Offer Document: The Set of Issue Documents and Their Sequence

An offer document is the document through which securities are offered to the public, and one issue produces a sequence of them rather than one. A draft is filed first, a version carrying a price band opens the offer, and a final version records the price the issue discovered. Each exists because something could not be known when the one before it was filed. The current contents of each version are read at sebi.gov.in.

A household in a small town books railway tickets six weeks before a wedding in another state. The ticket that comes back names the train, the date, the three passengers and the fare, and it does not name a berth. The ticket says waiting list. Nobody has cheated anybody. On the day that ticket was issued, no berth had been decided for that household, and the berth depends on who else books and who else cancels before departure. Hours before the train leaves, the chart is prepared, and a second document appears with a coach and a berth number on it.

Nothing about the journey changed between those two documents, and the only thing that changed was that something which could not be known in advance had become knowable. The documents an issue produces are staged in exactly the same way, and every difference between one version and the next comes from the same source: the calendar of what was settled by the time each one was filed.

The documents named below, the order they run in and the route they travel are Indian securities regulation throughout. The regulations and the bodies that issue them are named below, with the date they were read.

One raise carries every example below. Vindhya Ceramics Private Limited, an invented unlisted manufacturer, raised Rs 40,00,00,000 in all, Rs 25,00,00,000 of it in equity and Rs 15,00,00,000 in debentures. Its merchant banker was Trilokpur Capital Markets Private Limited, whose team was led by Sulekha Bhandari, and Ratnakar Deshpande is the finance director at Vindhya Ceramics who signed off the documents from the issuer side.

What is an offer document, and which documents does the term cover?

An offer documentThe document through which securities are offered to the public. One issue produces more than one version of it. is the document through which securities are offered to the public. The definition is deliberately wide. The term is not the name of a single file but the name of a category, and a public issue of equity in India fills that category three times over before it is finished.

The three that matter for a public issue of shares are the draft, the version filed to open the offer, and the final version. Each has its own name in practice: the draft red herring prospectus, the red herring prospectus, and the prospectus. When somebody in an office says they are reading the offer document, they mean whichever of the three is currently the live one, and the fastest way to be confused for an afternoon is to assume that two people saying that phrase are looking at the same file.

The sections of any of these documents come in a settled order, and a settled order is what makes a file of this length navigable rather than merely long. The draft that Vindhya Ceramics Private Limited filed ran to 480 printed sides. Nobody, in any office, in any city, reads 480 printed sides front to back. Readers jump: to the section on the business, to the section on the risks, to the financial information, to the part describing the offer itself. The order is settled enough that an experienced reader can find a section without a contents list, in the same way that anybody can find the ingredients on a packet of biscuits without being told where to look.

Why does one issue produce several documents rather than one?

One question sounds naive and is worth asking out loud anyway. If an offer document exists to describe a company and its offer, why can that not be done once, properly, in a single file?

The answer is that the facts an issue needs to state do not all exist at the same moment. Two of them in particular arrive late. The first is the price. For a book built issue nobody chooses the price in advance: it is discovered from what investors actually bid, and bidding cannot happen until the offer is open. The second is everything about how the offer went, and how the offer went is not knowable until the offer has closed. Meanwhile the review of the document has to happen before the offer opens. A review after the money has come in is not a review, it is an inquest.

So the sequence is not a convention somebody chose and could just as easily have chosen differently. The sequence falls out of a conflict between two requirements that cannot both be met by one file: the document must be reviewable before the offer opens, and it must state a price that only comes into being after the offer opens. Splitting it into stages is the only arrangement that satisfies both. Every difference that ever appears between two versions of an issue's documents sits somewhere in that gap.

What is the draft offer document for, and what happens to it after it is filed?

The draft offer documentThe version filed first, before the offer opens to anybody. is the version filed before the offer opens to anybody. The draft is the first complete telling of the company: what kind of business it is, how it makes money, who runs it, what the accounts say, what could go wrong, and what the company intends to do with the money. The draft is filed, and filingSubmitting a document to the regulator or the exchange, as the route requires. here means submitting it to the regulator and to the exchanges as the route requires.

Two things then happen to it, and both are worth knowing because both leave marks a reader can find later. The first is review. The document goes to a regulator whose job at this stage is not to say whether the issue is a good one, and this catches people out every time. Nobody at any desk anywhere is assessing whether Vindhya Ceramics Private Limited is worth investing in. The examination asks whether the document tells the reader what the reader needs in order to decide.

The second thing that happens is that the draft becomes public. From the day it is filed the company has committed itself in writing to a description of its own business that it will have to live with. Ratnakar Deshpande at Vindhya Ceramics Private Limited discovered what that means the ordinary way: a customer read the draft, found the sentence describing how much of the revenue came from two buyers, and asked him about it in a meeting three weeks later. The draft is not an internal paper that becomes public later. The draft is public from the beginning, and it is read by competitors, customers, lenders and staff long before it is read by a single applicant.

