Public Offer of Equity Securities Rules 2025: Key Regulatory Changes for IPOs in Bangladesh

Introduction: A New Regulatory Framework for Public Offerings in Bangladesh

The Bangladesh Securities and Exchange Commission (BSEC) has recently introduced the Public Offer of Equity Securities Rules, 2025, repealing the earlier Public Issue Rules, 2015. The 2025 Rules establish a more comprehensive, disclosure-driven, and compliance-focused framework for Initial Public Offerings (IPOs) and public offers of equity securities. The 2015 Rules have been formally nullified, and pending applications must now be updated in accordance with the new regulatory regime.

This article highlights the major regulatory changes that issuing companies, asset management firms, sponsors, underwriters, and market intermediaries must carefully consider under the new Rules.

Repeal of the Public Issue Rules, 2015 and Transitional Provisions

Under Rule 23 of the 2025 Rules, the Public Issue Rules, 2015 have been repealed. Applications submitted under the previous regime will nevertheless continue to be processed, subject to compliance with the updated requirements. This transitional arrangement requires issuers to revise documentation, disclosures, and compliance structures to ensure alignment with the new regulatory framework.

Enhanced Eligibility and Financial Requirements for IPO Applicants

The 2025 Rules introduce more stringent eligibility criteria for companies seeking public listing. An issuer is required, among other things, to: (i) maintain a minimum pre-IPO paid-up capital of BDT 30 crore; (ii) offer at least 10% of post-IPO capital; (iii) ensure post-IPO paid-up capital of at least BDT 50 crore; (iv) maintain collective sponsor and director shareholding of at least 30%; and (v) demonstrate profitability with no accumulated losses (subject to limited exceptions). These requirements strengthen financial discipline and discourage premature market entry.

Expanded Responsibilities of Issue Managers, Underwriters, and Eligible Investors

Under the 2025 Rules, issue managers, underwriters, and committed Eligible Investors (EIs) are expressly made accountable for pre-issue compliance and due diligence. They are responsible for legal compliance, disclosure verification, and issuance processes. Furthermore, even where best-efforts underwriting is permitted, underwriters are to retain full responsibility for firm commitments. This represents a significant shift from the earlier regime, reinforcing professional accountability in public offerings.

Comprehensive Prospectus and Disclosure Requirements

The 2025 Rules introduce detailed and structured disclosure obligations in Annexure-H, emphasizing accuracy, substantiation, and transparency. Prospectuses must: (i) use simple and clear language; (ii) substantiate all claims; (iii) cross-reference all disclosures; (iv) avoid misleading statements; and (v) disclose all material business, financial, and risk-related information. Issuers are also now required to provide extensive information regarding sales, profits, Earnings Per Share (EPS), and Net Asset Value (NAV), as well as group company transactions, adverse business factors, and inter-company dealings exceeding prescribed thresholds.

Introduction of Detailed Documentation and Annexure Compliance

Annexure-A of the 2025 Rules significantly expands documentary requirements, including: (i) land titles and mutation records; (ii) plant and machinery details; (iii) import certifications; (iv) director and officer identification documents; and (v) loan and financing agreements. Compared to the 2015 regime, this represents a major increase in documentary scrutiny and verification.

Revised Application and Submission Process

The provisions in the 2025 Rules seek to modernize the IPO process and promote real-time public access to information. Under the new Rules, issuers must: (i) submit applications via physical and/or electronic forms; (ii) simultaneously apply to stock exchanges; (iii) publish draft or red-herring prospectuses online immediately; and (iv) submit audited financials not older than 120 days.

Strengthened Lock-in Period and Share Transfer Restrictions

The 2025 Rules revise lock-in periods for various categories of shareholders, including sponsors and directors, strategic investors, alternative investment funds, and eligible investors under book-building. For example, EI-allotted shares under book-building are subject to phased lock-in ranging from 90 to 180 days. This system is more structured than under the 2015 Rules, which applied comparatively uniform lock-in periods.

Revised Fee Structure and Cost Implications

The changes introduced under the 2025 Rules directly affect IPO budgeting and financial planning. The Rules modify several fee ceilings and rates: (i) issue management fees are capped at BDT 25–30 lakh; (ii) underwriting fees are reduced to a maximum of 0.5%; and (iii) registrar fees are subject to updated limits. Previously, under the 2015 Rules, underwriting fees could reach up to 1%, and issue management fees were subject to different thresholds.

Mandatory Utilization Reporting and Post-IPO Compliance

Issuers are now required to submit quarterly reports on the utilization of public issue proceeds, duly audited by panel auditors, within the prescribed timelines. This requirement strengthens post-IPO accountability and mitigates the risk of misapplication of raised capital.

Corporate Governance and Valuation Transparency

The 2025 Rules require issuers to disclose: (i) compliance with corporate governance guidelines; (ii) the composition and structure of audit and remuneration committees; and (iii) independent valuation reports prepared by issue managers. Such valuation reports must clearly justify the methodologies adopted and demonstrate the absence of bias, thereby enhancing investor confidence.

Expanded Litigation and Regulatory Disclosure Obligations

Issuers must now disclose civil, criminal, securities, labour, and tax litigation; fines and penalties; and pending proceedings involving directors. This marks a substantial expansion over the disclosure framework under the 2015 Rules.

Prohibition on False Information and Enhanced Enforcement Powers

The 2025 Rules expressly prohibit submission of false, misleading, or incomplete information and authorize regulatory action for violations. The Commission’s decisions are declared final and binding, which serves to strengthen regulatory authority.

Practical Implications for Asset Management Companies and Institutional Investors

Asset managers and institutional investors now operate within: (i) a regulated Electronic Subscription System (ESS); (ii) enhanced disclosure regimes; (iii) stricter lock-in structures; and (iv) greater underwriting accountability. These reforms have direct implications for investment strategies, liquidity planning, and compliance management.

Key Compliance Checklist for Market Participants

Under the 2025 Rules, stakeholders should ensure: (i) updated eligibility and capital structure; (ii) comprehensive prospectus disclosures; (iii) verified documentary annexures; (iv) robust underwriting arrangements; (v) proper valuation documentation; (vi) ongoing post-IPO reporting systems; and (vii) strengthened governance mechanisms. Failure to comply may result in rejection of the application, regulatory enforcement actions, or reputational damage.

Conclusion: Navigating the New IPO Regulatory Landscape

The Public Offer of Equity Securities Rules, 2025 represent a significant regulatory evolution in Bangladesh’s capital market framework. By emphasizing transparency, accountability, and investor protection, the Rules impose heightened compliance obligations on issuers and intermediaries. Companies, asset managers, and sponsors must proactively realign their internal processes and legal documentation standards to meet these enhanced regulatory expectations. Professional legal and regulatory advisory support is essential for successfully navigating this new regime.

<em>Disclaimer: This article is intended for general informational purposes only and does not constitute legal advice. Specific legal counsel should be sought before undertaking any public offering. Sadat Sarwat and Associates, a full-service law firm, in association with our partner firms, is well-positioned and fully equipped to provide comprehensive legal assistance in this regard. Interested parties are encouraged to reach out.</em>

References:

Public Offer of Equity Securities Rules, 2025, Bangladesh Securities and Exchange Commission (BSEC)

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