Govt eyes IPO simplification, new investment tools to boost capital market

According to a budget document, the government aims to transform the capital market into an effective source of long-term financing for productive sectors, infrastructure development, technology-driven initiatives and promising businesses.

An effective capital market is essential for mobilising long-term funds, as excessive dependence on bank loans for industrialisation, infrastructure and urban development increases pressure on the financial sector,the document says.

The government will review why financially sound and promising companies are reluctant to get listed on the country’s stock market. 

Unnecessary complexities, delays, excessive costs, repeated submission of documents and uncertainty over approvals and compliance will be reduced gradually.

While protecting investors’ interests, listing requirements will be made more transparent, realistic and supportive of growing companies, it says.

The IPO process will be simplified, made time-bound and brought under a technology-based system. Applications, supporting documents, due diligence, fee payments, corrections and approvals will be completed online.

An integrated digital platform will connect issuing companies, issue managers, stock exchanges, the Central Depository Bangladesh Limited (CDBL) and the regulator to facilitate information exchange. 

The government will also examine the possibility of allowing eligible and mature companies to get listed directly.

To improve market stability, the participation of pension funds, insurance companies, asset management companies (AMCs), mutual funds and other long-term institutional investors will be increased.

New asset management companies will be developed, professional fund management will be strengthened, and the number and size of mutual funds will be expanded to channel long-term savings into productive investments,the document says.

The government also plans to expand the corporate bond market and introduce municipal bonds to finance local government and urban infrastructure projects.

The use of bonds, Sukuk, infrastructure funds and other financing instruments will be encouraged for long-term public and private sector projects to reduce reliance on bank loans.

Steps will also be taken to make the country’s first commodity exchange operational. Existing licences will be activated, necessary regulations formulated, technological capacity strengthened and international expert support secured.

Alongside commodity trading, the feasibility of introducing Real Estate Investment Trusts (REITs), Exchange Traded Funds (ETFs), index hedging and possible currency hedging instruments will be examined, it said.

The government will examine opportunities for domestic companies to be listed on regional stock exchanges through dual listing, as well as the feasibility of listing selected state-owned enterprises.

The process of opening and operating Non-resident Investor’s Taka Accounts (NITAs) will be simplified further to facilitate investment by non-resident Bangladeshis and foreign investors.

To restore and strengthen investor confidence, the quality of corporate disclosures, financial reporting, audits, share valuations, credit ratings, IPO management and research reports of listed companies will be improved.

The responsibilities and liabilities of auditors, valuers, issue managers, credit rating agencies, research analysts, merchant bankers, broker-dealers and other market intermediaries will be clearly defined.

The government will also consider introducing professional liability frameworks and professional indemnity or liability insurance where necessary.

Another major reform will involve shortening the settlement cycle for share transactions. The country currently follows the T+2 settlement system, under which transactions are settled two working days after the trading date.

The government will gradually move towards T+1 settlement and prepare for T+0 or same-day settlement in the next phase, subject to the availability of necessary technology, risk management arrangements and market infrastructure, according to the document.

Information systems among the Bangladesh Securities and Exchange Commission (BSEC), stock exchanges, CDBL, banks, brokers, issuing companies and other related organisations will also be integrated further.

The government is reviewing the introduction of a specialised dispute resolution mechanism for capital market-related cases. If necessary, a special tribunal or fast-track court with legal authority to enforce its decisions may be established, reports UNB.