The revised initial public offering rules have curtailed the scope for raising equity funds by companies with limited operational lifespans, such as rental power plants.
The rules define eligible companies for public fundraising as those established with the prospect of perpetual business operations as going concerns.
The market watchdog brought the much-needed change in the IPO rules against the backdrop of listed power plants being at the end of their lifespan, with power supply contracts with the government expired or about to expire, with little chance of renewal. That has left shareholders exposed to the risk of capital erosion, as profits of the companies have continued to decline.
Referring to rental power plants introduced in Bangladesh as short-term, quick-fix solutions to acute electricity shortages, Abul Kalam, spokesperson of the Bangladesh Securities and Exchange Commission (BSEC), said, "We will no longer allow such short-lived companies to collect money through IPOs, but they will be able to raise funds through limited-life bonds."
The existing companies have operated under fixed-term contracts, typically ranging from 3 to 15 years. That explains why a majority of the country's listed rental and quick rental power companies are facing a structural decline in earnings-the inherent weakness in the business model.
The plants have been selling electricity to the Bangladesh Power Development Board (BPDB) at pre-agreed tariffs. Once the contracts expire, they often have limited or no scope for renewal.
The eligibility criterion set for new listings will forbid similar companies in the future from collecting funds by issuing primary shares.
"This is a very good decision taken by the [market] watchdog. Limited-life companies should not be financed by equity. Bond financing is more suitable for these companies," said Mohammad Emran Hasan, managing director and CEO of Investit Asset Management Limited.
As this regulatory shift takes effect, investor concerns surrounding rental power companies are turning into reality.
Currently, nine rental and quick rental power companies are listed on the Dhaka Stock Exchange (DSE). Almost all of them-except one-have reported a sharp decline in profitability in recent periods.
The decline in earnings is primarily driven by the expiry of power purchase agreements (PPAs), reduced plant utilisation, rising fuel and operational costs, and uncertainty over contract renewals.
Most of these companies are now paying only nominal dividends, significantly reducing their appeal to investors. The absence of long-term growth visibility, combined with regulatory restrictions on fresh equity financing, has further weakened investor confidence.
As a result, these stocks are gradually losing market traction. Investors holding these shares are finding it increasingly difficult to exit, as demand continues to shrink. Consequently, share prices have been on a persistent downward trend, reflecting both fundamental weaknesses and declining market interest.
Market analysts say that policies adopted to quickly address power shortages allowed short-term, high-tariff projects to enter the market. Their listing in the stock market, in turn, shifted long-term risks onto general investors.
This structural mismatch has been addressed by the BSEC through the new IPO rules.
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