Public Issue Rules 2015 issued by Bangladesh Securities Exchange Commission

Bangladesh Securities and Exchange Commission on December 28, 2015, issued Bangladesh Securities and Exchange Commission (Public Issue) Rules, 2015 (the “Rules”). The previous regulation was the Securities and Exchange Commission (Public Issue) Rules, 2006, which is now repealed.

Key highlights of the Rules

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Application for IPO may be made on any of the following methods:-

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1. fixed price method, when offered at par value; or
2. book-building method, when offered above par value.

The definition of “Eligible Investor” (the “EI”) has been expanded.

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Now the EI means-

1. Merchant Bankers and Portfolio Managers;
2. Asset Management Companies;
3. Mutual Funds;
4. Stock Dealers;
5. Banks;
6. Financial Institutions;
7. Insurance Companies;
8. Alternative Investment Fund Managers;
9. Alternative Investment Funds;
10. Foreign Investors who have portfolio investments in the capital market of Bangladesh through any Securities Custodian registered with the Commission;
11. Recognized Pension Funds and Provident Funds; and
12. Other Institutions as approved by the Commission.

General requirements for on public offer (among other)

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• minimum offer: at least equivalent to 10% of its paid-up capital (including intended offer) or Tk. 15 crores at par value, whichever is higher;
• minimum existing paid up capital of Tk. 15 crores;
• The issuer-

· has prepared its financial statements in accordance with the requirements of the Securities and Exchange Rules, 1987, the provisions of IFRS /IAS as adopted in Bangladesh and audited the same as per Bangladesh Standards on Auditing (BSA) as well as the Companies Act, 1994 and other applicable legal requirements;

· has got its latest financial statements audited by the panel auditors as declared by the Commission from time to time;

· has been regular in holding the annual general meeting (AGM);

· has complied with the provisions of Corporate Governance Guidelines as published by the Commission from time to time;

· has no accumulated retained loss at the time of application.

• The issuer or any of its directors is not a bank defaulter.
• At least 35% of the issue has been underwritten on a firm commitment basis by the underwriter(s).

Additional requirements for fixed price method:

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If the issuer has been in commercial operation at least for immediate last 3 (three) years, it has positive net profit after tax and net operating cash flow at least for immediate preceding 2 (two) financial years; if it has been in commercial operation for a period less than 3 (three) years, it has positive net profit after tax and net operating cash flow at least for the latest financial year; if it has not started its commercial operation or not completed any financial period yet, it has positive projected net profit after tax and net operating cash flow.

Additional requirements for book-building method:

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1. it has been in commercial operation at least for immediate last 3 (three) years;
2. it has made net profit after tax at least for immediate preceding 2 (two) financial years;
3. it has positive net operating cash flow at least for immediate preceding 2 (two) financial years;
4. it has appointed separate persons as issue manager and registrar to the issue for managing the issue;
5. the issuer/issue has been rated by a credit rating company registered with the Commission;

Lock-in period:

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Ordinary shares of the issuer company shall be subject to lock-in, from the date of issuance of prospectus or commercial operation, whichever comes later, in the following manner:

1. All shares held, at the time of according consent to the public offer, by sponsors, directors and shareholders holding 5% or more shares, other than alternative investment funds, for 03 (three) years;
2. All shares allotted, before 02 (two) years of according consent to the public offer, to any person, other than alternative investment funds, for 03 (three) years;
3. In case any existing sponsor or director of the issuer transfers any share to any person, other than existing shareholders, within preceding 12 (twelve) months of submitting an application for raising of capital or initial public offer (IPO), all shares held by those transferee shareholders, for 03 (three) years;
4. 25% of the shares allotted to eligible investors, for 03 (three) months and other 25% of the shares allotted to them, for 06 (six) months;
5. All shares held by alternative investment funds, for 01 (one) year; and
6. Shares allotted, within two years of according consent to the public offer, to any person other than the shares mentioned in sub-rules (1), (2), (3), (4), and (5) above, for 01 (one) year.

Provided that ordinary shares converted from any other type of securities shall also be subject to lock-in as mentioned above.

Quota

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• The Rules requires 10 per cent quota for mutual funds (MFs), 10 percent for Non-resident Bangladeshis (NRBs) and remaining 40 percent for general investors and EIs in the IPO approved under fixed price method.
• Under the book building method, the EIs will have 50 percent shares, MFs have 10 percent shares, 10 percent for NRBs and remaining 30 per cent for general investors.

Download: Bangladesh Securities and Exchange Commission (Public Issue) Rules, 2015