BSEC proposes 50% IPO debt repayment cap, mandatory escrow accounts
The proposal would prohibit the use of IPO or RPO proceeds to repay loans classified as defaulted or loans that have been rescheduled.
The Bangladesh Securities and Exchange Commission (BSEC) has proposed raising the cap on using initial public offering (IPO) and rights offer (RPO) proceeds to repay existing loans from 30% to 50%. It would also make escrow accounts mandatory to ensure the money goes to its declared purposes.
Under the draft amendments to the Bangladesh Securities and Exchange Commission (Public Offer of Equity Securities) Rules, 2025, companies would have to undergo pre-IPO verification by a BSEC-listed auditor before applying. The draft also tightens disclosure requirements for share pricing. Stock exchanges would get a 20-day deadline to review IPO applications and inspect companies' factories or business premises.
The draft was published on 18 October, and the commission has invited comments, suggestions and objections within two weeks. The proposed changes have not yet been finalised.
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Loan repayment limit to rise from 30% to 50%
Under the existing provision, companies can use up to 30% of their IPO or RPO proceeds to repay existing loans, subject to specified conditions. The proposed amendment would raise the ceiling to 50%.
This means a company raising Tk100 crore through an IPO or RPO could use up to Tk50 crore to repay eligible loans, subject to the proposed conditions.
The facility would not apply to all types of borrowing. The loans must have been used for a company project or for balancing, modernisation, rehabilitation and expansion (BMRE) activities. An auditor's report would also be required to verify that the borrowed funds were used for the stated purposes.
The proposal would prohibit the use of IPO or RPO proceeds to repay loans classified as defaulted or loans that have been rescheduled.
The higher ceiling could help companies reduce their debt burdens and financing costs. However, using a larger share of public-offer proceeds to repay loans could leave less money for new projects, machinery purchases, production expansion and other business investments. Investors would therefore need to assess whether the proposed use of proceeds aligns with the company's disclosed plans.
Escrow accounts proposed for IPO proceeds
The draft proposes requiring companies to deposit IPO proceeds into a separate escrow account with a scheduled bank. The bank would have to receive written instructions restricting withdrawals or the use of funds except in accordance with the purposes and procedures specified in the prospectus.
Companies typically disclose in their prospectuses how they intend to use IPO proceeds, including for factory construction, machinery purchases, business expansion, working capital and loan repayment.
The proposed arrangement is intended to strengthen controls over the use of public-offer funds and reduce the risk of spending outside the purposes disclosed to investors. It would also provide a framework for monitoring whether companies follow their stated commitments. The detailed procedures for withdrawing and using the funds would depend on the final rules.
Pre-IPO verification by BSEC-listed auditors
The proposed amendments would require companies to obtain pre-IPO verification from an auditor listed with the BSEC before submitting an IPO application.
The verification would examine the accuracy, authenticity and completeness of financial information and disclosures included in the prospectus. The auditor's report would have to be included in the prospectus and submitted with the application.
The proposed scope covers financial records, bank accounts, loans and liabilities, the raising and use of capital, related-party transactions, and potential fraud or misrepresentation of financial information.
The measure is intended to strengthen scrutiny before companies enter the public market and improve the reliability of information available to prospective investors.
Conditional IPO eligibility exemptions proposed
The draft also proposes conditional exemptions from certain IPO eligibility requirements for specified categories of companies.
These include companies operating in regulated sectors, capital-intensive companies with an asset base of at least Tk500 crore, and Greenfield companies, subject to the conditions set out in the draft and the relevant regulatory approvals.
For eligible companies receiving such exemptions, disclosure of a plan for achieving future profitability is also proposed.
The changes could widen access to the capital market for certain companies that do not meet all existing eligibility criteria. However, the proposed exemptions would remain subject to regulatory scrutiny and the applicable conditions.
More disclosure on share pricing and valuation
To improve transparency in IPO pricing, the proposed amendments would require companies to disclose their proposed share prices and explain the rationale behind those prices.
For book-building issues, the draft also proposes disclosure of valuation statistics, including averages, medians and percentiles derived from the price-discovery process.
Companies would be required to use at least four valuation methods, including a minimum of two absolute valuation methods and two relative valuation methods.
These disclosures are intended to give investors more information to assess whether an IPO price is justified by a company's financial position, business prospects and valuation.
20-day deadline for stock exchange review
The draft proposes requiring stock exchanges to complete their review of IPO applications within 20 days, including examining financial statements and other documents and inspecting the company's factory or business premises.
Stock exchanges would also be allowed to seek assistance from experts where necessary. The proposed deadline is aimed at making the IPO review process more time-bound while retaining scrutiny of applicants' financial information and operations.
Lead issue manager to retain final responsibility
Under the proposed changes, a lead issue manager would remain ultimately responsible and accountable for the entire public offering even if it assigned specific tasks to another merchant bank or institution.
The provision seeks to prevent the lead issue manager from avoiding responsibility by outsourcing parts of the IPO process.
Changes proposed to OFS, lock-in rules and investor definitions
The draft also proposes expanding the scope of offer for sale (OFS) arrangements for eligible companies.
Changes to share lock-in requirements for foreign and strategic investors are also included. In addition, the commission has proposed revisions to the definitions of institutional investors and high-net-worth individuals, along with changes concerning the qualifications of personnel involved in share valuation.
Taken together, the proposals seek to tighten controls over IPO proceeds, strengthen pre-listing financial verification and improve transparency in share pricing and the public-offer process.
The changes will take effect only if the draft amendments are approved and formally issued by the commission.
