Unlocking the frozen IPO pipeline: The case for lifting the 30% cap on debt repayment

Amid the prolonged fallout from the Russia-Ukraine conflict
and emerging geopolitical risks from Iran-US tensions, Bangladesh's capital
market is standing at a critical crossroads. For years, the narrative of our
equity market centred on expansion and "new projects". However, in a
high-interest-rate environment where the Taka's depreciation has inflated
project costs, the priority must shift from growth to survival.
To
revitalise our thinning IPO pipeline, the newly appointed adviser to the Prime
Minister on Investment and Capital Markets, Tanvir Ghani, along with the
Bangladesh Securities and Exchange Commission (BSEC), needs to rethink a
fundamental constraint: the utilisation of IPO proceeds for debt repayment.
A market in retreat
The numbers tell a sobering story. Since the brief post-pandemic surge in 2021,
appetite for Initial Public Offerings has sharply declined – from 13 IPOs in
2021 to zero in 2025. This stagnation is not merely a symptom of "poor
quality" companies. Many robust, Tier-1 firms are currently
over-leveraged, burdened by heavy debt taken for capital expenditure over the
last four to five years. In the current climate, these firms cannot feasibly
justify further expansion, yet they are bleeding from double-digit interest
rates. The problem is structural, not reputational.
The BSEC deserves credit for its recent efforts in
modernising the valuation process for IPOs with premiums. By refining these
methods to reflect intrinsic value, the Commission has finally addressed
long-standing valuation anomalies. However, the next logical step – to truly
breathe life into the market – is providing these corporates the flexibility to
repair their balance sheets.
The 30% ceiling: A barrier to
consolidation
On
30 December 2025, BSEC finalised the Public Offer of Equity Securities Rules,
2025. While the commission amended valuation methods, one particular clause
remains a bottleneck: a maximum of 30% of IPO or RPO proceeds may be used for
repayment of outstanding loans or investments. While the rule ensures that
loans being repaid were used for legitimate BMRE (Balancing, Modernisation,
Replacement, and Expansion) purposes, the 30% cap is increasingly out of touch
with corporate reality.
For
a company with a high debt-to-equity ratio, an IPO that only clears 30% of its
debt does not move the needle on its credit rating or profitability. If a firm
is forced to deploy the remaining 70% of proceeds into new projects it does not
need – or cannot afford to operate due to soaring energy costs – the IPO
becomes a burden rather than a blessing. The rule, intended to protect the
market, is instead keeping quality issuers away from it.
A concrete illustration
Consider a mid-sized Bangladeshi textile manufacturer – call it company ABC –
that invested Tk400 crore in factory expansion between 2020 and 2022, financed
primarily through term loans at rates that have since risen to 13-14%. Today,
company ABC is profitable at the operating level: it generates positive EBITDA,
its plant runs at 70% capacity, and its export receivables are regular. But its
interest burden consumes nearly half of its operating profit, leaving little
room for retained earnings or dividend distribution.
Company
ABC wishes to raise Tk250 crore through an IPO. Its debt repayment need is
Tk200 crore. Under the current rule, only Tk75 crore may go toward debt
repayment. The remaining Tk175 crore must fund "new projects" – yet
company ABC has no immediate CAPEX pipeline, no additional capacity need, and
no appetite to add fixed costs in an uncertain energy environment. The result:
either company ABC walks away from the exchange entirely, or it lists with an
artificially constructed use-of-proceeds that satisfies the regulator but
serves no genuine business purpose.
Had
the cap been set at 80% or eliminated for qualifying firms, company ABC could
reduce its interest burden by Tk200 crore, improve NPAT by an estimated Tk26-28
crore annually, and emerge as a fundamentally stronger listed entity – one that
attracts institutional investor confidence rather than undermining it.
Why a higher threshold makes
sense
Allowing
a significantly higher proportion of IPO proceeds to be used for debt repayment
offers several systemic benefits. First, firms replace high-cost bank debt with
permanent equity capital, immediately boosting NPAT and improving return on
equity. Second, by migrating corporate debt from the banking sector to the
capital market, we reduce pressure on a banking system already struggling with
non-performing loans. Third, in a volatile global economy, a lean and
deleveraged company is more resilient than an over-extended one. Finally, a
company with a repaired balance sheet – lower gearing, stronger interest
coverage – is fundamentally more investable, and far more likely to sustain its
listing price post-IPO.
What peer markets tell us
This
is not an untested idea. India's SEBI imposes no numerical ceiling on the
proportion of IPO proceeds directed toward debt repayment. Its 2025 amendment
to the ICDR framework explicitly recognised capex-loan repayment as equivalent
to capital expenditure – acknowledging that paying off a factory loan is
economically indistinguishable from building one. Malaysia's securities
commission similarly sets no regulatory cap, focusing instead on disclosure and
time-bound deployment. Across the globe, the philosophy is consistent: disclose
the intended use of proceeds, and let the market determine whether the proposed
capital restructuring is acceptable.
Bangladesh's
30% statutory cap is an outlier in this landscape, substituting regulatory
prescription for investor judgment.
A workable reform
The
BSEC should consider a temporary three-to-five-year window during which the cap
is lifted for companies meeting clear eligibility criteria: positive operating
cash flow for at least two of the three preceding fiscal years; an auditor's
certificate confirming that loans proposed for repayment were used for
BMRE-eligible purposes; a pre-IPO debt-to-equity ratio exceeding 2.0x; no
default classification with any scheduled bank or financial institution; and a
24-month undertaking against drawing new bank financing for overlapping CAPEX
purposes. These criteria preserve the spirit of the original rule while
creating a transparent, operationally credible pathway for genuinely
over-leveraged but fundamentally sound firms.
The path forward
To
bring the market back to life, we must stop viewing debt repayment as a
"waste" of IPO funds. If a company used bank loans to build a factory
three years ago, that factory is already a national asset. Paying off that loan
with public equity is simply a change in capital structure – not a loss of
value. Our peer regulators in India and Malaysia understand this. Without this
flexibility, IPO activity will remain subdued, and our best corporate houses
will continue to stay away from the exchanges – preferring to suffer under the
weight of bank interest rather than enter a market that does not give them room
to breathe.
It
is time to prioritise financial stability over forced expansion.
The author is Director,
Putnam Capital Advisory Pte Ltd, Singapore
















