BSEC reopens direct listing route to private companies

Eligible firms can list existing shares without an IPO

Large companies can now list their existing shares directly on the main boards of the country’s stock exchanges without going through the traditional initial public offering (IPO) process, following the introduction of new rules by the Bangladesh Securities and Exchange Commission (BSEC).

The regulator gazetted the Bangladesh Securities and Exchange Commission (Direct Listing of Securities on the Stock Exchange) Rules, 2026, last week, replacing the previous provisions under the Dhaka and Chittagong stock exchanges’ 2015 listing regulations.

The move reopens a route to the stock market that was introduced in 2006 but subsequently restricted following concerns over pricing and trading practices.

Under direct listing, a company makes its existing shares available for public trading on a stock exchange without issuing new shares. 

An IPO, by contrast, involves offering shares to the public as part of a company’s entry into the stock market, typically to raise fresh capital.

Direct listing therefore offers companies that do not need additional funds a way to bring their shares to the market, while giving investors access to businesses that might otherwise remain privately held.

The new rules allow specified categories of companies to apply, including government enterprises, entities in which the government holds at least 51 percent of the shares, companies with government ownership of at least 10 percent, and enterprises wholly or majority-owned by foreign shareholders.

Large financial institutions, scheduled banks and insurance companies with a net worth of at least Tk 500 crore are also eligible, as are companies with annual turnover of at least Tk 1,000 crore.

Iftekhar Alam, president of the Bangladesh Merchant Bankers Association (BMBA), welcomed the initiative, saying it would give large companies that do not need fresh capital an opportunity to enter the stock market.

“This is a positive step. There needed to be an opportunity for direct listing, particularly to help expand the market,” he said.

Iftekhar is optimistic that the eligibility criteria would help bring fundamentally sound companies to the market. Companies with annual turnover of Tk 1,000 crore or more, in particular, could be valuable additions, he said.

He also expects the prescribed valuation methods to reduce the risk of companies entering the market at excessively high prices, provided the institutions involved perform their roles professionally.

“As the valuation methodology has been specified, there should be no repetition of the previous instances of inflated valuations. I hope valuation will no longer be a problem if the institutions concerned act professionally,” he said.

STRICT ENTRY REQUIREMENTS

Companies seeking to use the direct listing route must meet a series of operational, financial and governance requirements.

An applicant must be a public limited company that has been in continuous operation for at least five years. It must also have earned a profit from its core operations in each of the preceding two financial years, have no accumulated losses and report positive operating cash flow in its latest financial year.

Its financial statements must comply with International Financial Reporting Standards (IFRS) and International Standards on Auditing (ISA), and it must have an investment-grade credit rating.

Neither the company nor its sponsors or directors can be classified as loan defaulters in the Credit Information Bureau (CIB) of Bangladesh Bank.

However, meeting the eligibility criteria alone may not guarantee that a company’s shares will be fairly priced or that its business will grow after listing.

Prof Al Amin, acting dean of the University of Dhaka’s Faculty of Business Studies, said the benefits of direct listing would depend on the objectives of the companies entering the market and whether their shares were valued appropriately.

Investors could suffer losses if shares were overpriced, while listing would offer limited benefits if a company had no plans to expand its business, he said.

Many companies that previously entered the market through direct listing failed to sustain even their indicative prices. The route would benefit investors and the market if it attracted sound businesses with growth potential, he added.

PRICING AND TRADING SAFEGUARDS

The new rules set out a valuation framework intended to reduce the risk of inflated share prices.

The rules mandate that a company’s equity must be valued independently using at least two approaches, including one absolute valuation method and one relative valuation method. The company must also set a minimum asking price at least 25 percent below the reference price determined through the prescribed process.

The rules also introduce a price discovery period during the first two hours of trading on the first day. During this period, buy orders cannot be placed below the minimum asking price, while sellers cannot place sell orders. No circuit breakers apply on the first trading day.

Circuit breakers are mechanisms that temporarily halt or restrict trading when share prices move beyond specified limits. Their absence on the first day means the usual price-movement restrictions will not apply, making the initial trading process particularly important.

The rules also prescribe limits on share sales and purchases to regulate the supply of shares entering the market and curb potential trading abuses.

Sponsors, directors and primary shareholders must collectively offload at least 10 percent of the company’s paid-up equity within 30 trading days of the first trading day.

Sponsors and directors cannot buy shares of the company for one year after listing. They are also barred from selling more than 50 percent of their holdings until the conclusion of the first annual general meeting held after a full financial year.

Individual and institutional investors, meanwhile, cannot purchase more than 1 percent of the total shares being offloaded during the initial 30-day period.

A RETURN AFTER PAST CONTROVERSIES

Bangladesh introduced direct listing in 2006. Several major state-owned power and energy companies, including Dhaka Electric Supply Company (DESCO), Power Grid Company of Bangladesh, Jamuna Oil, Meghna Petroleum and Titas Gas, entered the market through the mechanism.

Private companies, including ACI Formulations, Shinepukur Ceramics and Navana CNG, also used the route.

However, concerns over aggressive price discovery and irregular trading prompted regulatory investigations and led the authorities to impose restrictions in 2010.

By 2016, direct listing provisions had been restricted to state-owned enterprises. The new rules reopen the route to eligible private companies as well.