Bangladesh proposes raising IPO debt repayment cap, tightening controls on proceeds

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Bangladesh IPO rule changes

Highlights

Bangladesh Securities and Exchange Commission proposes raising the IPO and rights offer debt repayment cap to 50% from 30% in draft 2025 rules.
Draft amendments would require IPO proceeds be placed in escrow accounts with withdrawal controls and bar use for defaulted or rescheduled loans, with auditor verification of eligible loan use.
Proposals mandate disclosure of share pricing basis using at least four valuation methods and strengthen pre-IPO auditor review and application scrutiny within 20 days by stock exchanges.

Draft rules expand loan repayment use

As reported by The Business Standard, the Bangladesh Securities and Exchange Commission has proposed raising the cap on using IPO and rights offer proceeds to repay existing loans to 50% from 30% under draft amendments to its Public Offer of Equity Securities Rules, 2025. The proposals are not yet final, and the commission has invited comments, suggestions and objections within two weeks of publishing the draft on 18 October.

Under the proposal, companies could use up to Tk50 crore from a Tk100 crore IPO or RPO to repay eligible borrowing, subject to conditions. The facility would apply only to loans used for company projects or balancing, modernisation, rehabilitation and expansion activities, and an auditor's report would be required to confirm the funds were used for those stated purposes.

The draft would bar companies from using IPO or RPO proceeds to repay loans classified as defaulted or loans that have been rescheduled. It would also require IPO proceeds to be deposited in a separate escrow account with a scheduled bank, with written restrictions on withdrawals so funds are used only for purposes and procedures set out in the prospectus.

Verification, pricing and market impact

The proposed amendments would require companies to obtain pre-IPO verification from a BSEC-listed auditor before filing an application. That review would cover financial records, bank accounts, loans and liabilities, capital raising and use, related-party transactions, and potential fraud or misrepresentation in financial information.

The draft also seeks to improve transparency in share pricing by requiring companies to disclose proposed share prices and explain the basis for them. Issuers would have to use at least four valuation methods, including a minimum of two absolute and two relative methods, to help investors judge whether pricing matches a company's financial position, business prospects and valuation.

Stock exchanges would have 20 days to review IPO applications, including checking financial statements and other documents and inspecting factories or business premises, with the option to seek expert assistance where needed. The proposals also include conditional exemptions from some IPO eligibility rules for regulated-sector companies, capital-intensive businesses with assets of at least Tk500 crore and Greenfield companies, alongside changes to offer-for-sale arrangements, lock-in requirements and investor definitions.

For companies, the higher debt repayment ceiling could reduce financing costs and ease balance sheet pressure. For investors, however, a bigger share of offer proceeds going to loan repayment could leave less funding for expansion, machinery and new projects, making prospectus disclosures and use-of-proceeds plans more important if the amendments are approved.

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