Offer document
The document inviting subscription to an issue — a red herring prospectus, prospectus, shelf prospectus or information memorandum in a public issue, and a letter of offer in a rights issue.
In plain language
An offer document is the document a company puts in front of the public when it asks them for money.
The workbook defines it by its contents: a document containing all the relevant information about the company, promoters, projects, financial details, objects of raising the money and terms of the issue, used for inviting subscription to the issue being made by the issuer.
The confusing part is that it has no single name. What it is called depends on the type of issue and the stage the document has reached:
- Public issue or offer for sale → "Red Herring Prospectus" and/or "Prospectus"
- Rights issue → "Letter of Offer"
So "offer document" is the category, not a document you will ever hold. Every actual document in a primary issue is one of its species.
How it works
The regulatory definition. Under the SEBI ICDR Regulations, "offer document" means:
| In a | The offer document is |
|---|---|
| Public issue | a red herring prospectus, prospectus or shelf prospectus, and an information memorandum in terms of section 31 of the Companies Act, 2013 |
| Rights issue | a letter of offer |
Draft against final — the distinction the paper tests. A draft offer document is the version filed with SEBI so that SEBI may specify changes, if any, before it is filed with the Registrar of Companies in a public issue, or with the Stock Exchanges in a rights issue. The draft is made available in the public domain, including on SEBI's website, so that the public can comment on it.
That gives a fixed order: draft to SEBI → comments and observations → final to the RoC (or to the exchanges).
Who is answerable for it. The lead merchant banker must ensure that the draft offer document clearly states the names and contact particulars of the compliance officer of both the lead merchant banker and the issuer — postal address, email and telephone — that all comments received on the draft are suitably addressed, and that a due diligence certificate is furnished to SEBI prior to filing the offer document with the Registrar of Companies.
Two routes skip the draft stage. A further public offer made through the Fast Track Issue route, and a fast track rights issue, are granted exemptions from requirements such as filing the draft offer document with SEBI and the issuance of observations by SEBI, provided the conditions in the ICDR Regulations are met.
A worked example
Two issuers, same year, three different documents — and the name changes each time.
A. An unlisted manufacturer doing a book-built IPO.
| Stage | Document | Filed with |
|---|---|---|
| Draft | DRHP — the draft offer document | SEBI, and hosted publicly for comment |
| After observations | RHP — price band, no final price | Registrar of Companies, before the issue opens |
| After the book closes | Prospectus — final price, shares, capital raised | Registrar of Companies and SEBI |
B. The same company, three years later and now listed, raising Rs 600 crore from its shareholders by a rights issue.
The offer document is a Letter of Offer. The draft goes to the Stock Exchanges, not the Registrar of Companies — and if it qualifies as a fast track rights issue, there is no draft filing with SEBI and no SEBI observations at all.
What never changes. In all three, the document must carry the company, promoter, project and financial details, the objects of raising the money and the terms of the issue; and in all three the lead merchant banker's due diligence certificate reaches SEBI before the final document reaches the Registrar.
Why NISM asks about it
Chapter 4 (Issue Management — Important Terms), item (8), is the definition, sitting between "Offer for sale through the stock exchange mechanism" and the red herring prospectus. Chapter 2 carries the lead merchant banker's obligations on the draft document, and Chapter 4 the fast-track exemptions.
The examinable points are the ICDR list — red herring prospectus, prospectus, shelf prospectus and information memorandum for a public issue, letter of offer for a rights issue — and where the draft goes: SEBI first, then the Registrar of Companies for a public issue or the Stock Exchanges for a rights issue.
A question will often name a document ("letter of offer") and ask which kind of issue it belongs to, or hand you a filing sequence and ask which step is wrong.
Common exam traps
- "Offer document" is a category, not a document. The paper asks which documents fall inside it; answering "the prospectus" alone is incomplete.
- Letter of offer = rights issue. It is not used in a public issue, and a public issue never produces one.
- The draft goes to SEBI; the final goes to the Registrar of Companies. For a rights issue the draft goes to the Stock Exchanges. Mixing these up is the most common error in the chapter.
- The information memorandum is part of the ICDR definition, under section 31 of the Companies Act, 2013 — candidates routinely leave it out of the list.
- SEBI specifies changes; it does not approve. The draft is filed "for specifying changes, if any", and is opened to public comment.
- Fast track issues are exempt from the draft filing and from SEBI observations — not from the offer document itself.
- A private placement memorandum is an AIF's offer document, not this one. Both are called offer documents in their own papers; this page is the public-issue sense the ICDR Regulations define.
Check yourself
1.A Further Public Offer can be made only through the book building process. True or false?
- a)False — an FPO can be made through a book building process or a fixed price issue
- b)True — only book building is permitted for an FPO
- c)True, unless SEBI grants a specific exemption
- d)False — an FPO must always be a fixed price issue
Show the answer
Answer: (a) False — an FPO can be made through a book building process or a fixed price issue
FPO can be made through a book building process or a fixed price issue.
Both routes are available.
What an FPO is: a further public offering (FPO) means an offer of specified securities by a listed issuer to the public for subscription and includes an offer for sale of specified securities to the public by any existing holders of such securities in a listed issuer.
It is when an already listed company makes either a fresh issue of securities to the public i.e. other than to its existing shareholders or an offer for sale to the public or both through an offer document it is called a further public offer.
Note the "other than to its existing shareholders" — an offer to existing shareholders on a record date is a rights issue, not an FPO.
There is also a faster route: FPO may be made through the Fast Track Issue (FTI) process, provided certain conditions as prescribed under the SEBI ICDR Regulations are complied with. Such issues are also granted exemptions from requirements such as filing the draft offer document with SEBI, issuance of observations by SEBI etc.
