Regulator to amend 2015 rules to help tech startups grow

The securities regulator is set to bring changes in the public issue rules to facilitate the growth of startups and tech-based companies through listing.
The provision will allow listing of companies that may lack tangible assets and ride a bumpy road initially but have good future prospects, according to a draft amendment to the public issue rules, 2015.
Another objective of the move is to make a way for foreign investors to transfer ownership of such companies.
The Bangladesh Securities and Exchange Commission (BSEC) on Thursday held a meeting with market operators and representatives of 20 startups at its office to share the initial draft of the amendment prepared by a five-member committee.
The currently listed IT companies went public after attaining a certain level of business growth aligned with the requirements set in the public issue rules.
The existing rules do not allow listing of a loss-making company without sufficient tangible assets.
As a result, no startups and tech-based companies have been able to raise funds from the primary market. In the developed countries, companies of such nature are given the opportunity to collect funds from public investors and invest to grow into big tech enterprises.
At the meeting, the representatives of Venture Capital and Private Equity Association of Bangladesh (VCPEAB) placed three demands.
They said startups having clear and convincing projections should be allowed to get listed.
The VCPEAB also said startups should be allowed to raise pre-IPO capital even three months before the submission of a prospectus. Now, a company is not permitted to raise pre-IPO capital within two years before it floats an IPO.
Another proposal said the share price of startups and tech-based companies should be fixed by eligible investors (Eis) through bidding so that they get a higher stake than general investors.
On global practices regarding listing of startups, VCPEAB President Shameem Ahsan said developed markets are more flexible for startups, many of which turned out to be tech giants.
Because of greater investment acumen, general investors in those countries are offered with the scope of buying a larger volume of shares in such companies.
"Considering the lower maturity level of the country's general investors, we are in favour of issuing fewer amounts of shares to them," Mr. Ahsan said.
Asked, a BSEC official having involvement in preparing the initial draft of the amendment to the public issue rules said foreign investors were less interested in investing in local startups in the absence of any exit route.
"The listing of startups will pave the way for their exit through transfer of shares," he said.
Representatives of both the stock exchanges proposed introducing new public issue rules instead of amending the existing one.
At the meeting, the regulator also discussed how to decide the offer price of companies' shares.
The participants spoke in favour of fixing the price based on NAV (net asset value) per share. It is often observed that NAV of a company goes down the face value.
Presently, a company is not allowed to use more than 30 per cent of its IPO funds to repay debts.
Some participants proposed allowing a higher portion of IPO funds for debt repayment while others said debt repayment should be done by issuing bonds instead of collecting funds through an IPO.
The regulator said it would consider the proposals before finalising the draft.

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