Page 14 - DCOM504_SECURITY_ANALYSIS_AND_PORTFOLIO_MANAGEMENT

Unit 1: Introduction to Capital Market

changes are suggested by SEBI within the said 21 days, the issuing company or the Notes
lead merchant banker shall carryout such changes in the draft prospectus before
filing the prospectus with ROC.
(b) Draft Letter of Offer: A listed company, before making any rights issue for an amount
exceeding 50 lakhs (including premium) shall file a draft letter of offer with SEBI,
at least 21 days prior to the filing of the letter of offer with regional stock exchange
and shall carry changes as suggested by SEBI before the filing of the draft letter of
offer with regional stock exchange.
(c) Prospectus: A company issuing shares to public must issue a 'prospectus'. The
prospectus is an 'invitation' to offer. It is an invitation to the public to take shares or
debentures in the company or deposit money in the company. Section 2(36) of the
Companies Act, 1956 defines a prospectus as "any document described or issued as a
prospectus and includes any notice, circular, advertisement or other document
inviting deposits from the public or inviting offers from the public for the
subscription or purchase of any shares in, or debentures of, a body corporate."
Section 56 of the Companies Act provides that every prospectus must disclose matters
specified in Schedule II.
(d) Abridged Prospectus: Section 2(1) of the Companies Act, 1956 defines abridged
prospectus as "a memorandum containing such salient features of a prospectus as
may be prescribed." Abridged prospectus means the memorandum as prescribed in
Form 2A under sub-section (3) of Section 56 of the Companies Act. It contains all the
salient features of a prospectus. A company cannot supply application forms for
shares or debentures unless the form is accompanied by abridged prospectus.
(e) Shelf Prospectus: Sometimes, securities are issued in stages spread over a period of
time, particularly in respect of infrastructure projects where the size of issue is large,
as huge funds have to be collected. In such cases, filing of prospectus each time will
be very expensive. In such cases, Section 60A of the Companies Act 1956 allows a
prospectus called 'Shelf Prospectus' to be filed with Registrar of Companies. At
subsequent stages only 'Information Memorandum' is required to be filed. The
shelf prospectus shall be valid for a period of 1 year from the date of opening of first
issue of securities under that prospectus.
(f) Information Memorandum: The Information Memorandum shall contain all material
facts relating to new charges created, changes in the financial position as have accrued
between the first offer, previous offer and the succeeding offer. The Information
Memorandum shall be filed with a period of three months prior to making of
second or subsequent offer of securities under Shelf Prospectus. The Information
Memorandum shall be issued to the public along with the Shelf Prospectus filed at
the first stage of offer. Where an update of Information Memorandum is filed every
time an offer of securities is made, such memorandum, together with the Shelf
Prospectus shall constitute the Prospectus.
(g) Red-herring Prospectus: A prospectus is said to be a red-herring prospectus if it is one
that contains all information as per the contents of the prospectus, but does not have
information on price of securities offered and number of securities (quantum) offered
through such document. Thus, a red-herring prospectus lacks price and quantity of
the securities offered. This is used in book-building issues only. In the case of
book-built issues, it is a process of price discovery and the price cannot be determined
until the bidding process is completed. Hence, such details are not shown in
red-herring prospectus filed with ROC in terms of the provisions of the Companies
Act. Only upon completion of the bidding process are the details of the final price

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