The two sides of BSEC's new IPO rules: Big firms get a boost, risky ones face a bar

The Bangladesh Securities and Exchange Commission (BSEC) has proposed stricter safeguards to prevent companies with time-bound operations from raising money from the public, while easing several initial public offering (IPO) requirements to attract large, established businesses to the stock market.

The proposed amendments to the Bangladesh Securities and Exchange Commission (Public Offer of Equity Securities) Rules, 2025, seek to address past failures that have eroded investor confidence while giving financially strong companies greater flexibility in raising capital and determining share prices.

The regulator has invited stakeholder feedback until November 2, 2026, before finalising the amendments for publication in the gazette.

The proposal to tighten eligibility requirements follows mounting losses among investors in listed power companies whose earnings have come under pressure as the government shifts its electricity procurement strategy away from private oil-fired power plants. Nearly nine power-generating companies are listed on the Dhaka Stock Exchange (DSE), many of which have struggled as the business environment has changed.

During Sheikh Hasina's rule, power generation licences were awarded to politically connected businesses, while taxpayer-funded subsidies supported the sector. The experience has exposed the risks of allowing companies dependent on time-bound projects to raise public money without credible plans for sustaining their operations.

The proposed amendments seek to prevent companies with time-bound projects or operations from launching IPOs unless they can provide adequate documentation of credible plans to undertake new projects or continue operations beyond the expiry of their existing contracts or operational terms.

The previous overhaul of IPO rules under the interim government had allowed such companies to remain eligible if they could demonstrate plans for subsequent projects or continued operations. The latest proposal seeks to tighten that provision, reflecting lessons from the losses suffered by investors.

Stricter screening to protect investors

The proposed amendments introduce a pre-IPO verification audit to independently examine and corroborate an issuer's financial and non-financial information, documents, records and disclosures before it applies to go public. The process is intended to establish the accuracy, completeness and authenticity of the information and ensure compliance with applicable laws and regulatory requirements.

The amendments would also strengthen the DSE's scrutiny of information submitted by prospective issuers, adding another layer of checks before companies can access public funds.

At the same time, the regulator is proposing changes to IPO pricing to encourage more quality companies to list.

Tanzim Alamgir, founding managing director and chief executive officer of UCB Investment Limited, told Daily Waadaa that the proposed rules could help address a longstanding obstacle to bringing good companies to the market: determining a fair issue price.

"One of the major hurdles in bringing good companies to the market has been the challenge of exploring a desirable and fair price for the issue. The new rules provide issuers with greater scope to discover an appropriate market-driven price, which should encourage more companies to consider listing," he said.

Tanzim said the proposed changes would also simplify procedures, reduce procedural complexities and shorten the time required to complete an IPO. Stronger transparency and disclosure requirements, he added, would help protect investors and enable them to make more informed decisions.

"Overall, I believe these reforms are a positive step towards attracting quality issuers, strengthening investor confidence, and making our capital market more vibrant and sustainable," he said.

Md Moniruzzaman, managing director of Prime Bank Securities Ltd and a veteran merchant banker, also welcomed the proposed pricing mechanism, saying it could encourage quality companies to go public.

Under the proposed Dutch auction mechanism, the issuer and issue manager would jointly determine an indicative market-based price, while investors' bids would help determine share allocation. The approach is intended to make IPO pricing more transparent and market-driven.

The proposal would also restrict Market Access Companies from charging a premium under the fixed-price method. Companies seeking to offer shares at a premium would have to use the book-building process.

Another significant change would raise the limit on IPO proceeds that can be used to repay debt from 30% to 50%. This could allow profitable but heavily indebted companies to raise equity capital and reduce their borrowing burden.

Lower IPO thresholds could open the market to corporate giants

While tightening screening requirements, the BSEC is proposing greater flexibility for large corporations to raise funds through public offerings.

Companies with annual turnover or total assets exceeding 500 crore taka would be eligible for a hybrid offer, combining an IPO of new shares with an offer for sale (OFS), through which existing shareholders can sell part of their holdings.

Under the proposal, at least 5% of post-IPO paid-up capital would have to be offered through the IPO, while the combined IPO and OFS would account for at least 10%. Companies with a pre-IPO net worth of 500 crore taka or more could also offer as little as 5% of their post-IPO paid-up capital, against the general requirement of 10%.

The changes could make the stock market more accessible to large, established businesses, including companies such as Unilever, Banglalink and bKash, provided they meet the applicable eligibility requirements.

The proposed framework would also allow loss-making companies to raise public capital if they can demonstrate a credible path to profitability. This would widen the pool of potential issuers beyond businesses that are already profitable, although investors would still need to assess their financial prospects and risks.

The reforms aim to address one of the biggest weaknesses of Bangladesh's stock market: the shortage of quality listed companies. Of roughly 360 listed firms, around 60 are considered at risk of business failure, leaving investors with only about 25 to 30 fundamentally strong companies to choose from.

Bringing more viable businesses to the market could expand investment opportunities while providing companies with an alternative to bank borrowing. Equity financing is particularly important for capital-intensive industries, such as semiconductor manufacturing, which require substantial long-term investment.

With private sector credit growth sluggish, a deeper equity market could help businesses finance expansion without taking on excessive debt. It could also give ordinary investors an opportunity to share in the growth of leading companies.

However, the success of the proposed reforms will depend on how effectively the regulator enforces disclosure requirements, screens prospective issuers and protects investors. Easing IPO requirements could attract larger companies, but without rigorous oversight, greater access to public funds alone will not guarantee better investment outcomes.