The Hindu Business Line : What's red herring prospectus?

What is the difference between an offer document, RHP, a prospectus and an abridged prospectus? What does it mean when someone says "draft offer doc"?

"Offer document" means Prospectus in the case of a public issue or offer for sale and Letter of Offer in the case of a rights issue which is filed with Registrar of Companies (RoC) and Stock Exchanges. An offer document covers all the relevant information to help an investor to make his/her investment decision.

"Draft Offer document" means the offer document in draft stage. The draft offer documents are filed with SEBI, at least 21 days prior to the filing of the Offer Document with the RoC/ SEs. SEBI may specify changes, if any, in the draft Offer Document and the issuer or the lead merchant banker shall carry out such changes in the draft offer document before filing the Offer Document with the RoC/ SEs. The Draft Offer document is available on the SEBI Web site for public comments for a period of 21 days from the filing of the Draft Offer Document with SEBI.

"Red Herring Prospectus" is a prospectus which does not have details of either price or number of shares being offered or the amount of issue. This means that in case the price is not disclosed, the number of shares and the upper and lower price bands are disclosed. On the other hand, an issuer can state the issue size and the number of shares are determined later. An RHP for and FPO can be filed with the RoC without the price band and the issuer, in such a case will notify the floor price or a price band by way of an advertisement one day prior to the opening of the issue. In the case of book-built issues, it is a process of price discovery and the price cannot be determined until the bidding process is completed. Hence, such details are not shown in the Red Herring prospectus filed with the RoC in terms of the provisions of the Companies Act.

Only on completion of the bidding process, the details of the final price are included in the offer document. The offer document filed thereafter with ROC is called a prospectus.

"Abridged Prospectus" means contains all the salient features of a prospectus. It accompanies the application form of public issues.

What does one mean by `Lock-in'?

"Lock-in" indicates a freeze on the shares. SEBI Guidelines have stipulated lock-in requirements on shares of promoters mainly to ensure that the promoters or main persons who are controlling the company, shall continue to hold some minimum percentage in the company after the public issue. The requirements are detailed in Chapter IV of DIP guidelines.

How the word `Promoter' has been defined?

The promoter has been defined as a person or persons who are in over-all control of the company, who are instrumental in the formulation of a plan or programme pursuant to which the securities are offered to the public and those named in the prospectus as promoters(s). It may be noted that a director / officer of the issuer company or person, if they are acting as such merely in their professional capacity are not be included in the definition of a promoter.

`Promoter Group' includes the promoter, an immediate relative of the promoter (i.e. spouse of that person, or any parent, brother, sister or child of the person or of the spouse). In case promoter is a company, a subsidiary or holding company of that company; any company in which the promoter holds 10 per cent or more of the equity capital or which holds 10 per cent or more of the equity capital of the promoter; any company in which a group of individuals or companies or combinations thereof who holds 20 per cent or more of the equity capital in that company also holds 20 per cent or more of the equity capital of the issuer company.

source: www.sebi.gov.in

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