What is DRHP?

The full form of DRHP is Draft Red Herring Prospectus. It is an initial document filed by a company that tends to launch a public issue or an Initial Public Offering (IPO) to the regulatory bodies that is SEBI in India. Understanding what an IPO is essential before understanding what DRHP is. IPO is the process through which a company offers shares of its stocks to the public for the first time. It allows a company to raise capital by selling ownership stakes to investors. The purpose of offering IPOs to the public is expansion, debt repayment or raising funds for the use of the company.

Why Companies Choose to Go Public and Launch IPOs

Draft Red Herring Prospectus (DRHP)

Before offering IPOs to the public, a company needs to submit some documents to the regulatory bodies. In India the stock market’s regulations are performed by The Securities and Exchange Board of India. These documents are collectively called DRHP. These documents contain some essential information about the company’s business, operations and financial performance. It offers information about the company’s fundamentals and operations, but does not disclose the offer price.

Purpose of DRHP

SEBI made it mandatory to submit DRHP for any company planning to go public. So, the companies which are planning to go public need to submit DRHP to SEBI. 

After receiving the documents, the Securities and Exchange Board of India reviews all the documents and checks whether the company is fulfilling all the regulatory requirements or not and then recommends changes to be made to the company. After DRHP the company formulates RHP.

What is RHP?

DHRP is not the final document that is presented before the public before offering IPOs. Once SEBI approves the DRHP, a revised version is prepared and is known as Red Herring Prospectus (RHP). It contains important information about the company and its operations as well as the IPOs issue size and price band. It also provides information about the risks associated with the investment in the company. 

What is Corrigendum?

After the approval by SEBI on RHP, the company can proceed for issuing IPO. This is the announcement document which is presented for the information purpose by the company to the potential investors. It discloses all the necessary details about the company and its structure as well as about the price band, Lot size of the IPO.

Contents of Corrigendum 

Some common sections found in a company’s final document include a cover page, lead managers name, registrar name, offering details, risk factors, final pricing, and other information.

Conclusion

Overall, these documents represent the company’s information in front of SEBI and the public. These prove to be very important from the view of the public as they decide on the basis of these documents whether they should invest in the company or not. From the view of the government also these documents are very much important, as these documents clarify details and information about the company which is in the planning of an Initial Public Offering (IPO).

Also Read:

• What is IPO?
• What is IPO GMP?
• Difference between IPO and FPO For Beginners
• Difference between SME IPO and Mainline IPO?