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Following the successful launch of the biotech listing regime, the Hong Kong Stock Exchange (HKEx) issued a Consultation Paper on New Listing Rules for Specialist Technology Companies in October 2022, which proposes to lower the bar for innovative technology enterprises with high growth potential that seek to list on the HKEx.
These new proposals form part of the HKEx’s continuing efforts to diversify its mix of products and elevate the competiveness of the Hong Kong bourse as an international fundraising platform. HKEx CEO, Nicolas Aguzin, expects that the new regime will expand the range of companies that can access Hong Kong’s deep, liquid, international markets and will offer investors even greater choice.
The consultation period ended on 18 December 2022 and it is expected that the new listing regime under Chapter 18C of the Listing Rules will be introduced in the first half of 2023.
Set out below are the key features of the new listing regime.
Specialist Technology Companies
Specialist Technology Companies are companies primarily engaged in the research and development (R&D) and commercialisation and/or sales of products and/or services that apply science and/or technology within an acceptable sector of a Specialist Technology Industry, which will be updated from time to time by the HKEx:
|Specialist Technology Industries||Acceptable Sectors|
|Next-generation information technology||• Cloud-based services|
• Artificial intelligence
|Advanced hardware||• Robotics and automation|
• Advanced communication technology
• Electric and autonomous vehicles
• Advanced transportation technology
• Aerospace technology
• Advanced manufacturing
• Quantum computing
• Metaverse technology
|Advanced materials||• Synthetic biological materials|
• Smart glass
|New energy and environmental protection||• New energy generation|
• New energy storage and transmission technology
• New green technology
|New food and agriculture technologies||• New food technology|
• New agriculture technology
The HKEx proposes to divide Specialist Technology Companies into two categories:
- Commercial Company: a company that has met the proposed minimum revenue threshold of HK$250 million for the most recent audited financial year arising from the issuer’s specialist technology business segment(s) (Commercialisation Revenue Threshold); and
- Pre-Commercial Company: a company which is primarily engaged in R&D to bring its specialist technology products to commercialisation and which has not yet met the Commercialisation Revenue Threshold at IPO.
Qualifications for listing
The key proposed listing eligibility requirements for Commercial Companies and Pre-Commercial Companies are set out below.
|Eligibility Requirements||Commercial Companies||Pre-Commercial Companies|
|Revenue||≥ HK$250 million for the most recent audited financial year||No requirement, but must demonstrate a credible path to achieving the HK$250 million Commercialisation Revenue Threshold|
|Market capitalisation||≥ HK$8 billion at listing||≥ HK$15 billion at listing|
|Trading record||≥ three financial years||≥ three financial years|
|Working capital||No requirement||Working capital (including IPO proceeds) able to cover at least 125% of its group’s costs for at least the next 12 months|
|R&D investment||≥ 15% of total operating expenditure for each of the 3 financial years prior to listing||≥ 50% of total operating expenditure for each of the 3 financial years prior to listing|
|Management continuity||Under substantially the same management for at least 3 financial years of operation prior to listing|
|Ownership continuity||Ownership continuity and control in the 12 months prior to the date of the listing application|
|Third party investment||Meaningful investment from Sophisticated Independent Investors (SIIs) – SII investment should in aggregate reach the prescribed minimum percentage of applicant’s issued share capital at listing; and at least two of them are Pathfinder SIIs (i.e. holding shares or securities convertible into 5% or more of the issued share capital of the applicant as at the date of the listing application and throughout the 12-month period before the application).|
The prescribed minimum percentage holding by SIIs varies depending on applicant’s expected market capitalisation at listing:
Both Commercial Companies and Pre-Commercial Companies are required to disclose the following in the listing document:
- Pre-IPO investments and cash flow
- Products and commercialisation status and prospects
- R&D activities
- Industry-specific information (e.g. applicable standards or regulatory requirements)
- Intellectual property
Given the risks associated with Pre-Commercial Companies which heavily rely on equity or debt financing, additional disclosure requirements are proposed for Pre-Commercial Companies. For instance, a Pre-Commercial Company must detail the key stages and milestones for its products to achieving the Commercialisation Revenue Threshold and all the relevant risks associated with the commercialisation of its products.
Due to the lack of track record of revenue/profit and the newness of the industries, there is concern over the difficulty in reaching a consensus on the valuation of Specialist Technology Companies (especially Pre-Commercial Companies) compared to companies from traditional industries. In view of this, the HKEx proposes a more robust price discovery process which applies to both Commercial Companies and Pre-Commercial Companies:
- At least 50% of the total number of shares offered in the IPO must be allocated to independent institutional investors (i.e. professional investors, whether as cornerstone investors or otherwise, excluding existing shareholders or any of their close associates, any core connected persons).
- A new prescribed initial retail allocation and clawback mechanism:
|Initial||No. of times (x) oversubscription in the public subscription tranche|
|10x to less than 50x||50x or more|
|Minimum retail allocation as a percentage of total offer shares||5%||10%||20%|
- A minimum free float (being shares not subject to any disposal restrictions) of at least HK$600 million upon listing.
- Existing shareholders (including controlling shareholders) of a Specialist Technology Company are allowed to participate in its IPO as placees or cornerstone investors.
The HKEx proposes the following post-IPO lock-up requirements on the controlling shareholders, key persons, Pathfinder SIIs and cornerstone investors of Commercial Companies and Pre-Commercial Companies, respectively.
|Commercial Companies||Pre-Commercial Companies|
|Controlling shareholders||12 months||24 months|
|Key persons (including founders, weighted voting rights beneficiaries (if any), executive directors and senior management, key personnel responsible for the technical operations and R&D of the specialist technology products)||12 months||24 months|
|Pathfinder SIIs||6 months||12 months|
|Cornerstone investors||Generally for at least 6 months|
Continuing obligations for Pre-Commercial Companies
It is proposed that a Pre-Commercial Company will be subject to post-listing continuing obligations until it is able to demonstrate to the HKEx that it has met the Commercialisation Revenue Threshold or at least one of the Main Board Eligibility Tests under Rule 8.05 of the Listing Rules. For instance, a Pre-Commercial Company is required to make additional disclosures in its interim and annual reports on the progress made towards achieving the HK$250 million Commercialisation Revenue Threshold, updates on any business and financial estimates provided in the listing document, and details of R&D activities and development progress of specialist technology products.
January 11, 2023
Authors: Gordon Ng (Partner), Elizabeth Leung (Managing Associate)