What is Shelf Prospectus?

Last Updated: 16 Jan 2025

Take any company that you are familiar with and use products of, you will realize that it launches new products after a while. It is a form of business expansion that is inevitable in most companies, and this is considered the key to tackling competition and ensuring sustainability. However, expanding is not as easy. Every company that wants to expand requires huge capital to do so, and the profits they are making may not be enough to fund their future operations.

Many companies generally raise huge funds to aid expansion and other efforts through Initial Public Offering, where a company offers its shares to the public for the first time. But what about a company that is already public and wants to raise funds further? That is when they use Bonds.

Bonds are debt instruments, which implies that they work on the principle of loans, where a company issues bonds to borrow money from the lender, also called the bondholder. The company promises the lender a regular predetermined interest on the principal amount. In bond terms, this interest rate is called a coupon.

If you are an investor, you can consider investing in the company through the way of multiple fundraising issues. However, it is vital to know everything about the issue to execute the technical or fundamental analysis. Investors look towards the shelf prospectus to find all the information about the bonds’ issue.

What is a Shelf Prospectus?

Before you learn about shelf prospectus meaning, you need to understand the meaning of a prospectus in financial terms. A prospectus is a legal document submitted by a company to SEBI that contains all the information regarding the securities issue. Every company must submit the prospectus before raising any funds. It provides a detailed outline of the company, the issue, the prices, dates, and features.

Among the various types of a prospectus, a shelf prospectus is issued by a company that is planning multiple issues of bonds for raising funds from the public. A shelf prospectus can only be issued by a publicly listed company, and it is done by filing an information memorandum in Form PAS-2.

A shelf prospectus can only be issued by a company if it is raising funds through non-convertible debt bonds. A non-convertible debt bond can’t be converted into share capital. With the issue of a shelf prospectus, a company can issue securities to raise funds four times.

The information mentioned in the shelf prospectus may vary based on the company and its fund requirements. However, most shelf prospectuses include information regarding the background of the company, financial summary, type of security, issue size, issue price, number of securities, risk profile, sector analysis, etc.

Who can issue a shelf prospectus?

A shelf prospectus can be issued by the below-listed companies:

• Public Financial Institutions (PFIs) (companies in which the Indian government holds more than 51% of the shares)
• Non-banking Finance Companies (NBFCs)
• Public Sector Banks
• Publicly Listed Companies (companies that have their securities listed on stock exchanges such as National Stock Exchange (NSE), Bombay Stock Exchange (BSE), or the Calcutta Stock Exchange (CSE).

Criteria for companies to issue the Shelf Prospectus

A company must be eligible to raise capital through bonds. Here are the criteria for companies that can issue a shelf prospectus:

• The company must have a valuation of Rs 5,000 crores and above.
• The company should submit an agreement with SEBI for the dematerialization of securities.
• The company must ensure that the bonds it is issuing have an AA- or above credit rating.
• There should not be any pending regulatory action against the promoters or the directors of the company.
• The company must be consistent in repaying the installments of debt.

Shelf Prospectus and financial securities

Generally, a publicly listed company issues a shelf prospectus when it is trying to raise funds through bonds. However, a shelf prospectus is not limited to raising funds through bonds. Any company can issue a shelf prospectus if it is trying to raise funds by issuing more equity. Furthermore, issuing mutual funds also requires a detailed shelf prospectus. For mutual funds, a shelf prospectus offers information on the funds’ goals, risks, fees, investment strategies, etc. Before investing in a mutual fund, an investor can analyze the shelf prospectus to understand everything about the fund and then make informed investing decisions.

Benefits of Shelf Prospects

A shelf prospectus offers several advantages for companies that issue securities over time without repetitive regulatory approvals. Here are some ways it can prove beneficial:

Timing Flexibility

The shelf prospectus enables companies to strategically set each issuance time. With this agility, they can quickly seize opportunistic market placements to ensure  they derive maximal benefit from their offerings.

Cost Savings

With a single-shelf prospectus, there is no need for multiple approvals, which minimises the legal, administrative, and filing costs required for each issue. This all-in-one solution provides the issuer with substantial cost savings.

Rapid Market Access

As the preliminary approvals are already in place, companies can quickly enter the market when they spot an opportunity. This allows for swifter responses to shifts in market dynamics, which will be advantageous to both issuers and investors.

Investor Confidence

A shelf prospectus provides comprehensive details about the company’s plans and financial health, boosting investor trust. The transparency assures stakeholders of the company’s intent and preparedness for multiple offerings.

Strategic Financial Planning

With the ability to issue securities in tranches, companies can better plan their funding requirements. This phased approach aligns with long-term financial strategies, ensuring optimum fund utilization.

Administrative Efficiency

The streamlined process reduces the need for repetitive documentation and approvals. This saves time and minimises the administrative burden on the company’s internal teams.

Shelf Prospectus Example

A practical example of a shelf prospectus can be seen with a real estate developer planning to raise capital for multiple residential projects over the next few years. By filing a shelf prospectus, the developer prepares a document outlining the terms for future bond issuances to fund these projects. When each project reaches the necessary funding stage, the developer can issue securities as needed without filing additional documents.

For example, a developer planning to build several apartment complexes in different cities might use a shelf prospectus. This allows the company to quickly access capital when each new project is ready, ensuring they can meet financial requirements on time. Investors can access the shelf prospectus for information about the developer’s ongoing and upcoming projects, financial stability, and the specifics of each bond offering.

What is the Validity Period of the Shelf Prospectus?

Usually, a shelf prospectus is valid for three years from the date of registration. The company can offer securities in multiple tranches or ‘batches’ within this period without requiring a new prospectus for each batch.

In this period, it is critical for the company to continuously update the prospectus. For example, if a company filed a shelf prospectus on April 1, 2023, it can issue such securities under the same prospectus until March 31, 2026. Any material change to the company’s financial condition or business operations should result in an update of the prospectus to accommodate the new information. This goes a long way in ensuring that investors have all the up-to-date, relevant information when making investment decisions.

Final Word

A shelf prospectus can prove to be the holy grail for an investor who wants to perform a fundamental analysis on a company to decide whether to invest in the securities issue. As a company also raises funds if they are in a bad financial position and want to repay its debt, it is always wise to review the draft prospectus thoroughly before deciding to invest. If you think that the company is profitable, has less debt, and is looking to use the raised capital for expanding, you can go ahead and invest in the new securities issue. For applying to such securities, you will need a trading account and you can open a free trading account by visiting IIFL’s website or downloading the IIFL Markets app from the app store.

Frequently Asked Questions

Why is the shelf prospectus issued?

A shelf prospectus is issued by a publicly listed company to raise capital further to fund its business operations.

Is a shelf prospectus good or bad?

A shelf prospectus is one of the most vital things for investors who want to decide whether to invest in the company’s securities or not. It provides every detail about the issue which the investors can use to analyse the company and the securities issue.

What is the validity of shelf prospectus in company law?

A company doesn’t have to issue a shelf prospectus every time it issues new securities. A shelf prospectus can be used to raise capital up to four times.

What are the different types of prospectus?

There are four main types of prospectus: Red Herring Prospectus (issued before a price or quantity is finalised), Shelf Prospectus (allows multiple issuances under one document), Deemed Prospectus (for offers treated as public issues), and Abridged Prospectus (a summarised version of the full prospectus).

What is the difference between a shelf prospectus and a red herring prospectus?

A shelf prospectus allows a company to issue securities multiple times within a specified period without filing a new prospectus for each issue. A red herring prospectus is a preliminary document used in IPOs, where pricing and specific details of the issue are finalised after market feedback.