Bangladesh Securities and Exchange Commission (BSEC) proposed new conditions to control the use of funds raised through Initial Public Offerings (IPOs) and Repeat Public Offerings (RPOs) from the stock market.
Under the proposal, a maximum of 50 per cent of the raised funds can be used for debt repayment. The proposal also mandates opening a separate bank account for expenditure, verifying a company’s financial information before the IPO, and submitting an audited report after using the funds. Changes to the pricing and allocation of shares under the book-building method have also been proposed.
On Sunday, BSEC published the revised draft of “Bangladesh Securities and Exchange Commission (Public Offer of Equity Securities) Rules, 2025” for public opinion. The deadline for submitting opinions, suggestions or objections is 2 November.
According to the draft, funds used for debt repayment must be spent on the modernisation, rehabilitation and expansion (BMRE) of a specific project or business. The loan cannot be defaulted or rescheduled. A certificate from the chief executive of the bank or financial institution must be submitted in this regard.
There is a proposal to use a maximum of 70 per cent of the raised funds for joint ventures, investment in associate companies or business acquisitions. The purpose and potential benefits of this investment must be mentioned in the prospectus. An audited report must be submitted within 90 days of fully spending the funds.
To ensure transparency in the use of funds, a separate escrow account must be opened in a scheduled bank. The money in this account cannot be used for any purpose other than those declared in the prospectus.
An escrow account is a bank account kept for a specific purpose, the money of which cannot be used arbitrarily for other purposes. If a company raises money from the stock market to expand a factory, that money must be kept in a separate account and spent only on the purpose mentioned in the prospectus.
It has been proposed to verify a company’s financial information, including income, debt, receivables, inventory, tax and legal risks, through a panel-listed auditor before the IPO application. Generally, there will also be conditions that the company must have profit from core business in the latest financial year and no accumulated losses at the time of application. However, the commission can conditionally exempt capital-intensive and new project-based companies with large assets.
It has been proposed to use at least four valuation methods to determine the indicative price of IPO shares under the book-building method. Of these, two must be absolute valuation methods and two must be relative valuation methods. Absolute valuation determines the share price based on the company’s own financial capacity, future income and cash flow. Relative valuation compares it with the share prices and financial indicators of other companies in the same sector. The purpose of using multiple methods is to reduce the risk of overpricing based on reliance on a single method.
In the case of excess demand, it has also been proposed to launch a lottery and an automated system for share allocation to general investors and non-resident Bangladeshis. The proposed changes are still at the draft stage. BSEC will make the final decision after reviewing public opinion.
