- Date : 18/09/2023
- Read: 3 mins
Although sounding similar, DRHP and RHP have a few key differences, which are explained below.
The fictional account about the use of smoked herring fish to distract hunting dogs somehow ended up in financial parlance. But there is nothing fishy about the Red Herring Prospectus (RHP). Or its draft avatar, the Draft Red Herring Prospectus (DRHP).
RHP and DRHP are often used interchangeably in IPO parlance
However, there are some key differences between RHP and DRHP
The target audience of one is potential investors and the public, while the other is a SEBI requirement
Notably, SEBI has well-defined requirements that are to be included in the prospectus
What is Red Herring Prospectus?
RHP is an offer document that a company prepares and files with the SEBI before making its first public offer of its shares, typically the IPO.
What is a Draft Red Herring Prospectus?
DRHP is the preliminary form of the RHP and is prepared for presentation to potential investors as well as members of the public.
Difference between DRHP and RHP
Let us look at the key points of difference between DRHP and RHP in further detail.
- Information provided – An RHP provides all the information required by an investor before investing in a new company. It includes a description of the business, utilisation plan of the IPO proceeds, issue details, management details, etc.
A DRHP provides high-level information on the company’s business plans, financial position and details of the offering. The content is similar, but RHP provides additional information such as the IPO price and dates, up-to-date financial data and other specific information required under SEBI rules.
Availability – RHP can be prepared even by listed companies that are looking to present the business as an investment prospect to potential investors. DRHP is generally meant for the investing public before the IPO.
Preparation and approval – A RHP is prepared by qualified professional accountants and approved by SEBI. DRHP is not filed with or approved by SEBI. It can be prepared by internal accountants of the company before it is made available to the public. Being a draft, it is not subject to SEBI approval.
Both RHP and DRHP are detailed documents that give us a good overview of the company, its past performances, financial robustness, and growth outlook. While deciding on an IPO investment, these documents help us to understand how the company will utilise the IPO proceeds. This helps us to arrive at a more convincing decision about the investment.
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