The stock market, intended to play its key role of providing capital to businesses, has slipped from “insignificant” to an “inactive status” this year amid zero initial public offerings (IPOs).
The ongoing regulatory overhaul will do little to reverse the severe drought in capital raising, which is further weakening the market’s supply side, investment bankers and entrepreneurs have warned.
After stretched consultations with stakeholders, the securities regulator published the draft of the Bangladesh Securities and Exchange Commission (Public Offer of Equity Securities) Rules 2025 last week.
Far from meeting post–July Uprising expectations of reduced red tape and fewer bottlenecks, the proposed rules will neither facilitate financing nor strengthen the market. In fact, stricter fund utilisation conditions are expected to further discourage companies from going public.
Under previous rules, companies could use up to one-third of IPO proceeds to repay loans. The regulator is now proposing to reduce this to zero.
Additionally, the use of IPO funds as working capital will be prohibited if the draft is approved without amendments.
Entrepreneurs say most companies are currently not in expansion mode. They require more working capital to sustain operations, while reducing debt burdens would provide relief from mounting financial pressure.
“The proposed restrictions are like cutting off electricity for fear of accidents from exposed wiring, instead of ensuring proper insulation,” said Riad Mahmud, former vice president of the Bangladesh Association of Publicly Listed Companies (BAPLC) and managing director of National Polymer Group.
Despite strict regulations, numerous IPO scams have surfaced over the past decade.
“This was due to weak regulatory oversight — not a lack of regulations,” Mahmud told TIMES of Bangladesh.
“If a company wants to raise equity to repay loans, what is wrong with that?” asked BAPLC President and Berger Paints Bangladesh Managing Director Rupali Haque Chowdhury.
Deleveraging would generate higher tax revenues for the state and increase dividends for shareholders, she added.
Mahmud echoed the sentiment of other entrepreneurs, noting that IPOs will fail to attract companies if they are limited solely to project financing.
IPO pricing paradox persists
Bangladesh’s stock market is unique in restricting firms’ receipts from an IPO. On the other hand, any new stock skyrockets after its market debut regardless of the issue price.
“This shows how restrictive regulations enable speculative gains while depriving firms,” said investment banker Mohammad Obaydur Rahman, who has advised major IPOs including Walton Hi-Tech Industries.
“It has become extremely difficult for investment bankers to convince financially sound companies to go public,” said Rahman, also a vice president of the Bangladesh Merchant Bankers Association.
Following public criticism over overpriced IPOs, the BSEC introduced a conservative formula during the pandemic to set a “fair value” price for primary shares under the book-building method.
Globally, book-building allows eligible institutional investors (EIIs) to determine share prices through bidding.
In Bangladesh, however, regulations prevented bids exceeding 50% above or below the prescribed fair value.
Under the new draft, the fair value will be replaced by an indicative price, determined through bids from at least 75 EIIs — including a minimum of 10 banks, but, notably, excluding mutual funds, traditionally core institutional investors.
Bidders will not be allowed to quote more than 25% above or below the indicative price. Investment bankers describe this as yet another mechanism that restricts companies’ ability to raise capital.
EIIs will also be required to follow regulatory formulas when setting indicative prices and must bid within the 25% threshold.
Mahmud warned that unless regulations ensure fair primary share pricing, capital market–driven growth financing will remain unrealistic.
Between 2021 and 2024, intense competition for limited primary shares within artificially narrow price bands resulted in 72-hour bidding windows closing within minutes, with investors rushing to bid the highest permissible prices, knowing secondary market prices would surge.
To resolve this, stakeholders had urged a deregulated Dutch auction system, allowing institutional bidders to quote freely while committing to purchase shares at their own bid price to ensure disciplined bidding.
However, the proposed rules retain the current system, under which all successful bidders are allocated shares at the cut-off price, regardless of their original bids.
EII shares will be locked in for 180 days post-debut, while it will be three years for pre-IPO shareholders. No company will be allowed to go public if its pre-IPO shares were transferred in the previous two years.
This will effectively lead to a six-year lock-in period for promoters, directors and private investors. On the other hand, mutual funds will no longer remain EIIs. They will receive 20% of the offered shares at the cut-off price and will face no lock-in post-debut.
Investment bankers warn that while demand for smaller IPOs may remain artificially inflated, excessive restrictions will eventually deter institutional investors, putting full subscription of large IPOs at risk.
Before this zero-IPO year, less capital was raised from the stock market than BRAC Bank alone provided to businesses in a year.
Investment bankers argue that the rules must not be approved in their current form if the country is to build a capital market capable of serving its purpose, adding that they are preparing formal recommendations for revision before final approval.
