The securities regulator has approved the draft rules for direct listing to bring state-owned and foreign companies to the secondary market.
Such enterprises will be able to offload at least 10-20 per cent of shares depending on their paid-up capital.
The Bangladesh Securities and Exchange Commission (BSEC) has already sought public opinion on the draft rules, uploading them on the BSEC website on Tuesday evening.
While receiving public opinion, the securities regulator will sit with state-run, foreign and private companies to help them understand the rules and benefits of direct listing.
Proceeding with the plan, the BSEC scheduled a meeting with representatives of some companies on Thursday. The BSEC chief confirmed the meeting.
Illustrating the benefit of listing, BSEC chief Masud Khan said listing helps companies survive in times of crisis. A private limited company may close down after the death of its entrepreneurs.
“But a listed company’s operations can be continued even after the death of the entrepreneurs.”
Direct listing is also important because it allows a company to go public and provide liquidity for existing shareholders without paying hefty underwriting fees or diluting ownership with new shares.
Usually, companies with strong brand recognition and an established shareholder base prefer direct listing.
As per the draft rules, a company willing to go public under the direct listing mechanism must have positive cash flow from its operating activities in the latest financial year.
Also, the company must have profits from its core operations during each of the immediately preceding two financial years and have no accumulated loss.
However, the conditions will be relaxed for companies if they are recommended by the stock exchanges for listing.
Among other requirements, companies must get their financial statements prepared in accordance with the International Financial Reporting Standards (IFRS) and audited in accordance with the International Standards on Auditing (ISA), as adopted in Bangladesh, by an auditor from the list of auditors approved by the commission.
Upon receipt of an application, the relevant stock exchange shall scrutinise it and notify the company of any deficiency or deficiencies needed to be rectified or removed within 15 days.
The stock exchange will also inspect the factory, office and other business premises of the applicant.
If the exchange is satisfied that the company meets all the requirements, it will issue an approval letter for listing of equity securities within 15 days.
If a willing company fails to fulfil any requirement, the exchange can reject the proposal within 30 days of receiving the application. In that case, the company will be given the scope to appeal against the rejection or withdraw its application.
How will the shares be transferred?
A company allowed for direct listing will set a reference price for its shares based on valuation methods set in the rules for direct listing.
Then, a floor price will be fixed at least 20 per cent below the reference price; no one will be able to offer prices below the floor price.
On the first trading day, stock brokers will receive bid prices from interested bidders, including general investors, within the first 30 minutes of opening trade on the exchanges. This period is called the price discovery period.
Those who will offer shares will start placing sale orders after the price discovery period, and trades will be executed as bid prices match offer prices until the closure of the second trading session.
Investors who have not placed buy orders within the first 30 minutes of the first session will be allowed to place orders for the rest of the time until the second session ends.
