Rules of raising funds for low-cap firms relaxed

The SME platform:

• Was launched 30 September 2021 with 6 firms
• The number of firms is now 13
• Only for qualified investors – those with at least Tk20 lakh investment
• SMEs can raise fund from the platform

The stock market regulator has made it easier for small and medium enterprises (SME) to raise money from the stock market by allowing those to float shares and increasing the maximum limit of paid-up capital from Tk30 crore to Tk50 crore.

The Bangladesh Securities and Exchange Commission (BSEC) made the changes during the revision of the Qualified Investor Offer (QIO) by Small Capital Company rules for the third time.

The latest amendments create scope for start-up companies to collect money by issuing shares. The condition to enter the stock market has also been relaxed as SMEs can now show a profit for one year, instead of the earlier two.

Start-ups can also enter the stock market even if making losses by applying for the BSEC's approval.

Besides, the maximum limit of paid-up capital for SMEs has been increased from Tk30 crore to Tk50 crore. A minimum limit of Tk5 crore remains in place.

In the latest revision, the book-building method has been cancelled for companies seeking premium with face value. Now, premium can only be taken on the fixed price method.

BSEC's spokesperson and Executive Director Rezaul Karim told The Business Standard that due to the relaxations, raising funds has become easier for SMEs.

He said the book building method is complicated and expensive, which led to the cancellation of the provision for SMEs.

Market insiders say SMEs are being treated the same as other entities when it comes to initial public offerings (IPOs) as the documents needed for listing are the same as those required for the QIO.

They said the rule would be difficult to follow and urged for its relaxation as well.

Other amendments

The QIO by Small Capital Companies Rules, 2016 was formulated to facilitate the growth of small-cap companies that have potential but not have enough funds.

The SMEs and start-ups can raise 10% of paid-up capital, or Tk3 crore, whichever is higher, through the QIO. This would now require 25% underwritten subscriptions of the shares to be offloaded, down from the earlier 50%.

Regular annual general meetings, audit of financial reports in accordance with international accounting standards, credit rating reports and ensuring the entity or its directors are not in default, must be ensured, according to the rules.

Compliance with the Corporate Governance Code, however, is not mandatory.

Besides, a qualified investor can apply for a maximum of 5% shares, which was 10% earlier.

If premium is wanted with the face value of the shares, the BSEC will consider if the price is proposed after discussion with the issue manager. That is, the cut-off price of shares does not need to be determined in the book building method.

Any company under the rules whose paid-up capital exceeds Tk50 crore should be reported to the stock exchange and BSEC immediately.

The validity of listing on the stock change has also been increased from two years to three years.

After listing in the SME platform, the shares of the founders, director, along with 10% of the total, will be locked-in for two years.

The shares of Alternative Investment Funds and others, including foreign investors, will be locked-in for one year.

The SME platform was launched on September 30 last year for listing and trading of SMEs in the Dhaka Stock Exchange. There are currently 13 companies trading on the platform.

Qualified investors who have a minimum investment of Tk20 lakh as BO can trade shares on the platform.

The SME index DSMEX fell 12.67 points to 1,513 points on Sunday. Shares worth Tk4.19 crore were traded on this day.

During this time, the share price of two companies increased, 10 saw decreases and one registered no change.