page should be devoid of patterns, maintaining a white backdrop.
• It must possess ample thickness, ideally exceeding 100 gcm quality.

Prospectus Contents:

1. Definitions and Abbreviations:A comprehensive list elucidating terms and acronyms with their meanings.
2. IPO Prospectus Summary: Encompassing a condensed overview of key facets: primary business, industry context, promoter details, offering size, objectives, shareholdings, risk factors, and financial arrangements.
3. Risk Factors: An exhaustive section highlighting potential impactors like business risks, legal proceedings, product insights, developmental costs, and the company’s sales performance.
4. Introduction: Divided sections offering an overview, summarizing financial data, and detailing the company’s capital structure.
5. The Offer: Comprehensive details on the offer structure, covering issue size, fresh issue dimensions, offer for sale, face value, IPO price, investor allocation, net issue, employee reservation, market maker details, and employee discount information.
6. Summary Financial Information: Insightful details encompassing consolidated or standalone balance sheets, profit and loss statements, cash flow insights, and financial ratios.
7. Capital Structure: In-depth insights into authorized share capital, issued/subscribed/paid-up capital before and after the issue, along with specifics on the share premium account.
8. Offer Details: An elucidation of how the net proceeds will be employed, along with the basis of the Offer Price.
9. Objects of the Offer: Outlining the purpose of the offer, shedding light on the company’s intentions in utilizing the raised funds, whether for debt repayment or expansion.
10. Basis of Offer Price: This section integrates qualitative and quantitative factors, providing a basis for determining the offer price through a comparison with industry peers.
11. Details About the Company: A comprehensive overview of the industry, operations, and management and promoter details.
12. Industry Overview: A macroeconomic snapshot of the Indian economy, GDP, per capita income, and industry-specific market information.
13. Business Overview: Encompassing core business details, competitive strengths, opportunities, subsidiaries, business models, expansion plans, and specifics of products and services.
14. Management: Details pertaining to the Board of Directors, their relationships, biographies, terms of appointment, compensation, ownership stakes, and changes in the Board.
15. Promoters: In-depth insights into individual promoters and promoter groups, including shareholdings, personal details, trust company affiliations, and their experience with the company’s business.
16. Group Subsidiaries: Revelations about the issuer’s affiliates, including regulatory compliance, business interests, transactions, financial data, and other pertinent details.
17. Financial Information: Restated standalone and consolidated financial statements, comprising balance sheets, income statements, cash flows, and additional financial insights.
18. Legal and Other Information: Details concerning legal actions, criminal proceedings, regulatory actions, tax claims against the company, directors, promoters, and subsidiaries.
19. Offer-related Information: Terms of the offer, market lots, trading lots, share ranking, offering structures, allocation tables, payment terms, bidding insights, and IPO process particulars.
20. Provisions of the Articles of Association (AoA): Insights into the company’s Articles of Association, encompassing share calls, transfers, bond issuance, share repurchases, general meetings, and share forfeiture.
21. Other Information: Covering miscellaneous aspects, including material contracts, documents related to the offer, and a management statement affirming compliance with SEBI Guidelines and the Companies Act 2013.

This meticulous adherence to guidelines ensures a comprehensive IPO prospectus, facilitating informed investment decisions.

DRHP vs. RHP

The DRHP (Draft Red Herring Prospectus) serves as the initial offering document submitted for SEBI approval and public feedback, covering comprehensive information. On the other hand, the RHP (Red Herring Prospectus) is an updated version, incorporating changes proposed by SEBI, presenting finalized details, and filed after DRHP approval. The filing and approval processes vary based on the type of IPO (mainboard or SME) and whether it’s a book-building or fixed-price issue.

RHP vs. Shelf Prospectus for NCDs

The Red Herring Prospectus (RHP) is utilized in the context of Initial Public Offerings (IPOs) or Follow-on public offerings (FPOs), providing comprehensive details for SEBI approval. In contrast, a shelf prospectus is employed when a company intends to issue bonds, such as Non-Convertible Debentures (NCDs). The key distinction lies in the nature of the financial instruments being offered—shares in the case of RHP and bonds (NCDs) in the case of Shelf Prospectus. Additionally, a Shelf Prospectus allows a company to issue bonds up to four times under the same prospectus.

Essential Points to Consider

The prospectus stands as a critical element when engaging in an IPO application. It serves as a gateway for investors, giving perception into the issuer’s operations, associated pitfalls, capital structure, offering specifics, administration particulars, share power, financial standings, and central involvement. By probing into these details, investors gain a comprehensive understanding of the company, empowering them to make informed opinions on whether to invest or not. The Draft Red Herring Prospectus( DRHP) and Red Herring Prospectus( RHP) inclusively encompass comprehensive information about the company and the immolation structure. likewise, the final prospectus culminates in delivering specific details like the IPO price, total shares on offer, and net proceeds. This holistic approach ensures that investors possess the necessary tools to assess and navigate the investment landscape effectively.