Around a hundred-page document which gives details about a corporation or firm like its financial data for the past three years, its clients, issue time and details, strengths, and weakness of the firm, etc which is offered by an IPO of a private company is called as IPO Prospectus. Therefore, it can be said that it has all the essential data that can help the investors to decide if they would like to invest in that specific company or not. It is basically a Legal document which is used by the firm so as to promote its shares. At the beginning of the offer period, a prospectus is issued, and each participant must evaluate it prior to investing in any company. A Prospectus is declaimed by the FCA and signed off, and the board of directors are held accountable for its information.
The life cycle of IPO Prospectus consists of 3 steps:
- Draft Offer Document
- Offer Document
- Red herring prospectus
Stage 1: Draft Offer Document
- It is the document which is organized by the book building or the issuer which consists of all the information which an individual need to know of the public issue.
- After this, the document is sent to the Securities and Exchange Board of India (SEBI) for analysis and review.
- This document contains information such as the details of its business, financial data, its policies, risk involved, the reason of the company on why they are issuing an IPO, etc.
- After examining the document, SEBI makes decisions regarding the document of whether it should be processed further or it should have some changes to be made before it being sent for IPO processing.
- The draft document can be found in the Reports section of SEBI's website.
- SEBI takes 30 days to process the details sent by the corporation and then gives it verdict whether anything information is to be changed or it is approved.
- Hence, it is then listed with securities in the trading market for a minimum of 21 days.
- It is also necessary to make a public announcement either on the day of submitting the ‘draft offer document’ or the day after in the English and Hindi national newspaper and one regional newspaper based upon where are they registering the document.
Stage 2: Offer Document
- After the clearance of Draft Offer Document by SEBI, it is called as Offer document and its promoted for later IPO processing.
- This is the modified document after all the details are confirmed from SEBI as per details mentioned in the ‘Draft Offer Document’.
- 'Offer document' shall be sent to the issuing magistrate and to the trading platforms where the issuer company is prepared to list.
- It is called a ‘Prospectus’ for public issue but ‘Letter of Offer’ for right shares issue.
Stage 3: Red Herring Prospectus
- Once the offer document gets acceptance from stock exchanges, the firm of the corporation adds details such as the price of issue, issue document, size of the issue so that its goes onto the public platform with all the details.
- The minimum amount of time between the filing of the application declaration and its implementation status is 15 days.
- In book building issue of IPO, this stage also takes part in the price discovery of an IPO as none of the details regarding the same are not shared before and price cannot be analysed as the bidding it done later.