Definition
Draft Red Herring Prospectus (DRHP)
A DRHP is the preliminary offer document a company files with SEBI when it wants to make an IPO, disclosing its business, financials and risks but not the final issue price.
The DRHP is the first formal step in an Indian IPO. The merchant bankers draft it and file it with SEBI and the stock exchanges, after which SEBI reviews it and issues observations. The public can comment on the draft, and the company must address SEBI's queries before moving forward.
Because the price band and issue size are not yet fixed, the DRHP is sometimes called a 'draft offer document'. Investors use it to study the promoters, the objects of the issue (where the money will go), litigation, related-party transactions and the risk factors. A red herring prospectus (RHP) with the price band comes later, just before the issue opens.
Related terms
- Red Herring Prospectus (RHP)The RHP is the near-final IPO offer document filed with the Registrar of Companies just before the issue opens, containing the price band but not the final allotment price.
- Merchant Banker / BRLMA merchant banker, acting as Book Running Lead Manager (BRLM), is the SEBI-registered intermediary that manages an IPO from filing to listing.
- SEBI ObservationsSEBI observations are the comments and queries the regulator issues on a DRHP, which the company must address before launching its IPO.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.