Tk50,000 secondary investment is a must for IPO subscription

The Bangladesh Securities and Exchange Commission (BSEC) has raised the threshold of minimum secondary market investment to subscribe for primary shares in initial public offerings (IPOs).

A resident general investor must hold listed scrips worth at least Tk50,000 while subscribing for primary shares, an increase from Tk20,000.

Non-resident investors (NRBs) must invest Tk1 lakh to subscribe to IPO shares, previously which was also Tk20,000.

Earlier in April 2021, the securities regulator reformed the way investors subscribe for primary shares in IPOs which are assumed to be safe and lucrative investments due to a significant gap between the issue price and post-debut market prices, while the risk of capital losses is perceived to be very low.

Previously, individual investors used to apply for a lot of IPO shares from their accounts and in cases of oversubscription, issuer companies used to draw lotteries to select the lucky investors who would be allotted primary shares.

Hundreds of thousands of beneficiary accounts were there only to hunt IPOs as they barely had secondary market investments.

The BSEC last year repealed the lottery system and introduced pro-rata share allocation in cases of oversubscription.

In a pro-rata system, each subscriber gets some primary shares. In too much-oversubscribed IPOs, they get fewer shares against how much they had applied and vice versa.

The BSEC had also made it mandatory that individual investors must have secondary market investments worth at least Tk20,000 at market value for IPO subscription.

And, the change resulted in too small a stake in newly listed firms, such as 20-40 shares for each investor.

Now, BSEC has raised the threshold of minimum secondary market investment in a bid to inspire long-term investments among individual investors, attract more funds in the secondary market and help the serious secondary market investors avail themselves of the lucrative primary shares.

Currently, three-fourths of the IPO shares are allocated among individuals – 70% reserved for the resident individuals and 5% for NRBs, while one-fourth of shares are given to the institutional investors.