The draft can and does change. Change is what a review is for, and a document that came out of one unchanged would be a strange result rather than a good one. Which changes appear between the draft and the version that opens the offer, and how a reader spots the ones that matter, is set out under the red herring prospectus.

What does the document that opens the offer deliberately leave out?

The second version is the one that opens the offer, and it is called the red herring prospectusThe version that opens the offer. It carries a price band and no price.. An applicant actually applies against this second version, and it carries almost everything: the business, the risks, the accounts, the people, the plan for the money. The second version adds a price bandThe range within which the price of an issue will be discovered., and what it leaves out is the price.

The Vindhya Ceramics offer opened with a band of Rs 96 to Rs 101 per share. The band is the issuer's own, and it is not an example of what any rule permits or requires. The document said, in effect, the price will land somewhere inside these two numbers, and here is everything needed in order to decide whether to apply for shares at a price inside them.

The missing price is not an omission, an evasion or drafting shorthand. The missing price is a fact about the calendar: on the day that document was filed, no price yet existed to be printed. An applicant reading it was being asked to commit before the price was settled. The discomfort of committing early is exactly why the band is there. The band bounds that discomfort. The band states the worst price an applicant can be asked to pay, and knowing the worst price is what a person actually needs in order to decide whether to apply at all.

The ticket makes the same point. The waiting list number on that six week old ticket is not the railway being cagey about the berth. The waiting list number is the railway stating, with the information that exists on that date, roughly where the passenger stands. The berth appears when a berth can appear, and not before.

What does the final document record that nothing before it could?

The last version is the prospectusThe final version, carrying the price the issue discovered., filed after the offer has closed. The prospectus carries the price. For the Vindhya Ceramics issue that price was Rs 100 per share. Rs 100 was the highest price inside the band at which the offer was still covered, and at that price the Rs 25,00,00,000 equity portion became 25,00,000 shares. How the demand at each price produced Rs 100 rather than Rs 98 or Rs 101 is set out under book building.

The final document is the only one of the three that describes a completed event rather than an intention, and that single difference is what makes it the version everything later refers back to. A registrar allotting shares, a company secretary maintaining the record of what was offered, an analyst three years later reconstructing what the company said about itself at the moment it went public: all of them reach for the final version. In the final version the sentence about price is a statement of fact rather than a range.

Notice what is not in that list of differences. The business Vindhya Ceramics Private Limited runs is the same business in the final document as in the draft. The risks are the same risks. The people are the same people. The only things that moved are the small number of facts that could not have been stated earlier, and everything else stayed put.

What did the Vindhya Ceramics raise actually produce?

Set the three documents side by side with their dates of filing removed. What remains is a clean picture of the staging. Vindhya Ceramics Private Limited raised Rs 40,00,00,000 in all: Rs 25,00,00,000 in equity and Rs 15,00,00,000 in debentures, with Anantpur Trusteeship Services Limited as trustee for the debentures and Sahyadri Ratings Limited having rated them. Suravali Registry Services Private Limited was the registrar.

Read down the last two columns and the shape of the whole sequence appears. The description was written once and carried forward. The price arrived in two instalments, first as a range and then as a number. The two instalments are the entire movement between the second document and the third, and the movement is worth seeing drawn.

Follow-On Public Offer: what is it, and which documents does it produce?

A follow-on public offerA further public offer by a company that is already listed. is a further public offer of securities by a company that is already listed. The first time a company offers shares to the public it has no market history at all. A follow-on offer is the same act performed by a company that already has one: its shares already trade, a price already exists on a screen, and a body of public information about it already exists because it has been reporting as a listed company.

A follow-on offer produces documents of the same kind and in the same order as a first offer, and that repetition is precisely what makes the set worth learning once. There is a draft, there is a version that opens the offer, and there is a final version. The names and the staging carry across. Somebody who has understood why a first offer needs three documents does not need to learn a second scheme for a follow-on one.

The differences that do exist are differences of content rather than of shape. A company that has been listed for some years is describing a business the market has already been watching, so the document is written against an existing public record rather than into silence. Vindhya Ceramics Private Limited, once listed, could raise again, and the equity route back to the public would produce the same shape of documents it produced the first time. A listed company can also raise money in ways not open to it before, and the quickest of those routes is set out under qualified institutions placement.

What does each stage add, laid out in order?

With the three versions set out in three columns, the rows rather than the columns carry the teaching. The business described is the same in all three. The risk factors are the same in all three. Who is answerable for the document is the same in all three. Only the last two rows move, and they move in one direction: absent, then a range, then a number.

Because the three documents describe the same business in the same terms, the differences between any two of them are small, few and locatable. Comparing two versions is therefore a more informative act than reading either one carefully. A single version states what the company says about itself. Two versions state what the company changed about what it says about itself, and a change is a much narrower and much more interesting object than a description.

