Written by The Banking Post
Revised initial public offering (IPO) rules have effectively shut the door on short-lived companies—such as rental power plants—from raising funds through the stock market, in a move aimed at safeguarding investors.
Under the new framework, only companies with the prospect of long-term, going-concern operations will be eligible to go public. The change targets businesses built on fixed-term contracts, which often face sharp declines once those agreements expire.
The decision follows growing concerns over listed rental and quick rental power companies, many of which are nearing the end of their operational lifespan. These firms typically operate under power purchase agreements ranging from three to 15 years. Once those contracts expire, renewal prospects are often limited, leaving companies with shrinking revenues and uncertain futures.
As a result, profitability across most of these firms has declined significantly in recent years. Rising fuel and operating costs, lower plant utilisation, and expiring contracts have further eroded earnings. Dividend payouts have also dropped to minimal levels, reducing their appeal to investors.
“This is a very good decision. Limited-life companies should not be financed by equity. Bond financing is more suitable for these companies,” said an asset management executive.
Currently, nine rental and quick rental power companies are listed on the Dhaka Stock Exchange, and nearly all—except one—have reported falling profits. With weak growth prospects and no scope for fresh equity financing under the new rules, these stocks are steadily losing investor interest.
Market analysts say the issue stems from earlier policies that encouraged short-term power projects to address electricity shortages. While effective at the time, listing such companies transferred long-term risks to general investors.
The revised IPO rules aim to correct that structural mismatch, ensuring that only sustainable, long-term businesses can access public equity—thereby strengthening market quality and investor protection.
