BackDe-jargoned: Red herring prospectus
RHP is the offer document of the issuer company, and which it has to mandatorily file
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InterGlobe Aviation Ltd, which owns IndiGo Airlines, is about to launch its initial public offer (IPO). The company filed its red herring prospectus (RHP) with the Securities and Exchange Board of India (Sebi) on 16 October 2015. The IPO will open for subscription on 27 October and close on 29 October.
For those who want to invest in the upcoming IndiGo IPO or any other public issue, the RHP is an important document that one should go through. Here is a look what an RHP is, and why it is important to go through before making an investment decision.
WHAT IS AN RHP?
RHP is the offer document of the issuer company, and which it has to mandatorily file. This document contains the objectives for which the company is coming to the market to raise funds. It also has other details of the issue, such as number of shares offered and their face value. The RHP, however, does not provide information on the final price or price at which shares will be allotted. The final or cut-off price per share is generally decided based on a book building process.
The RHP also contains other important information such as nature of business, industry overview, financial information, risk factors, litigations (if any), legal information, financial indebtedness, and so on. You will also find information on the company’s promoters, group entities (if any), and approvals.
THE PROCESS
The merchant banker(s) to the public issue puts together a draft RHP (DRHP), which is submitted to Sebi. The DRHP will be published on the websites of Sebi and the merchant banker. And for up to 21 days, anyone can send in their comments or grievances to the capital market regulator about the company and information shared in the DRHP.
A Sebi official, too, offers her comments on the document. All of these comments are then shared with the merchant banker for clarification. This process continues till Sebi gets satisfactory replies against all comments.
Once the company gets approval from the capital market regulator, it will then refile the updated or final document, i.e. the RHP.
WHERE YOU CAN FIND IT
The RHP is put up on Sebi’s website under ‘Offer Documents’ where you will find the status of processing of the issue. You can also get it on the websites of merchant bankers and stock exchanges.
The company is also required to make a public announcement about the filing in at least one English, Hindi, and regional language newspaper.
It may not be possible for a retail investor to go through the entire document. So, pay attention to the most important parts—risks associated with the sector and the industry, the company’s financial performance and that of its peers, its assets and liabilities, and legal issues or litigations pending against it. You should also go through the objectives carefully as to why the company is raising funds.
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