Bangladesh’s securities regulator has proposed a broad overhaul of initial public offering rules that would give retail investors a larger share of new listings, scrap the separate quota for high net-worth individuals and open a hybrid route combining fresh share issuance with sales by existing shareholders.
The draft amendment to the Public Offer of Equity Securities Rules, 2025 also proposes pre-IPO verification by independent auditors, bid-based allocation under book building, lower minimum float requirements for large companies, revised lock-in periods and tighter rules on how IPO proceeds can be used.
The Bangladesh Securities and Exchange Commission (BSEC) published the draft with approval from Chairman Masud Khan and will accept public comments and recommendations until 2 November.
One of the biggest changes concerns investor allocation.
The draft proposes abolishing the separate category for high net-worth individuals (HNI), bringing those investors into the same allocation pool as ordinary investors.
Under the fixed-price method, the retail allocation would rise to 65 per cent from 60 per cent.
Under book building, retail investors would receive 40 per cent instead of 35 per cent, while eligible investors would see their allocation cut to 35 per cent from 40 per cent.
The quota for permanent employees of the issuer would rise to 5 per cent from 3 per cent, while the allocation for non-resident Bangladeshis (NRBs) would increase to 10 per cent from 7 per cent.
Retail investors and NRBs would receive shares through an automated lottery under both fixed-price and book-building methods.
The lottery algorithm and operating process would have to be verified by Bangladesh University of Engineering and Technology (BUET), while the subscription and allocation process would be fully automated and maintain a chronological audit trail.
BSEC Spokesperson and Executive Director Abul Kalam said removing the separate HNI quota would bring those investors into the same allocation process as ordinary investors.
The draft also changes how eligible investors receive shares in book-building IPOs.
Under the current structure, investors participating in bidding receive shares at the cut-off price.
Under the proposed system, allocation would instead follow the prices submitted by bidders, starting with the highest bid and moving downward until the eligible-investor quota is filled.
The lowest successful bid at which the allocation is completed would become the cut-off price.
Eligible investors would therefore receive shares at their own bid prices, while retail investors would buy at the cut-off price.
The proposed system would end the practice of allocating all eligible investors’ shares at a single cut-off price.
The draft also proposes a more demanding valuation process for book-building IPOs.
At least four valuation methods would have to be used to determine the indicative price, including two absolute-valuation methods and two relative-valuation methods.
Fixed-price IPOs would face a different restriction.
The draft proposes eliminating the option to issue shares at a premium above face value under the fixed-price method.
Shares could instead be issued at face value or at a discount.
BSEC’s spokesperson said any issue at a discount would still require court approval under Section 153 of the Companies Act, 1994.
Another major change is the introduction of hybrid listings.
Under the proposed framework, eligible companies would be able to raise fresh capital through an IPO while also allowing sponsors, promoters or existing shareholders to sell part of their holdings through an offer for sale (OFS).
Abul Kalam said a company needing, for example, Tk100 crore or Tk200 crore could raise that amount through new shares and then allow existing shareholders to sell part of their holdings.
The combination of fresh issuance and existing-share sales would form the hybrid model.
The route would not be available to every company.
A company with majority foreign ownership, or a company registered with the Bangladesh Telecommunication Regulatory Commission (BTRC), would qualify if it has net assets of at least Tk300 crore and annual turnover or total assets above Tk500 crore.
Under the hybrid model, the fresh shares issued through the IPO would have to equal at least 5 per cent of post-IPO paid-up capital.
Companies using the hybrid route would have to follow the book-building method. Fixed-price issuers would not be eligible.
Shares offered through OFS would have to be sold in the secondary market within the first 30 trading days after listing.
The draft also proposes lowering the minimum float for large companies.
Companies with net worth of Tk500 crore or more would be able to list by offering at least 5 per cent of post-IPO paid-up capital, down from the current 10 per cent requirement.
The change would allow large, capital-intensive companies to enter the market while selling a smaller portion of their total equity.
Greenfield companies with assets above Tk500 crore would also be allowed to apply for an IPO while still making losses.
They would, however, have to submit an auditor-verified business plan showing how they expect to become profitable within two years.
The draft also introduces a pre-IPO verification process.
Before filing an IPO application, companies would have to have their financial and corporate information checked by an independent auditor from a BSEC-approved panel.
The review would cover financial statements, revenue, assets, liabilities, tax records and corporate-governance information.
The auditor would issue a report and formal declaration on the accuracy of the documents, and both would have to be published with the prospectus.
Abul Kalam said BSEC currently spends substantial time checking the large volume of documents submitted with IPO applications. Having them independently verified beforehand would simplify the process.
Lock-in rules for institutional investors would also change.
Under the draft, 50 per cent of shares allotted to institutional investors through book building would be free of lock-in from the first trading day.
Of the remaining half, 25 per cent would be locked in for 60 days and the final 25 per cent for 90 days.
Strategic investors would face a two-year lock-in, while foreign investors would face a three-year lock-in, depending on the investor category and type of share sale.
The draft also gives issuers greater flexibility in using IPO proceeds to repay existing debt.
Up to 50 per cent of funds raised through an IPO could be used to repay bank loans previously taken for a project or for balancing, modernisation, rehabilitation and expansion (BMRE), up from the current 30 per cent ceiling.
The existing safeguards would remain.
The company would have to obtain certification that the borrowed funds were properly used, while the lending bank would have to confirm that the loan is regular, not classified or irregular and has not been rescheduled.
If those conditions are met, up to half of the IPO proceeds could be used to repay the relevant project or BMRE debt.
The pre-IPO verification requirement would also bring revenue, assets, liabilities, tax records and corporate-governance information under independent scrutiny, giving the regulator another layer of review before a company reaches the public market.
