Red Herring Prospectus

A Red Herring Prospectus (RHP) is the final offer document filed by a company with SEBI and the stock exchanges before an IPO opens for public subscription. It contains all material information about the company, its financials, risks, objects of the issue, and IPO details, but the final price and final issue size may be added later.

What Is the Red Herring Prospectus?

The RHP is the document investors should read before applying to an IPO. It is a detailed disclosure document that includes:

– Business overview and competitive position
– Financial statements (3 years of audited accounts)
– Objects of the issue (how IPO proceeds will be used)
– Risk factors specific to the company and industry
– Management details and related-party transactions
– Promoter background and shareholding
– Legal proceedings and regulatory matters
– Price band and issue structure

The RHP is called “red herring” because it originally carried a red ink warning that the document was not final. In India, the RHP filed with SEBI before the IPO opens is called RHP, while the final document filed after price determination is called the Prospectus.

RHP vs DRHP

| Document | Stage | Price |
|———-|——-|——-|
| DRHP (Draft Red Herring Prospectus) | Filed with SEBI for approval; not yet open to public | Not included |
| RHP (Red Herring Prospectus) | Filed after SEBI approval; public can read this | Price band included |
| Final Prospectus | Filed after IPO closes with final price | Final price included |

Practical Example

Before applying to a logistics company’s IPO, Priya downloads the RHP from SEBI’s EDGAR system or the company’s website. She reads the risk factors and notes that the company has a high dependency on two clients who contribute 70% of revenues. She considers this concentration risk when deciding whether to apply.

Key Takeaways

– RHP is the final detailed offer document filed before an IPO subscription opens
– Contains financials, business details, risk factors, objects of issue, and price band
– Investors should read the risk factors section before applying to any IPO
– DRHP is the draft filed with SEBI for approval; RHP is the approved version filed before subscription
– Available on SEBI’s website, the stock exchange, and the company’s website