New Age | 10pc IPO discount for retail investors scrapped

Bangladesh Securities and Exchange Commission has scraped mandatory discounts for general investors in book-building IPOs.

The change comes with the issuance of the Public Offer of Equity Securities Rules, 2025, which replaced the 2015 rules.

Under the repealed framework, shares offered to general investors through the book-building method were priced at a mandatory 10 per cent discount to the cut-off price discovered through bidding by eligible institutional investors.

The new rules remove that provision entirely, meaning both institutional and retail investors will now subscribe at the same final cut-off price.

The 2025 rules introduced a stricter and more structured book-building mechanism.

Issuers must now conduct a formal roadshow where at least 40 eligible institutional investors submit valuation inputs, including a minimum of 10 portfolio managers, 10 stock dealers and 10 asset managers.

The indicative price proposed by the issuer must be justified using at least four valuation methods, including a minimum of two absolute valuation techniques, such as discounted cash flow or dividend discount models, and two relative methods, such as price-to-earnings or price-to-book ratios.

Institutional bidding is restricted within a 25 per cent price band above or below the indicative price, limiting aggressive overpricing or underpricing.

Under the revised process, bidding will run for 72 hours, and no single eligible investor will be allowed to quote for more than 1 per cent of the shares allocated to institutions.

The cut-off price will be the lowest price at which the entire institutional portion is exhausted.  If that portion remains undersubscribed, the issue will be cancelled, a provision aimed at preventing weak demand from being passed on to retail investors.

For issuers, the removal of the retail discount means they can potentially raise capital at a higher effective price, as the public portion will no longer be diluted by a mandatory price reduction.

The 2025 rules also strengthen the role of stock exchanges in the IPO approval process.

Exchanges are now required to conduct an independent review of listing applications, including the option to physically inspect the issuer’s operations, and submit a recommendation to the BSEC within 30 days.

A negative recommendation will block the issue from proceeding on that exchange, effectively giving exchanges a gatekeeping role that did not exist under the 2015 rules.

Eligibility conditions for issuers have been tightened as well.

Companies seeking to issue shares at a premium must demonstrate at least three years of commercial operation, profitability and positive operating cash flows for the preceding two years.

For book-building issues, issuers must also hold a minimum credit rating of single A.

In addition, directors or shareholders holding 5 per cent or more shares must not be loan defaulters, based on Bangladesh Bank’s latest credit information reports.

Lock-in provisions have been extended and made more detailed, and employee participation has been formalised through a separate quota with a one-year lock-in.