Entrepreneurs seek to use 50% IPO funds to repay bank loans
Current Public Issue Rules allow 33% of loan repayments from IPO funds; a proposed rule is under review for approval
Entrepreneurs seeking to enter the capital market, along with other stakeholders, have proposed that the upcoming Public Issue Rules allow them to use at least 50% of IPO proceeds to repay bank loans.
They made the call at a meeting on the draft "Bangladesh Securities and Exchange Commission (Public Offer of Equity Securities) Rules, 2025," held at the DSE Tower in Nikunja, Dhaka today (19 November).
The draft rule, which will replace the Public Issue Rules 2015, is currently gathering public feedback before final approval by the securities regulator.
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Currently, regulations permit companies to repay only one-third of their total debt. However, the proposed rules do not include any specific provision regarding loan repayment, a gap that stakeholders say could discourage companies from entering the capital market.
Typically, it takes two to three years to move from IPO planning to implementation. During this time, entrepreneurs operate their businesses using bank loans and often plan to repay part of this debt with IPO proceeds once the offering is completed.
The meeting was organised jointly by the Dhaka Stock Exchange (DSE) and the DSE Brokers' Association (DBA), and it included participation from representatives of the Capital Market Journalists' Forum (CMJF), Bangladesh Merchant Bankers' Association (BMBA), Bangladesh Association of Publicly Listed Companies (BAPLC), BGMEA, DCCI, BAPI, and other market stakeholders.
Md Kyser Hamid, executive committee member of the Bangladesh Publicly Limited Companies Association and managing director of BD Finance, said, "The rules we have received after almost a year still include many outdated provisions and limitations. Currently, around 100 companies are ready to enter the market, but they are not coming forward because the BSEC avoids taking responsibility. As a result, multiple restrictions have been imposed in each case. When governance fails in the market, authorities try to control it through regulations, which benefits investors but not entrepreneurs. This approach undermines the development of long-term partnerships between investors and company founders."
"Under the current rules, companies cannot repay their bank loans through IPO proceeds. As a result, valuation becomes irrelevant. Companies typically prepare five- to ten-year projections, taking into account equity and return on equity, to determine how much debt will be repaid and how much working capital will be maintained. Relying solely on market Price-to-Earnings (P/E) and industry P/E ratios does not reflect the actual value of the company. Valuation should be left to market forces," he added.
Mesbah Uddin Ahmed, managing director of IDLC Investments, said, "Companies should have full discretion over how their profits are deployed. Similarly, the authority to set indicative IPO prices rests entirely with the issuing company and the issue manager, ensuring that price-setting is transparent and reasonable. At present, the two-year restriction on capital raising prevents new companies from entering the market, and this is a serious issue that regulations must address."
Naimul Huda, an executive director of Incepta Pharmaceuticals, also raised concerns about the new requirements for IPO disclosures. "The rules now require companies to provide information on machinery purchases for IPOs. However, many companies have older equipment, and collecting 12 years of historical data is extremely difficult, especially given the reduced IPO timelines. If entrepreneurs enter the market directly without bank financing, it will be impossible to repay loans using IPO funds, and companies may be discouraged from participating."
Another key point raised was the need for direct listing options. "Some companies do not require bank loans but still wish to be listed in the market. For them, a direct listing route should be made available, allowing easier and more efficient access to the capital market," Naimul added.
Reza Uddin Ahmed, an executive director of City Group, said, "In many cases, companies do not need fresh funds from the market. Most funds raised are used only to repay previous loans. There is rarely a need to raise capital for business expansion."
He also highlighted the need for extending document submission timelines. "Currently, companies are given 90 days to submit all necessary documents for IPOs and related processes. This timeframe is insufficient. It should be extended to 120-150 days to allow companies adequate time to prepare accurate and complete documentation," Reza added.
The DSE also observed that many quality companies remain unlisted due to persistent market challenges. Chairman Mominul Islam stressed the importance of addressing these issues to expand market reach.
"To increase the scope of the market, we need to bring in good and new IPOs. In Bangladesh, the capital market can sometimes close its doors when problems arise. Regulators alone cannot solve every issue at the time of finalising rules," he said.
"To prevent barriers to entry, these issues must be addressed through discussions before rules are finalised. The number of high-quality companies in the market is limited. Special emphasis must be placed on facilitating their listing. There is significant scope to work in this area, and rules should be drafted in a way that actively encourages good companies to come to the market," said the DSE chairman.
The meeting underscored the need for more flexible and entrepreneur-friendly rules that consider both market realities and long-term growth.
Stakeholders agreed that enabling the use of IPO proceeds for debt repayment, providing direct listing options, and giving companies sufficient time to prepare documentation would enhance market participation and create a more dynamic, investor-friendly environment.
