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What is an Abridged Prospectus?

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Synopsis:

When a company comes out with an initial public offering (IPO), follow-on public offering (FPO), rights issue, or debt issue, it has to file a full prospectus, which tends to be an exhaustive document. In addition to that, the Indian Companies Act also requires companies to file an abridged prospectus, which is a shorter version of a full prospectus. An abridged prospectus is under five pages long and it provides important information about a company’s business, financials, and board of directors. Investors can quickly read it, which helps them decide whether they want to invest in a company.

An abridged prospectus is a shorter version of a full prospectus. It is usually issued by companies when they are inviting the public for investment through an initial public offering (IPO) or follow-on public offering (FPO). 

Such a prospectus provides important details about a company, including its background, financial data, business model, risk model, etc. These details help investors decide whether they want to invest in the company or not. Now that you have understood what an abridged prospectus is, let us delve deeper into this topic.

Understanding Abridged Prospectus in Detail

As per the Indian Companies Act, an abridged prospectus is a memorandum with all the important features of a prospectus as specified by the stock market regular – the Securities and Exchange Board of India (SEBI).

When a company invites the public to purchase its securities, it is required to issue a full prospectus, which tends to be an exhaustive document that has all the necessary information about a company's financial position, its directors, signatories’ names to the memorandum, the objectives of the public offer, etc.

An abridged prospectus contains all the necessary information from a full prospectus in less than five pages. Hence, it is a concise document that helps people decide if they want to invest in a company. Having explained the meaning of an abridged prospectus, let us talk about the types of abridged prospectus.

Types of Abridged Prospectus

The type of abridged prospectus depends upon the reason for issuing it. For example, the companies going for an IPO release an abridged prospectus that talks about a company’s history, its business overview, key financial parameters, risk factors, etc.

Another type of abridged prospectus is issued by companies when they announce a rights issue. Such a prospectus provides the details of a rights issue, the purpose of the issue, the number of shares being made available, the price of subscription, etc.

The third type of abridged prospectus is issued by companies when they raise finance through debt instruments. This prospectus provides information about the interest rate being offered, the date of maturity, the terms of repayment, etc.

 Additional Read: What Is An IPO: Everything You Need To Know

Example of an Abridged Prospectus   

Find below a snapshot of the abridged prospectus filed by Cyient DLM Ltd. when it came out with an IPO. It clearly says that the total issue size was up to Rs 592 crores. Then, it says that the bid/issue opened on June 27, 2023, and closed on June 30, 2023.

The abridged prospectus also says that Axis Capital Ltd. and JM Financial Ltd. were the book running lead managers of this issue. Under Company Review, the prospectus says that Cyient DLM is a leading integrated electronic manufacturing services and solutions provider.

It also provides a year-wise breakup of revenue, which helps investors understand the segments that are contributing to Cyient DLM’s top line. Then, the data about gross profit and net profit is provided.

Further, the names, designations, and experience of the board of directors are provided. Put together, this information can help investors make up their minds about such an IPO.

How to Find an Abridged Prospectus?

There are multiple ways in which you can find an abridged prospectus of a company. If a company is coming out with an IPO/FPO, it will physically distribute its abridged prospectus along with its application form. Such a prospectus is also available on the websites of the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE).

Alternatively, you can also check a company’s website for its abridged prospectus. Typically, companies upload their abridged prospectus on their website.

Additional Read: Difference Between IPO and FPO

Impact of an Abridged Prospectus for New-Age Investors

New-age investors are well-informed, as they have lots of information at their fingertips. For such investors, an abridged prospectus can be extremely useful. It can tell them about the nature of a company’s business, how it has performed financially in recent years, and how much its sales and profits have been in the recent past.

Besides, it can tell them about a company’s board of directors, their experiences, education, and what they bring to the table. With such detailed information in a few pages, new-age investors can decide whether they want to invest in a company or not.

They can even combine the insights from an abridged prospectus with news and updates about a company to make an even more informed decision.

Significance of Abridged Prospectus

  • Summary of a prospects: A full prospectus is an exhaustive document. However, an abridged prospectus is less than five pages long, and yet it contains all the essential details of a prospectus.

  • Saves investors’ time: As it is a concise document, it helps save investors their precious time. By reading less than five pages of an abridged prospectus, they can decide if they want to invest in a company.

  • Provides information about investors’ rights: Whether a company is coming out with an IPO/FPO, rights issue, or debt issue, an abridged prospectus is an excellent document because it lets investors know their rights. It also contains important information about the nature of an investment.

Elements of an Abridged Prospectus

The elements of an abridged prospectus are explained below:

  • Overview of a company: An abridged prospectus explains the nature of a company’s business and also provides a brief about its history.
  • Financial information: It provides essential financial data about a company that can help investors make up their minds.
  • Details of the offering: It also furnishes information about the number of shares/bonds to be issued, the price range, and the objective of an offering.
  • Risk factors: An abridged prospectus explains the risk factors for making an investment.

Conclusion

An abridged prospectus is a valuable document because it provides important information about a company regarding its business, financial performance, and board of directors. As an investor, it is important to understand the meaning of an abridged prospectus and develop a habit of reading it. Hence, if you have a trading account and want to invest in a company that has come out with an IPO/FPO, rights issue, or debt issue, you should definitely go through its abridged prospectus.

Disclaimer: Investments in the securities market are subject to market risk, read all related documents carefully before investing.

This content is for educational purposes only. Securities quoted are exemplary and not recommendatory.

For All Disclaimers Click Here: https://bit.ly/3Tcsfuc

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Frequently Asked Questions

What is the meaning of an abridged prospectus?

Answer Field

An abridged prospectus is a shorter version of a full prospectus which a company has to file when it approaches the public to raise capital through an IPO/FPO, rights issue, or debt issue.

Why is an abridged prospectus important?

Answer Field

An abridged prospectus is important because it provides people important information about a company in less than five pages, including the overview of a company’s business, its financials, the objective of an issue, etc.

What are the key components of an abridged prospectus?

Answer Field

The key components of an abridged prospectus include the details of an offering (e.g., how many bonds or shares a company is issuing and at what price), financial information about a company, and a summary of its business.

How does an abridged prospectus benefit investors?

Answer Field

It helps investors decide whether they want to invest in a company or not by providing them with relevant information in less than five pages.

Is it mandatory to provide an abridged prospectus?

Answer Field

Yes, under the Indian Companies Act, it is mandatory for a company to file an abridged prospectus when it is approaching the public for an IPO/FPO, rights issue, debt issue, etc.

What are the main types of abridged prospectus?

Answer Field

The first one is the abridged prospectus, which companies file when they announce an IPO/FPO. The second is the prospectus that companies file when they announce a rights issue. The third is the prospectus that companies file when they announce a debt issue.

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