Bangladesh’s new direct-listing rules will let the market discover a company’s opening share price through a two-hour bidding window on the first trading day.
The Bangladesh Securities and Exchange Commission (BSEC) has published the direct listing rules earlier this week, reopening the route to qualifying private-sector, foreign-owned and large companies after roughly 16 years.
Before trading starts, the company and its merchant banker must calculate a reference price using at least two valuation methods — one absolute and one relative.
The minimum asking price must then be set at least 25 per cent below the reference price. If the reference price is Tk100, for example, the minimum asking price would be Tk75.
For the first two hours of the first trading day, investors will be allowed to submit buy orders at or above that minimum price. Sellers will not be allowed to place sell orders during the period.
The accumulated bids will show how much demand exists at different price levels and help establish an indicative market price.
After the two-hour price-discovery window closes, sellers will be allowed to place shares through designated brokers and trading will proceed through matching buy and sell orders.
There will be no circuit breaker on the first trading day, giving the market more room to establish an initial price.
During the first two trading days, each buy order must be for between 100 and 1,000 shares.
The pricing mechanism is central to the new framework because private-sector direct listings were restricted around 2010 after allegations of manipulation and overpricing.
The new rules reopen direct listing to private firms, but with tighter controls on valuation, ownership and share distribution.
Seven categories of firms can apply, including state-owned and partly state-owned companies, foreign-controlled businesses, large corporate groups, banks, financial institutions and insurers.
Companies wholly or at least 51 per cent owned by the government qualify, as do those in which the government directly or indirectly owns at least 10 per cent.
Foreign-owned companies must have at least 51 per cent foreign ownership.
Banks, financial institutions and insurers can apply if their latest audited financial statements show net assets of at least Tk500 crore. Other companies with annual turnover of at least Tk1,000 crore are also eligible.
BSEC-registered stock exchanges, depositories and clearing and settlement companies can also seek direct listing.
Applicants must have operated commercially for at least five years, earned profits from their core business in each of the previous two financial years and generated positive operating cash flow in the latest financial year.
They must also be free of loan defaults, hold an investment-grade credit rating and ensure that sponsors and directors collectively retain at least 30 per cent of paid-up capital after listing.
The route is designed mainly for established companies that do not need to raise fresh capital.
Unlike an initial public offering, direct listing does not issue new shares to raise money for the company. Instead, existing shareholders sell part of their holdings through the stock market.
That could bring large, established companies into the market without forcing them through a capital-raising exercise, widening the supply of investable stocks and potentially improving market depth.
The rules also require sellers to put a meaningful amount of stock into public hands.
Within 30 working days of listing, sellers must dispose of at least 10 per cent of the shares earmarked for sale.
No single investor will be allowed to buy more than 1 per cent of the total shares offered for sale, limiting concentration among a small number of large investors.
A seller will also be barred from disposing of more than 50 per cent of the shares it held at listing until the company holds its first annual general meeting after completing a full financial year as a listed company.
The seller will not be allowed to buy shares in the company for one year after listing.
A merchant banker told TIMES the route could attract large companies whose sponsors are willing to sell shares even though the companies themselves have no need for new capital.
“Not every company needs fresh capital,” the merchant banker said.
“A company like Unilever may not need to raise new funds. But if shares held by its sponsors are sold and the company is listed, investors would gain access to a good investable stock. That would deepen the market.”
For the market, the reopening could broaden the range of investable companies and strengthen the secondary market.
But its success will hinge on whether eligible companies come forward and whether the two-hour price-discovery process produces opening prices investors consider credible, said analysts.
North South University School of Business and Economics Dean AKM Waresul Karim was more sceptical, saying the policy might struggle to attract large private sector companies because many do not need fresh capital and may be reluctant to accept the disclosure and compliance obligations that come with listing.
Karim also said that some large companies could gain more financially by remaining outside the market through tax avoidance than they would receive from tax concessions available to listed companies.
Closing the loopholes in the tax system alongside widening listing incentives may help, he added.