A household rewriting a rental agreement makes the same point. Reading the second draft alone gives the terms. Setting the first and the second side by side shows what the landlord wanted altered after seeing the first. The comparison is a different kind of knowledge entirely, and it takes a fraction of the time to acquire. Where the changes between an issue's documents come from, and how to find the handful that matter among a great many that do not, is set out under the red herring prospectus.

Who prepares these documents, and who is answerable for what they say?

Two parties build an offer document and both of them carry answerability for it, and the second half of that sentence is the part most readers have never been told. The company raising the money prepares it: its people know the business, hold the accounts and write the descriptions. Vindhya Ceramics Private Limited did this work under Ratnakar Deshpande, its finance director, with Prerna Wadekar, the company secretary, keeping the record of what was filed and when.

The merchant banker does the second half. Trilokpur Capital Markets Private Limited, led by Sulekha Bhandari, ran the diligence behind the document: checking what the company said against what the company could show, and putting its own name to the result. A merchant banker that certifies an offer document is not endorsing the issue as an investment; it is stating that it did the checking work behind the document, and that statement is enforceable against it.

Answerability therefore has a two part answer rather than a one part answer, and the two part answer changes how the document reads. If only the company were answerable, the document would be a company talking about itself. A company talking about itself is worth roughly what any self-description is worth. Because a second party with its own registration has certified the work behind it, the document carries a form of accountability the company alone could not supply. The registration behind a merchant banker, and what that registration requires of it, is set out under merchant banker.

Where does a reader actually find any of them?

Offer documents are public. Saying so is easy and forgetting it is easy too, so the routes are worth naming. There are three routes, and they do not all carry every document at every moment. The gaps between them are the practical reason for knowing more than one.

The first route is the regulator. Drafts and offer documents are published on the site of the Securities and Exchange Board of India at sebi.gov.in, in the section that holds filings and public documents. The second route is the exchanges: nseindia.com and bseindia.com publish the documents for issues coming to their own platforms. The third route is the merchant banker. A merchant banker typically publishes the documents for the issues it has handled on its own site, so Trilokpur Capital Markets Private Limited would carry the Vindhya Ceramics documents there.

Knowing all three routes matters on exactly one kind of day. The day it matters is the day the first route tried is slow, reorganised or missing the version wanted. Such a day arrives more often than anybody expects. A document that has just been filed may appear in one place before another. A site may have moved the section since it was last used. None of that is a scandal, and none of it needs solving. The search just needs a second and a third route held in mind.

How does a professional reader use the set rather than a single version?

Different readers reach for different versions, and what they reach for says more about these documents than any description of them. A credit officer at a bank assessing a lending proposal to a company that has recently issued shares goes to the final version. In that version the offer, the price and the money raised are settled facts rather than intentions. An equity analyst starting cold on a newly listed company goes to the draft first. The draft is the longest, most careful description of a business that has never had to describe itself in public before, and it was written before anybody had a market price to argue with.

A household deciding whether to apply is in the hardest position of the three. The version in front of them is the middle one, the one without a price. The set gives that household something a single version cannot: the ability to check whether the description they are being asked to trust has been sitting unchanged since the draft, or whether something material about it moved in the meantime.

There is a fourth reader worth naming, and the fourth reader is the reason an offer document still matters years later. Somebody reconstructing a company's history reaches for its offer documents precisely because they are the most complete self-description a company ever produces. A listed company reports every quarter, but it never again writes 480 printed sides about itself from a standing start. The set is a snapshot of a business at a moment, made under answerability, and it does not go stale in the way commentary does.

What is an offer document not?

An offer document is a disclosure documentA document whose purpose is that the facts and the risks are stated, not that anything is argued for., and the distinction between a disclosure document and a persuasive one decides how the whole file is read. An offer document is not a case for the issue, not a research note, not a valuation and not an opinion about whether anybody should apply.

A disclosure document behaves in an entirely familiar way. One falls out of every strip of tablets sold across a counter. The leaflet inside is written by the manufacturer, printed by the manufacturer and paid for by the manufacturer, and almost all of it is about what can go wrong: the side effects, the people who must not take it, the interactions with other medicines. Nobody reads that leaflet and concludes that the manufacturer is arguing against its own product. The leaflet exists so that the facts are in the hands of the person taking the decision, and the manufacturer writing it does not change what it is for.

A good offer document contains material that makes the issue look less attractive, and its authors put that material in on purpose. Stating what could go wrong is the job the document exists to do. The risk factors section of the Vindhya Ceramics draft is the clearest example: a section, written by the company and its merchant banker, whose entire content is reasons the reader might not want to be there.

Vindhya Ceramics Private Limited, Trilokpur Capital Markets Private Limited, Suravali Registry Services Private Limited, Anantpur Trusteeship Services Limited, Sahyadri Ratings Limited, Ratnakar Deshpande, Sulekha Bhandari and Prerna Wadekar are invented.
Educational material. Not advice on any investment, tax, budget or market position.