A Red Herring Prospectus (RHP) is an initial prospectus filed by a company with the Securities and Exchange Board of India (SEBI), typically in connection with an Initial Public Offering (IPO). The RHP is distinct in that it does not contain complete particulars of the quantum or price of the securities being offered. Under the Companies Act, 2013, the relevant provisions for a Red Herring Prospectus are found in Section 32. A RHP means a prospectus like any other prospectus, but it does not include complete particulars of the quantum or price of the securities.
According to Section 32, before issuing an RHP, the company shall file it with the Registrar of Companies (ROC) at least three days before opening the subscription list and the offer. The RHP must contain the same information as the final prospectus except for details about the price of the securities offered and the number of securities offered. It should, however, disclose the intended range of the price band and the total issue size. Any material updates or changes to the information presented in the RHP must be highlighted when the final prospectus is filed. Moreover, the RHP must be made available to the public by the company in the same manner as the final prospectus, ensuring transparency and accessibility for potential investors.
The primary purpose of an RHP is to provide potential investors with information about the company and the securities it plans to offer, allowing them to make informed investment decisions. Additionally, the RHP facilitates public comment and scrutiny before the actual pricing and issuance of securities, helping to ensure that all significant factors are considered. By not disclosing the price and quantity, the RHP allows for a process of price discovery, where the market can determine the appropriate price level based on demand.
This document will provide comprehensive details about the company's financial health, management, and business model but will leave out the specific number of shares being issued and their price. Once the company finalizes these details based on investor feedback and market conditions, it will issue the final prospectus with complete information. A Red Herring Prospectus is a crucial document in the IPO process, ensuring transparency and enabling informed decisions for potential investors while complying with the provisions outlined in Section 32 of the Companies Act, 2013.