BSEC to bring back direct listing after 16 years for big firms

Infographic: TBS

Bangladesh is set to revive direct listing for large and established companies after a 16-year hiatus, with the securities regulator approving draft rules that would allow eligible firms to enter the stock market without going through an initial public offering (IPO).

Under the proposed "Bangladesh Securities and Exchange Commission (Direct Listing of Securities by Stock Exchange) Rules, 2026," eligible companies would be allowed to list shares by offloading 10%–20% of the shares held by existing shareholders, instead of raising fresh capital through an IPO.

Consequently, only large and established companies may soon be able to list on Bangladesh's stock exchanges without going through an initial public offering (IPO), following the Bangladesh Securities and Exchange Commission's (BSEC) approval of a draft direct listing regulation.

The draft rules will soon be published in national newspapers and on the BSEC website for public consultation, the commission said in a press release today (1 September).

The proposed framework is aimed at creating an alternative route for established companies to enter the capital market while allowing existing shareholders to sell part of their holdings through the listing process.

However, the facility will not be available to all companies. The proposed rules target large, established and strategically important companies that meet specific eligibility criteria.

Companies fully or majority owned by the government will be eligible for direct listing. Companies in which the government directly or indirectly owns at least 10% of the paid-up capital will also qualify. Companies fully or majority owned by foreign shareholders will also be eligible.

In addition, BTRC-approved telecommunications and ICT-related service providers, ICT infrastructure companies and ICT manufacturers with at least Tk300 crore in paid-up capital will be eligible for direct listing.

Scheduled banks, financial institutions and insurance companies with at least three years of operating history will also be allowed to seek direct listing under the proposed rules.

Companies with annual turnover or total assets of at least Tk500 crore will also be eligible, subject to meeting other requirements.

Meeting these criteria, however, will not automatically guarantee listing approval. Companies will also have to comply with other conditions set by the stock exchanges, depository and central counterparty registered with the commission.

Direct listing is not new in Bangladesh

Direct listing is not a new concept in Bangladesh. A separate set of regulations for direct listing was introduced in 2006, following which several state-owned and private companies entered the stock market through the process.

Among the state-owned companies that used the same route were Dhaka Electric Supply Company (DESCO), Power Grid Company of Bangladesh, Jamuna Oil, Meghna Petroleum and Titas Gas. Later, private companies including ACI Formulations, Shinepukur Ceramics and Navana CNG also used the same mechanism.

The process, however, soon came under controversy, particularly over share pricing and the large financial gains made by existing shareholders.

The direct listing of Navana CNG in 2009 triggered an investigation by the securities regulator. Following controversies surrounding private companies, restrictions were subsequently tightened and the facility was effectively closed to private companies, leaving state-owned companies as the main beneficiaries.

The issue resurfaced in 2020 when Best Holdings' proposed direct listing also triggered controversy at the Dhaka Stock Exchange (DSE).

At present, state-owned companies have a direct listing route, under which they are required to offload at least 25% of their shares. The proposed 2026 framework seeks to expand the scope by bringing large domestic, foreign-owned and private companies under the mechanism.

Why is BSEC bringing it back?

The main objective of the new initiative is to bring large, established companies to the stock market without subjecting them to the lengthy IPO process.

In a conventional IPO, a company issues new shares to raise fresh capital from the market. The process involves preparing a prospectus, appointing issue managers, determining the issue price, and completing the subscription and allotment procedures.

Direct listing works differently.

No new shares need to be issued. Instead, existing shareholders sell a portion of their holdings to investors, making those shares available for trading on the stock exchange.

This means direct listing is primarily a mechanism for bringing existing shares into the public market, rather than raising fresh capital for the company.

It could therefore be particularly useful for established companies that do not need additional capital but want access to the stock market, improved liquidity, and a market-based valuation.

Potential benefits

The biggest advantage of direct listing is that it could bring large, established companies to the stock market relatively quickly.

