Market operators warn revised IPO rules may deter new listings

The revised public issue rules would discourage new listings if enforced with the proposed cap on post-paid-up capital and the bar on using IPO proceeds for loan repayments, said market operators and entrepreneurs.

They expressed their views on Wednesday at a discussion on the draft rules titled Bangladesh Securities and Exchange Commission (Public Offer of Equity Securities) Rules, 2025.

Apart from stock brokers and merchant bankers, representatives of several businesses attended the programme arranged by the Dhaka Stock Exchange (DSE) and the DSE Brokers Association (DBA).

Reza Uddin Ahmed, executive director of the City Group, said companies of many established business groups no longer needed to raise money for working capital as these entities had already made expansions with bank loans.

Borrowing from banks is not a feasible option. Moreover, many banks are now unable to make LC (letter of credit) payments.

"In this situation, the established and matured companies of large business groups will not be interested in going public when they are not allowed to repay loans with IPO proceeds," Mr Ahmed said.

The draft rules also say the post paid-up capital of a company listed under the fixed price method should not exceed Tk 1 billion. The market watchdog considered this restriction to encourage companies to list under the book building method, which is widely accepted across the globe.

In this regard, the participants said such a cap on capital would force issuers to opt for the book building method even if the fixed price method was more suitable for them.

They pointed out an inconsistency in the proposed rules, saying a greenfield company would, however, be allowed to have capital exceeding Tk 1 billion.

The post paid-up capital discrepancy would make mature businesses feel penalised and discourage them from going public, speakers said at the discussion.

Dhaka Stock Exchange Chairman Mominul Islam said the revised IPO rules should help develop the overall capital market.

The draft rules also prohibit changes in the structures of a company's capital, shareholding and directorships within three years prior to listing.

Opposing this provision, participants said changes might occur before a company went public to diversify its business.

In many cases, issuer companies need flexibility and governance planning through adjustments in ownership structure or board composition prior to going public.

So, changes in ownership structures and directorships should be permissible, speakers said, with the condition that disclosures be made as required by the regulator.

Otherwise, the proposed provision would hinder the listing of a good number of companies, they warned.

Another proposed provision makes it mandatory that companies willing to go public should have been in profit for two consecutive years prior to listing.

That is also deemed unrealistic by the meeting participants. They said a company could incur losses for many unavoidable reasons and that the regulator might seek profits in two years out of the previous five years instead.

President of Bangladesh Merchant Bankers Association (BMBA) Mazeda Khatun said issuers would not list themselves if they did not see any benefits.

At the programme, merchant bankers who work as issue managers complained about the provision that gives them the role of monitoring the usage of IPO proceeds.

They said monitoring fund utilisation is the job of auditors. The task is also performed globally by independent agencies and audit firms.

"The responsibilities of separate parties will have to be defined without shifting someone's responsibility to others," Ms Mazeda said.

Managing Director of Prime Bank Securities Md Moniruzzaman accused the securities regulator of considering the benefits of IPO investors, not IPO issuers.

While being unable to control prices in the secondary market, the BSEC controlled prices of IPO shares, he said, referring to the valuation method of the existing book building system.

"It's a good thing that now the BSEC has backtracked from the valuation cap," said Mr Moniruzzaman.

At the programme, discussants also said it would be difficult to receive indicative prices from 75 eligible investors (EIs) under the book building method as required by the proposed rules.

The draft rules say at least 45 EIs from three categories - stock dealers, asset management companies and portfolio managers - will quote prices at which they would be willing to purchase shares.

Another at least 10 EIs from three groups of institutions other than the ones mentioned above will also quote indicative prices and the number of shares they would purchase.

Md Lutful Kabir, an additional director of the securities regulator, urged the stakeholders to submit opinions to the commission.

Former DBA President Richard D'Rozario, Chittagong Stock Exchange chief AKM Habibur Rahman, incumbent DBA President Saiful Islam, among others, spoke at the programme.

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