Rights issues get comparable relief on conditions.
How the two pricing routes differ. In book building bids are collected from investors at various prices at which they are willing to subscribe... which is within the price band specified by the issuer, and the issue price is determined after the bid closure based on the demand generated. In a fixed price issue the prospectus that is filed with RoC contains the issue price per share and the demand for the issue is known only while the issue is kept open for subscription.
The distinction from an IPO is the issuer's status: an IPO is by an unlisted issuer, an FPO by a listed issuer.
2.An issuer sets a floor price of Rs. 500 in a book built issue. What is the permissible range for the cap price?
- a)Rs. 525 to Rs. 600
- b)Rs. 500 to Rs. 600
- c)Rs. 525 to Rs. 750
- d)Any price the issuer chooses above the floor
Show the answer
Answer: (a) Rs. 525 to Rs. 600
The cap price shall be at 105% of the floor price, but cannot be more than 120% of the floor price.
105% of Rs. 500 = Rs. 525. 120% of Rs. 500 = Rs. 600.
So the band must be at least 5% wide and at most 20% wide.
The workbook footnotes the lower limit: in case of book-built issues, a minimum price band of at least 105% of the floor price shall be applicable for all issues opening on or after SEBI notification in the official gazette.
What the two edges mean: price band indicates the floor price, which is the minimum price at which the bid can be made, and the cap, which is the upper limit of the price at which the bid can be made.
Investors bid inside it: bids are collected from investors at various prices at which they are willing to subscribe to a certain number of shares, which is within the price band specified by the issuer.
And the outcome comes later: the issue price is determined after the bid closure based on the demand generated in the process.
Which is why the price is missing from the offer document at filing. The red herring prospectus... contains all the relevant details except that of price or number of shares being offered.
Option D would be right only for a market with no band rule — and note that the band is not the same thing as differential pricing, which is when one category of investors is offered shares at a price different from the other category, allowing a prescribed discount to retail and certain other categories.
In India the bidding is visible while it happens: Indian Book building process provides for an open book system.
3.Who appoints the accountants and auditors who help prepare the financial statements for inclusion in the offer document?
- a)The issuer company
- b)The merchant banker
- c)The Association of Investment Bankers of India
- d)The Ministry of Corporate Affairs
Show the answer
Answer: (a) The issuer company
The issuer appoints, though in consultation with the lead manager.
The issuer shall, in consultation with the lead manager(s), appoint other intermediaries which are registered with SEBI after the lead manager(s) have independently assessed the capability of other intermediaries to carry out their obligations.
The lead manager assesses capability; the issuer appoints.
The statutory auditors are the issuer's own auditors in any case. The statutory auditors of the issuer company also provide their reports on the financial information included in the Offer Documents and other relevant certifications pertaining to the issue including "comfort letters" for financial information included in the Offer Documents including for periods subsequent to the date of the last audited financial statements.
Option C confuses AIBI's role. As Chapter 2 explained, AIBI is the self-regulatory industry body; its contribution here is guidance — the Association of Investment Bankers of India's Due Diligence Manual — not appointments.
The other appointments the issuer must make:
An issuer shall appoint one or more SEBI registered merchant bankers, as lead manager(s) to the issue.
The issuer shall, in case of an issue made through the book building process, appoint syndicate member(s) and in the case of any other issue, appoint bankers to issue.
The issuer shall appoint a registrar to the issue, registered with SEBI, which has connectivity with all the depositories — but if the issuer itself is a registrar, it shall not appoint itself as registrar to the issue, and the lead manager shall not act as a registrar to the issue in which it is also handling the post-issue responsibilities.
The issuer shall appoint a compliance officer who shall be responsible for monitoring the compliance of the securities laws and for redressal of investors' grievances.
And one restriction on the lead managers themselves: at least one lead manager to the issue shall not be an associate... of the issuer, an associate's role shall be limited to marketing of the issue.
Where this is taught
Free preparation for NISM Series IXRelated terms
- Rights issueAn offer of new shares at a set price to existing shareholders in a fixed ratio to what they already hold, so that their proportionate stake is not diluted when the company raises fresh capital.
- Further Public OfferA fresh public offer of securities by a company that has already made an IPO — used to raise more capital or, as an offer for sale, to widen public shareholding.
- Initial Public OfferThe first offer of a company's shares to the public — by fresh issue, by existing shareholders selling through an offer for sale, or both — after which the shares must be listed.
- Red Herring ProspectusThe offer document used in a book-built public issue, containing every disclosure a prospectus carries except the final price or number of shares, filed with the Registrar before the issue opens.
- Merchant bankerA SEBI-registered body corporate engaged in the business of issue management — arranging the selling, buying or subscribing of securities, or acting as manager, consultant or adviser in relation to an issue.
- Registrar of CompaniesThe office, appointed by the Central Government under section 396 of the Companies Act, 2013, that registers companies, keeps their public records and charges, and polices their statutory filings.
- Due diligence certificateThe formal certificate a lead manager signs and files with SEBI at prescribed stages of an issue, confirming that it has verified the issuer's disclosures and that the offer document is compliant.
- Shelf prospectusA prospectus under Section 31 of the Companies Act, 2013 that covers securities issued in one or more offers over a validity period of up to one year, without a fresh prospectus for each offer.
- ProspectusThe offer document a company issues when it raises money from the public. It sets out the company, its promoters, finances, risks, purpose of the issue and terms, so investors can decide.
- Information MemorandumIn AIF due diligence, the investee company's own document of representations and forecasts; separately, the document an AIF scheme files with SEBI through a merchant banker to enter a dissolution period.