The term “red herring” is derived from the bold disclaimer in red on the cover page of the preliminary prospectus.
As per section 32 of the Companies Act, 2013 a red herring prospectus is defined as under:
(1) A company proposing to make an offer of securities may issue a red herring prospectus prior to the issue of a prospectus.
(2) A company proposing to issue a red herring prospectus under sub-section (1) shall file it with the Registrar at least three days prior to the opening of the subscription list and the offer.
(3) A red herring prospectus shall carry the same obligations as are applicable to a prospectus and any variation between the red herring prospectus and a prospectus shall be highlighted as variations in the prospectus.
(4) Upon the closing of the offer of securities under this section, the prospectus stating therein the total capital raised, whether by way of debt or share capital, and the closing price of the securities and any other details as are not included in the red herring prospectus shall be filed with the Registrar and the Securities and Exchange Board.
Explanation.—For the purposes of this section, the expression “red herring prospectus” means a prospectus which does not include complete particulars of the quantum or price of the securities included therein.
Draft Red Herring Prospectus (DRHP) is prepared by the lead manager and submitted to SEBI for approval of IPO. This PDF document has information like the detail about the company, promoters, IPO detail and risks. It takes a few months to get the DRHP approval from SEBI.
Red Herring Prospectus (RHP) is an extended version of the DRHP with additional detail about IPO dates, price and latest financial data. RHP is also known as IPO Final Prospectus.
The Major content of the red herring prospectus is as under:
- RISK FACTORS
- Details of the Initial Public Offer.
- SUMMARY OF RESTATED FINANCIAL INFORMATION
- OBJECTS OF THE OFFER.
- BASIS FOR OFFER PRICE.
- ABOUT OUR COMPANY.
- RESTATED FINANCIAL INFORMATION.
- LEGAL AND OTHER INFORMATION
There is various other information available but these are the major information which is available from the Red herring prospectus and which needs to be issued by each company who wish to make public offer for it’s shares.
You can read the Draft Red Herring Prospectus in case of Paytm (One97 communication) filed with SEBI HERE
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