Shelf Prospectus: Here's all you need to know | Espresso

What is a Shelf Prospectus?

To understand more about a prospectus, let us get into the details of the market.

Think of a company whose products you frequently use. You would have seen that the company launches new products now and then. It is their way of expanding business and tapping more markets.

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Moreover, it is vital for tackling competition and ensuring sustainability. But, it is not easy to proceed with business expansion. A company requires huge capital to expand, and profits may not always be sufficient to fund future operations.

Fundraising is one of the solutions adopted by many companies to get the capital they need for expansion. They can raise funds through Initial Public Offering (IPO), wherein they offer shares to the public for the first time. But after the company has gone public, how can it further raise funds? It can do so by using bonds.

Bonds are debt instruments. It means that these financial tools function on the principle of loans. The objective of issuing these bonds is to borrow money from the lender. The lender receives a predetermined interest on the principal amount from the company.

An investor can choose to invest in the company as it offers multiple bonds for raising capital. But you must know about the issue to analyse at a fundamental and technical level. Therefore, investors study the shelf prospectus to obtain all the information about the issuance of the bond.

Now, let us define what a shelf prospectus is exactly.

A shelf prospectus is a document declaring a company’s intent to offer securities to the public. The document consists of in-depth information about the company and the securities it is offering. It gives the trader valuable information to make a more informed decision before investing in those securities.

A shelf prospectus is issued by companies offering multiple securities to the public. The objective of the prospectus is to raise funds for business operations. Through this type of prospectus, a company advertises, announces, and invites the public for subscribing to securities. Any public limited company must mandatorily prepare a prospectus before offering securities.

Additionally, public limited companies intending to raise funds through several issues of bonds need to submit a shelf prospectus to the SEBI. Apart from the prospectus, an Information Memorandum must also be filed.

There is also a good part worth highlighting about a shelf prospectus. After a company submits the prospectus, it does not need to submit a prospectus before each new issuance. A single prospectus allows companies to issue securities four times.

A shelf prospectus is only for companies that issue non-convertible debt bonds. The process to raise funds with a prospectus does not differentiate from the process of raising debt funds. Companies need to meet only one additional requirement, and that is the filing of an Information Memorandum.

When bonds are issued for the public, there is the involvement of a large amount of public money. Thus, the Securities and Exchange Board of India (SEBI) has laid specific rules and regulations that the public issue must abide by.

Last Words

The Securities and Exchange Board of India (SEBI) approves a shelf prospectus after ensuring the company’s securities are credible. They must not create a high-risk profile for the investors. This approval guarantees that a reputable company offers the securities and will offer good returns to investors.

The shelf prospectus consists of all the details an investor needs to make an informed decision about investing in the securities. Thus, investors can go ahead and invest in the securities. But, make sure you study and evaluate the prospectus carefully before investing.
Also Read about Abridged prospectus

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Frequently Asked Questions

A publicly listed company issues a shelf prospectus to raise capital that it can use to further fund its business operations.

Investors consider the shelf prospectus as one of the most vital documents to make their investment decision in the company’s securities. It consists of all the information regarding the issue, which can give investors an analysis of the company and the securities it issues.

Only companies that issue non-convertible debt bonds can file a shelf prospectus. Therefore, investors cannot convert these bonds into share capital.

A full-fledged prospectus is different from a shelf prospectus. In the latter, companies can sell securities publicly. As a result, there is no need to write or file a prospectus for every issuance. Therefore, there will only be one prospectus for four issuance offerings.

A shelf prospectus must be used within one year. A company does not need to issue a new prospectus each time it issues new securities. With one prospectus itself, a company can raise capital four times.