The Bangladesh Securities and Exchange Commission has proposed major changes to public offer rules, tightening pricing, valuation and eligibility criteria while giving stock exchanges greater authority in approving or rejecting IPOs.
CHANGES IN PROPOSED IPO RULES
- 2 mandatory valuation methods
- Offer price capped by NAV
-10pc discount price for GIs abolished
-- 75 Eligible investors must justify pricing
- Stock exchanges gain approval power
- Stricter profit and cash flow rules
- Employee quota, 20pc MFs quota
The draft Bangladesh Securities and Exchange Commission (Public Offer of Equity Securities) Rules, 2025 has been published for public opinion and would replace the Public Issue Rules, 2015.
Under the draft, issuers and issue managers must now justify the offer price using at least two absolute valuation methods such as Discounted Cash Flow, Dividend Discount, Residual Income or Gordon Growth models, and at least two relative valuation methods including Price-to-Earnings, Price-to-Book, Price-to-Sales or Price-to-EBITDA.
The valuation must be supported by written analysis and documentary evidence.
In the fixed price method, the offer price cannot exceed the issuer鈥檚 net asset value per share at historical or current cost, a limit that was not defined in the 2015 rules.
Companies must also show a profitable record from core business activities.
The book building method has been revised extensively.
聽The indicative price which must be mentioned in prospectus must be supported by valuations obtained from at least 45 eligible investors from three groups鈥攑ortfolio managers, stock dealers and asset managers鈥攁nd another 30 investors including banks.
聽The indicative price must rely on both absolute and relative valuation methods.
The new rules abolish the 10 per cent discount that general investors previously enjoyed.
Under the 2015 system, retail investors could subscribe at a price 10 per cent lower than the cut-off determined by eligible investors鈥� bids.
Stock exchanges will play a central role in IPO processing.
They must upload the draft or red-herring prospectus, seek comments from eligible investors, and review the issuer鈥檚 documents independently.
Each exchange must send a clear recommendation to the commission within 45 days of receiving the application, stating approval or rejection.
If the recommendation is negative, the issue cannot proceed to bidding. Earlier, exchanges only submitted observations without formal authority to approve or block an offer.
Issuers will face stricter financial conditions.
To issue shares at a premium under the fixed price method, an issuer must have operated for at least three years, made net profit and maintained positive operating cash flow for two consecutive years.
For book building, the company must have at least three years of commercial operation, positive cash flow and profit after tax in the two latest years, and hold an A-category credit rating.
Bidding under book building will run electronically for 72 hours within a price band of 25 per cent above or below the indicative price.
No investor may bid for more than 1 per cent of the eligible investor portion and may revise bids once within 5 per cent of the first quote.
The cut-off price will be the lowest price at which the total eligible investor portion is exhausted. If that portion remains unsubscribed, the issue will be cancelled.
In the fixed price method, subscriptions by eligible investors will also be made electronically for 120 hours, with the same 1 per cent cap. Oversubscription will be settled on a pro-rata basis.
Confirmed employees with at least six months of service may subscribe up to Tk 10 lakh under a private or employee quota, and their shares will remain locked for one year.
聽Issuers may privately offer up to 15 per cent of shares to employees or designated persons with prior commission approval.
The draft also introduces a 180-day lock-in for shares allotted to eligible investors through book building.
The new rules require all shareholders holding 10 per cent or more shares to have no loan default according to the latest CIB report.
Stock exchanges will effectively become co-regulators in IPO approvals, while tighter profitability, cash flow and valuation standards are expected to prevent inflated pricing and ensure that only financially sound firms access the capital market.
