New IPO rules may discourage investors

The new draft rules on initial public offerings (IPOs) are complex and discouraging for investors and entrepreneurs, according to stakeholders.

They voiced their concerns yesterday at a consultation programme on the draft rules for public offerings and equity securities, organised by the Dhaka Stock Exchange (DSE) and the DSE Brokers Association of Bangladesh (DBA) at the DSE auditorium.

"The rules are very complex for foreign investors. To develop the country's capital market, stakeholders are recommending that the rules be made similar to those in other Asian countries," said DBA President Saiful Islam.

"Fifteen years ago, Vietnam was at a similar stage as us. Yet, they have moved far ahead, while we have not been able to progress. Instead, we have fallen behind," he added.

Saiful Islam also urged the Bangladesh Securities and Exchange Commission (BSEC) to discuss stakeholders' concerns before finalising the rules. "If there are issues where changes cannot be made despite stakeholders' recommendations, the reasons should be made clear. We want a law that ultimately motivates good companies to come to the capital market," he said.

Richard D'Rozario, a director of the DSE, highlighted barriers for new investors. "Many students and service holders—people who had no idea about the stock market—first learned about it through the IPO process. Later, many of them entered the secondary market as long-term investors," he said.

Rozario criticised the rule requiring a minimum Tk 50,000 investment in the secondary market to apply for an IPO. "If we block entry at this initial level, where will we get new investors? Requiring a minimum investment in shares to apply for an IPO as a general investor is completely unfair," he said.

He also called for simpler rules, noting, "The more complex the law is, the more opportunities there are for mistakes and waivers. If the BSEC gives a company 20-30 waivers, what is the point of having the law? Half of the problems will be solved if the BSEC, DSE, and auditors function properly," Rozario said.

BUSINESS REALITIES NOT REFLECTED

Md Kyser Hamid, a representative from the Bangladesh Association of Publicly Listed Companies, said, "The draft rules assume that issuing companies are always profit-making entities, whereas in reality, every business faces both profit and loss. Shareholders' long-term interests are not reflected in the rules."

He added that rules cannot dictate bank loan repayment, as funding needs vary based on market conditions and business requirements.

Md Moniruzzaman, managing director and CEO of Prime Bank Securities, raised concerns about restrictions on using IPO funds for loan repayment. "Entrepreneurs often take bank loans to run projects while awaiting IPO approval. If they are not allowed to repay those loans later, they will face difficulties. At least 50 percent loan repayment should be allowed," he said.

Moniruzzaman also criticised clauses that could delay IPOs for two years if a company issues bonus shares or changes its share structure. "During IPO preparation, board changes, increases in paid-up capital, or issuing bonus shares are normal. If this clause becomes effective, we may not see any new IPOs for the next two to three years," he said.

He added that using a five-year historical growth rate as a basis is illogical and suggested reducing it to three years.

Mazeda Khatun, president of the Bangladesh Merchant Bankers Association, urged avoiding excessive responsibilities on issue managers. "Once a company is listed, monitoring becomes the responsibility of the stock exchange and the regulator. Placing that responsibility on issue managers is not realistic," she said.

BSEC Additional Director Lutful Kabir responded, saying, "In creating new market regulations, the commission is prioritising a market-oriented perspective. Every suggestion from you is being considered seriously. Even handwritten proposals are documented and submitted to the commission."

Other speakers at the event included DSE Chairman Mominul Islam, CSE Chairman AKM Habibur Rahman, IDLC Investments' Managing Director Mesbah Uddin Ahmed, and representatives from several firms.