Entrepreneurs seek to use more than 70% of IPO proceeds for debt repayment

Entrepreneurs have proposed amending the Bangladesh Securities and Exchange Commission (Public Offer of Equity Securities) Rules, 2025 to allow companies to use more than 70% of funds raised through initial public offerings (IPOs) or repeat public offerings (RPOs) to repay long-term loans.

The proposal was placed at a stakeholder consultation organised by the Bangladesh Securities and Exchange Commission (BSEC) yesterday to discuss possible amendments to the Rules.

Riyad Mahmud, president of the association representing listed companies, confirmed to The Business Standard that the organisation had submitted several recommendations during the meeting.

Under the existing Public Offer of Equity Securities Rules, 2025, companies are allowed to use up to 30% of IPO or RPO proceeds to repay existing debt. However, the facility is limited to long-term loans taken for projects or BMRE (Balancing, Modernisation, Rehabilitation and Expansion) purposes. The loans must not be classified or rescheduled, while companies are also required to submit an auditor's certification, a bank certificate and detailed disclosures in the prospectus regarding the proposed utilisation of proceeds.

Mahmud said the existing 30% cap is not practical for many industrial companies, particularly those that have borrowed heavily to establish or expand manufacturing facilities.

"Many countries do not impose any ceiling on using IPO proceeds for debt repayment. In practice, companies can use almost all of the proceeds for that purpose if necessary. We are not asking for a 100% allowance, but at least more than 70% of IPO proceeds should be allowed for repaying long-term loans," he said.

According to him, raising the limit would reduce interest expenses, strengthen companies' financial positions and enable them to focus more on production expansion and business growth after listing.

He also said relaxing the restriction would encourage more manufacturing companies to enter the capital market and raise equity capital instead of relying heavily on bank financing.

The association also proposed easing the mandatory roadshow requirement for companies seeking to go public through the book-building method.

Mahmud said companies are currently required to organise roadshows before receiving BSEC approval for their IPO applications. If the Commission ultimately rejects an application, the expenditure incurred on the roadshow becomes unnecessary.

"Our proposal is to allow companies to hold roadshows after receiving IPO approval from the Commission. That would reduce unnecessary costs and make the IPO process more efficient," he added.

Meanwhile, the Bangladesh Merchant Bankers Association (BMBA) also submitted a series of recommendations seeking amendments to the Rules.

A senior merchant banker, speaking on condition of anonymity, told The Business Standard that the association has proposed removing the provision that limits the post-IPO paid-up capital of companies using the fixed-price method to Tk125 crore.

According to the merchant banker, the cap discourages many fundamentally strong companies from choosing the fixed-price route for listing.

The association has also recommended removing the provision that prevents companies from applying for an IPO within two years if they increase their capital through any share issuance other than bonus shares.

Merchant bankers argue that the restriction unnecessarily delays the listing plans of otherwise eligible companies.

The BMBA has further proposed reviewing the requirement that at least 40 eligible institutional investors participate in the bidding process under the book-building method. According to the association, securing participation from 40 eligible investors is often difficult under prevailing market conditions, resulting in delays in the IPO process.

In addition, merchant bankers recommended simplifying the overall IPO approval process, including streamlining documentation, facilitating bank loan verification procedures and ensuring that statutory auditors complete audits more efficiently and on time.

They believe these measures would shorten approval timelines, reduce documentation requirements and make the listing process faster and more efficient for prospective issuers.

The meeting was attended by the BSEC chairman and commissioners, senior Commission officials, and representatives from the Financial Reporting Council (FRC), Institute of Chartered Accountants of Bangladesh (ICAB), Dhaka Stock Exchange (DSE), Chittagong Stock Exchange (CSE), DSE Brokers Association of Bangladesh (DBA), Bangladesh Association of Publicly Listed Companies (BAPLC), Bangladesh Merchant Bankers Association (BMBA), CFA Society Bangladesh, as well as merchant banks, issue managers and other capital market stakeholders.