Increasing the number of large companies on Bangladesh's stock market has long been a demand from market participants. Bringing state-owned enterprises, multinational companies, large ICT and telecom firms, banks, financial institutions, insurers, and companies with substantial assets or turnover to the market could increase both the number of listed companies and overall market capitalisation.

It would also give retail investors an opportunity to invest in companies that were previously held largely within private ownership structures.

Existing shareholders would gain liquidity, as they could sell a portion of their holdings through the stock market. Direct listing could also reduce the time and some of the costs associated with a conventional IPO by eliminating or reducing certain issue management, underwriting and marketing requirements.

But risks remain

The biggest concern surrounding direct listing is share valuation.

In an IPO, the issue price is determined through prescribed mechanisms, including book building where applicable. In a direct listing, however, the market price can be heavily influenced by supply and demand as existing shares enter the market.

This creates a risk that shares could be offered at inflated valuations, leaving public investors exposed to losses.

Bangladesh's past experience underscores this concern. Direct listings by private companies previously faced allegations of inflated valuations and excessive benefits for sponsors and existing shareholders, controversies that eventually led to tighter restrictions on private-company direct listings.

Another major limitation is that the company itself does not receive fresh capital under a conventional direct listing. For instance, if existing shareholders sell 20% of their holdings, the proceeds go to those shareholders rather than to the company.

Direct listing, therefore, cannot replace an IPO for a company that needs fresh funds for business expansion, debt repayment or other corporate purposes.

There is also a risk of low liquidity if the free float is insufficient, while heavy speculative trading and sharp price volatility may emerge during the initial period of listing.

International practice

Direct listing has become an established alternative listing route in several major global markets.

In the United States, Spotify's 2018 direct listing on the New York Stock Exchange (NYSE) brought the mechanism into the global spotlight. Slack, Palantir, Asana, Coinbase and Roblox subsequently followed suit.

The mechanism allows existing shareholders to sell shares in the public market without following the traditional IPO route or relying on underwriters in the same way as a conventional IPO.

The US market has since developed a structure that also allows companies to raise fresh capital alongside a direct listing, meaning the mechanism has evolved from primarily an exit and liquidity route for existing shareholders into an alternative capital-raising option in some cases.

Pakistan, meanwhile, also allows direct listing without an IPO through the Pakistan Stock Exchange. The mechanism is particularly suited to companies that do not need to raise additional capital but want their existing shares to become publicly tradable, with existing shareholders and employees permitted to sell shares to the public under the system.

However, traditional IPOs remain the primary route for Main Board listings in Pakistan, with the formal process involving consultants, applications, investor marketing and other listing requirements.

India's model is somewhat different.

India introduced its Direct Listing Scheme In 2024, allowing eligible Indian public companies to directly list their equity shares on specified international exchanges, including the India International Exchange and NSE International Exchange.

The initiative is aimed primarily at giving Indian companies access to global investors and international capital.

Bangladesh's proposed model is different from India's. Rather than allowing domestic companies to directly access international exchanges, the proposed Bangladeshi framework seeks to bring large and eligible companies to domestic stock exchanges by allowing existing shareholders to offload 10%-20% of their shares without an IPO.

Implementation will be key

If implemented, the proposed direct listing rules could open a new route for large companies to enter Bangladesh's stock market without going through the conventional initial public offering (IPO) process.

However, given the country's past experience with new listing mechanisms, the success of direct listings will depend heavily on safeguards covering valuation, disclosure, free float, shareholder sell-down and price discovery.

Key questions will include how shares are priced, how much stock is reserved for general investors, how existing shareholders can offload their holdings and how thoroughly a company's financial information is scrutinised before listing.

The Bangladesh Securities and Exchange Commission (BSEC) will publish the draft rules for public consultation. It will seek opinions from investors, companies, stock exchanges, merchant banks, brokers and other stakeholders before finalising the framework.

A properly regulated direct listing mechanism could help bring large and established companies to the stock market more quickly, deepen the capital market and expand investment opportunities.

However, without strong safeguards, the mechanism could also repeat some of the problems seen in the past, including inflated valuations, excessive gains for existing shareholders and potential losses for public investors.