Across the world, capital markets are the primary source of industrial financing. But in Bangladesh, the banking sector still plays the central role in funding industrial development. The capital market’s contribution remains minimal. For over a year now, no new company has been listed on the country’s stock market through an initial public offering (IPO). As a result, the industrial sector has not received any financing from the stock market for a long time. Even under the current interim government, there has not been a single IPO. According to government sources, the disarray in the economy during the tenure of the ousted Awami League government has caused a lack of investor confidence in the capital market. This has made companies reluctant to go public. However, the government says it is now taking steps to restore confidence in the market through structural reforms and to encourage IPOs from public, private, and multinational companies.

According to the Dhaka Stock Exchange (DSE), Bangladesh’s main stock exchange, 52 companies raised a total of BDT 79.8 billion through IPOs over the past five years. That averages about BDT 15.96 billion in funding per year through IPOs. Of this, four companies raised BDT 3.27 billion in FY 2019–20, fifteen companies raised BDT 12.86 billion in FY 2020–21, another fifteen companies raised BDT 48.48 billion in FY 2021–22, nine companies raised BDT 6.78 billion in FY 2022–23, and nine more raised BDT 8.41 billion in FY 2023–24. However, in the recently concluded FY 2024–25, no company raised any funds from the capital market through IPOs. In fact, since the final quarter of FY 2023–24 (April–June), there has not been a single new IPO, which means the capital market has gone over a full year without any IPO-based financing.

Market insiders say there has never been a period this long without IPO activity in the country’s capital market. According to them, signs of a market slowdown first appeared in early 2022, and that downturn continues to this day. Because of this prolonged slump, entrepreneurs are hesitant to launch IPOs. They fear that in a bearish market, they will not get the valuation they expect for their shares. Moreover, repeated incidents of market manipulation and irregularities in the past have discouraged many strong companies from entering the market. When the interim government came to power in August last year following a political transition, there was a hope that the capital market would recover. But that hope has yet to be realized. Likewise, the kind of structural reforms needed to improve the market have not been implemented. On top of that, given the current state of the economy, investors are wary of making fresh investments. As a result, companies are avoiding IPOs as a means to expand their businesses.

Dr. Anisuzzaman Chowdhury, the Chief Adviser’s Special Assistant in charge of the capital market, told Bonik Barta, “It’s correct that no IPOs came in the last fiscal year. But this has to be viewed in the context of the overall economic situation. Fifteen years of chaos created a trust deficit. We haven’t fully emerged from that chaos yet. The influence of those involved in market manipulation still lingers. We’re taking an inclusive approach to reform the IPO process and the capital market as a whole. We’re in discussions with public, private, and multinational companies to resolve the issues preventing them from getting listed. Even the merchant banks that bring IPOs are struggling with various issues. We’re working to fix those. Public trust in audit reports has eroded. But audits are critical for IPOs. We’re working on improving audit standards.”

Highlighting high public expectations from the current government, Dr. Anisuzzaman added, “Reforms take time. If we rush, mistakes can happen. This will cause investors to suffer. We are fully aware of the need to bring IPOs to the capital market. Beyond IPOs, we’re also working on launching new instruments like derivatives and infrastructure project securitization. There’s a shortage of skilled manpower here. Due to the salary structure, attracting skilled professionals from abroad is also a challenge. But this can’t be solved by our efforts alone. Everyone has a role to play. During our discussions with multinational companies, we urged them to go for IPOs. They said they don’t need funding. But they’ve been doing business in this country for years. So, even if they don’t need capital, they have a social responsibility. That’s why they should be listed on the capital market.”

Irregularities and controversy surrounding company listings through IPOs have been a long-standing issue. Over the past 15 years, 149 companies have raised over BDT 110 billion from the capital market through IPOs—most of them during the tenure of the Khairul Commission. Many of these companies are now financially weak or in a fragile state. Several have even ceased operations. In some cases, IPO funds were diverted to other uses.

There have also been instances where, after going public, company share prices were artificially inflated so that the promoters could siphon off funds from the market. In the pre-IPO placement process, large sums were extracted as well. In many cases, influential individuals received placement shares as gifts without investing any money. Once the company got listed, they sold those shares at inflated prices. Over time, a network of manipulation and irregularities has taken shape around the IPO process.

Although there were high expectations for major structural reform in the capital market after the interim government took office, those reforms have yet to materialize. In this situation, business leaders believe that unless meaningful reform happens, credible entrepreneurs will remain unwilling to go public through IPOs.

Azam J Chowdhury, former President of the Bangladesh Association of Publicly Listed Companies (BAPLC) and Chairman of East Coast Group, told Bonik Barta, “Across the world, capital markets are the main source of industrial financing. But in our country, the picture is completely different. Here, everyone relies on banks. There are several reasons why no new IPOs have come to the market. The current pricing mechanism for shares is flawed. As a result, entrepreneurs are discouraged from going public because they don’t get the expected valuation for their shares. There should be a fixed minimum percentage of shares that a company must offload to the market. It needs to be designed in a way that benefits both the investors and the issuers—so those receiving the shares gain, while those offering them receive fair value. Capital market intermediaries don’t have enough funds. Without liquidity at their end, how will money flow into the market? Everyone expected that this year’s budget would address these issues, but that didn’t happen. For a country like ours, on the verge of becoming a developing nation, how can we have such a weak capital market? Most of the shares that rise in price daily belong to weak companies. If this trend can’t be controlled, people won’t be interested in investing in the market.”

To address necessary reforms, the Bangladesh Securities and Exchange Commission (BSEC) formed a task force in August last year. The task force has already submitted a draft set of recommendations regarding IPOs. Among the proposals: allowing direct listing for large corporates and multinationals, and requiring mandatory listing for companies with loans exceeding BDT 10 billion. Through simplifying the IPO process and structural reform, BSEC aims to bring major public, private, and reputed multinational companies to the capital market. However, due to delays in the reform process, necessary amendments to the BSEC Public Issue Rules have not yet been made. In addition, to avoid controversy, BSEC has decided not to consider IPO applications submitted under the previous commission. Many of those applications have already been rejected due to various errors and shortcomings.

Merchant bankers say that due to past irregularities and manipulations surrounding IPOs, BSEC has scrapped earlier applications. Meanwhile, given the current economic and market conditions, few are showing interest in launching new IPOs. With the upcoming national election and transition to a political government, most investors are holding back. As a result, there are currently not enough good or large companies willing to go public. For these reasons, no new IPOs have been launched in the past year, they said.

Another major reason many entrepreneurs avoid raising funds through IPOs is the easy availability of bank loans. Over the past year, although not a single BDT has been raised through IPOs, the industrial sector received BDT 838.76 billion in financing from banks. According to Bangladesh Bank data, as of March 2024, bank loans to the industrial sector stood at BDT 6.42 trillion. By March this year, that amount had risen to BDT 7.26 trillion. These loans were issued as term loans and working capital by banks to the industrial sector.

Mominul Islam, Chairman of the Dhaka Stock Exchange (DSE), told Bonik Barta, “The reason we didn’t see any IPOs in the last fiscal year is that many entrepreneurs were hesitant about whether they would get a proper valuation for their shares, considering the market conditions. Also, during this time, we focused on preparing ourselves through structural reforms to the IPO process. In the current fiscal year, we’ve set a target to list 10 good companies and 10 large bonds in the capital market. We’re already in contact with both local and multinational companies, including those in the pharmaceutical sector. During the IPO approval process, we’ll take a flexible approach toward minor errors. As long as there are no major issues, we want to complete the approval process within two months. At the same time, we will sit with merchant banks to understand why they are struggling to bring IPOs to the market.”