Lifting the IPO debt-repayment cap is the second step, not the first
Sponsors want to repay loans with more than 70% of IPO proceeds. The markets that permit this all share one feature Bangladesh's primary market still lacks: a mechanism that prices the risk.
At a consultation on 15 July, the association of listed companies asked the securities regulator to let issuers spend more than 70% of IPO proceeds repaying long-term loans, up from the 30% permitted under the Public Offer of Equity Securities Rules 2025. The request is not unreasonable. Non-performing loans ended 2025 at 30.6% of the banking book, private sector credit growth touched a 24-year low of 4.72% in March, and no IPO has been approved since Techno Drugs in March 2024. Thirteen companies listed in 2021. None listed last year.
The debate has split along familiar lines. Proponents note, correctly, that India and Malaysia impose no numerical ceiling on debt repayment, and that a reported hundred companies are waiting out the restriction. Sceptics reply that public money should build factories, not clear old bank files. Both sides are negotiating over a percentage. The percentage is the wrong variable.
It helps to ask what a proceeds cap actually is. A cap is what a regulator writes when it cannot rely on anyone else to say no. Markets that let issuers deleverage freely have outsourced that refusal to investors, who exercise it through price. Markets that cannot are left regulating intentions instead: prescribing what the money may be used for, because no mechanism exists to charge for what the money reveals. Seen this way, the 30% rule is not a policy preference. It is a confession about the state of price discovery.
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A study of US listings between 1996 and 2012 found that companies naming debt repayment as the primary use of proceeds were the heaviest underperformers over the following three years. Research on Hong Kong flotations found the same offerings attract weaker subscription and thinner aftermarket trading.
Heavily indebted companies come to market in London every year. In 2019 I worked on the listing of Network International, a Middle Eastern payments business owned by a bank and two private equity firms, carrying the leverage typical of that ownership. No regulator capped anything. Instead, several hundred institutional investors examined the balance sheet over a two-week roadshow and set the price through a bookbuild. Deleveraging risk was not prohibited. It was priced.
The distinction matters because the global evidence on debt-repayment IPOs is consistently unflattering. A study of US listings between 1996 and 2012 found that companies naming debt repayment as the primary use of proceeds were the heaviest underperformers over the following three years. Research on Hong Kong flotations found the same offerings attract weaker subscription and thinner aftermarket trading. A survival analysis of 423 Malaysian listings reached the bleakest conclusion: companies that channelled proceeds into loan repayment failed sooner, and survival improved when less than half of any raise went to a single purpose. These are bookbuilt markets with deep institutional participation. If professional investors there discount deleveraging issuers, the question for Dhaka is who does the discounting here.
The honest answer is nobody. Under the 2025 rules, a fixed-price issue is capped at net asset value and allocated to retail investors by lottery. The book-building route requires bids from at least 40 eligible institutional investors, a pool thin enough that issuers largely avoid the method. The domestic record shows what happens when nothing stands between an issuer and unpriced risk. Of 91 IPOs subscribed between 2011 and 2020, one local study found 20 delivered outright losses. Of 127 companies approved over 14 years, 47 have slid into the junk category. Retail investors were the residual buyers throughout.
There is also a question of who ends up holding the risk. With nearly a third of the banking book non-performing, a company that raises public equity to retire bank debt is transferring credit exposure from a supervised lender to unsupervised households. Done at a price that reflects the risk, that transfer is legitimate; it is how leveraged balance sheets are repaired everywhere. Done at a fixed price allocated by lottery, it becomes a quiet recapitalisation of the banking system by small savers, and the grievance in time returns to the state's door.
India, the comparison issuers cite most, deserves a full reading. SEBI does allow uncapped debt repayment, but on top of the infrastructure Bangladesh does not yet have: anchor investors and genuine price discovery through bookbuilding. Even then, SEBI tightened rather than loosened in 2025, shrinking the general corporate purposes bucket to 15% of issue size and attaching a longer promoter lock-in where proceeds repay loans taken for capital expenditure. The absence of a cap is the visible part of the Indian regime. The pricing machinery underneath is what makes it safe.
A sequenced reform would serve both camps, and the government has someone well positioned to broker it. Tanvir Ghani, the Special Assistant to the Prime Minister for Investment and Capital Market Affairs, has spent his career inside the institutional investor world that Bangladesh's primary market needs to attract, and is well placed to pair the two halves of this bargain. The BSEC could consider a tiered rule: raise the debt-repayment allowance meaningfully, to 50% or beyond, for offerings priced through a functioning bookbuild with institutional participation, while holding the current line for fixed-price, lottery-allocated issues. The safeguards already written into the 2025 rules, unclassified loans only and auditor certification among them, should carry over, with an extended sponsor lock-in for high-repayment issues, as India applied.
The harder half of the bargain is the supply of investors themselves. The 40-bidder threshold is discussed as an obstacle. It is better read as a measure of how shallow the institutional pool has been allowed to become. Channelling provident and pension savings into regulated funds that can anchor bookbuilds would do more for the IPO pipeline than any proceeds rule, and it sits squarely within the Special Assistant's brief.
The listed companies are right that forcing an issuer to invent projects for 70% of its proceeds produces worse capital allocation than honest deleveraging. The sceptics are right that Bangladeshi retail investors have too often bought risk that nobody priced. A tiered rule answers both, and none of it need delay the pipeline: it could be gazetted within the same amendment the associations have already put on the BSEC's table. Let companies repair their balance sheets in the public market, and make the price of doing so a real price, discovered by investors equipped to say no.
Fahim Chowdhury is an investment banker and managing director at RetailBook.
Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions and views of The Business Standard.
