WHAT IS RHP AND DRHP IN IPO

INTRODUCTION

In the IPO market, red herring prospectus (RHP) and draft red herring prospectus (DRHP) are common usages. Here in this segment, let us understand RHP and DRHP in IPO in much greater detail. So, what is RHP and DRHP and what is their specific role when it comes to IPO?  More importantly, what is the difference between RHP and DRHP?

DRHP, RHP AND PROSPECTUS

Here we look at three of the most important documents in the IPO process which is the RHP, the DRHP and the Prospectus.

• Draft red herring prospectus (DRHP) is the most preliminary document that the company files with the SEBI when it proposes to come out with an IPO. It is the first step and the SEBI gives its in-principle approval based on the DRHP details filed.
• A more complete and comprehensive version of the DRHP is the RHP, which is filed after the observations given by SEBI and the additional information sought by SEBI are also incorporated into the document. RHP comes at a later stage and closer to the IPO.
• The prospectus, on the other hand, is the document issued by the company that intends to invite the public to subscribe to its securities to raise capital. It is an invitation to offer and when the IPO application puts in the application, it is called the offer.

DRAFT RED HERRING PROSPECTUS (DRHP) IN GREATER DETAIL

The DRHP is like the first information document about the company going to the IPO, for public consumption. It is available on the website of SEBI, once it is filed. Investors often find it a bit confusing to select the right fit IPO they can invest in for their financial goals. That is where the role of a DRHP comes in handy. The DRHP helps investors analyse the company's true potential and the risk-reward they offer and take an informed investment decision.

You can look at the DRHP as the preliminary step to the RHP. The DRHP is more like a preliminary version of RHP. It is filed with SEBI before the IPO, and the IPO is subject to SEBI approval. SEBI gives its approval in the form of observations and may at times even recommends changes in it. Once such changes are incorporated to the DRHP, the final version becomes the RHP, which we shall see later.

RED HERRING PROSPECTUS (RHP) IN GREATER DETAIL

A red herring prospectus is a preliminary prospectus, or the first prospectus which has to be filed with SEBI in connection with the company's IPO. The Red herring prospectus (RHP) comprises key information pertaining to the operations and future prospects of the company. However, it does not contain critical facts about the security offering, such as the price band of the issue. Such details are to be filed at a later stage. The RHP has to be filed with the registrar of companies, at least 3 days prior to the IPO issue opening.

RHP is still a basic document enabling people to understand how the money raised would be utilized and the risks attached to it. RHP contains details about the total number of shares offered through the fresh issue, offer for sale and the utilisation of funds being collected; apart from other details pertinent to the company.

KEY DIFFERENCES BETWEEN DRHP AND RHP

Obviously, we have understood the DRHP as a more preliminary version of the RHP. Here are some key differences between an RHP and a DRHP.

a) A RHP can be seen as almost a finalised prospectus filed with SEBI for the proposed IPO. This is in contrast to a DRHP which is more preliminary and a non-finalised version of RHP. DRHP is purely to help the investors get an understand of the IPO company.

b)  How do the RHP and the DRHP differ in terms of content? RHP contains full details about IPO, which an investor must know about the company. Apart from the number of shares on offer, the RHP talks about the issue size of the offer and offer period.The RHP sometimes contains the price band. .. DRHP only contains the broad outline of the issue, although the DRHP also has enough details to help an investor make an informed decision. DRHP even outlines the company's financial goals, how the money will be utilized, and any associated risks. DRHP is silent on price and actual number of shares.

c) There is no DRHP for a follow on public offer (FPO). Only RHP is needed for FPO. The DRHP is shared by the company only at the time of IPO.

d) Where can you procure the DRHP and the RHP?The DRHP and the RHP are made available on the IPO section of SEBI website. DRHP of a company is made available on various the company's website, investment banker website and exchange website.

e) Both the RHP and the DRHP are essential documents to evaluate a company before making an investment decision. The only information advantage in an RHP is that it also contains the actual number of shares, the split and the pricing band of the IPO.

Now for some concluding thoughts on DRHP and RHP. Remember that an IPO has a DRHP and later an RHP to be filed. The latter also has issue size andshare details. The RHP and DRHP allows the investor to weight the risks involved and enables them to take an appropriate decision on investing in the IPO. The prospectus is an important and only public document available to IPO investors. It behoves them to make the best of the information, disclosures and the insights contained in the prospectus before making an investment decision.

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