Hong Kong's New Listing Regime for Specialist Technology Companies

March 30, 2023

Background

On 24 March 2023, the Stock Exchange of Hong Kong Limited (the “HKEx”) published the consultation conclusions on the proposals to create a listing regime for Specialist Technology Companies in Hong Kong. Prior to the implementation of the new listing regime, Specialist Technology Companies faced difficulties listing in Hong Kong because they often cannot meet the Main Board financial eligibility requirements under the Rules Governing the Listing of Securities on the Stock Exchange (the “Listing Rules”). The new regime, labelled “Chapter 18C” under the Listing Rules, is part of HKEx's efforts to attract more technology firms to the city and to strengthen its position as a global financial center. The new listing regime, along with the Guidance Letter on Specialist Technology Companies, will come into effect on 31 March 2023.

A Specialist Technology Company is primarily engaged in, either directly or through its subsidiaries, researching and developing specialist technology products, and commercializing and/or selling those products within an acceptable sector of a specialist technology industry (“Specialist Technology Company”). These companies operate in emerging and innovative industries, require significant capital and R&D investment to commercialize their products or scale up their businesses, and take a relatively long time to generate substantial revenue or profits but have high growth potential.

Specialist technology industries include:

Next-generation information technology
- Including cloud-based services and artificial intelligence.
Advanced hardware and software
- Including robotics and automation, semiconductors, advanced communication and transportation technology, electric and autonomous vehicles, aerospace technology, advanced manufacturing, quantum information technology and computing and metaverse technology.
Advanced materials
- Including synthetic biological materials, advanced inorganic and composite materials and nanomaterials.
New energy and environmental protection
- Including new energy generation, storage and transmission technology and new green technology.
New food and agricultural technologies
- Including new food and agriculture technology.

The new Chapter 18C listing regime

Under the new listing regime, Specialist Technology Companies will be categorized into Commercial Companies and Pre-Commercial Companies. The respective key qualifications for listing are summarized as follows:

	Commercial Company	Pre-Commercial Company
Definition	A Special Technology Company that has earned at least HK$250 million in revenue from their Specialist Technology business segment in the most recent audited financial year (the “Commercialization Revenue Threshold”).	A Special Technology Company that has not yet met the Commercialization Revenue Threshold at the time of listing.
Key qualifications for listing
Revenue	Must meet the Commercialization Revenue Threshold for the most recent audited financial year.	Must demonstrate a credible path to achieving the Commercialization Revenue Threshold.
Minimum expected market capitalization at listing	HK$6 billion	HK$10 billion
R&D expenditure ratio	Minimum R&D expenditure ratio threshold: At least 15 percent of total operating expenditure.	Minimum R&D expenditure ratio threshold: Revenue of at least HK$150 million but less than HK$250 million in the most recent audited financial year: at least 30 percent of the total operating expenditure. Revenue less than HK$150 million in the most recent audited financial year: at least 50 percent of the total operating expenditure.
	Period of application: Ratio must be met: (a) on a yearly basis for at least two of the three financial years prior to listing; and (b) on an aggregate basis over all three financial years prior to listing. Must have engaged in R&D of their specialist technology products for at least three financial years before listing.
Minimum third-party investment	An applicant must have received meaningful investment from sophisticated independent investors (“SIIs”). To be considered as having received "meaningful investment”, an applicant should meet the following requirements: Indicative benchmark for the investment from Pathfinder SIIs (i.e. SIIs that have invested at least 12 months before the date of the listing application of a Specialist Technology Company) Two to five Pathfinder SIIs that: In aggregate hold at least 10 percent of an applicant’s issued share capital as at the date of listing application and throughout the pre-application 12-month period; or Otherwise have invested an aggregate sum of at least HK$1.5 billion in the applicant at least 12 months prior to the date of listing application (excluding any subsequent divestments made on or before the date of the listing application); Provided that at least two such Pathfinder SIIs: Each hold at least three percent of an applicant’s issued share capital as at the date of listing application and throughout the pre-application 12-month period; or Otherwise each have invested at least HK$450 million in the applicant at least 12 months prior to the date of listing application (excluding any subsequent divestments made on or before the date of the listing application). Aggregate investment from all SIIs meeting the prescribed minimum percentage of issued share capital of the applicant at the time of listing ranges from 10 percent to 20 percent for Commercial Companies or 15 percent to 25 percent for Pre-Commercial Companies, depending on the expected market capitalization at the time of listing.
Enhanced Working Capital Requirement	Not applicable	Sufficient working capital, including IPO proceeds, to cover at least 125 percent of their group's costs for the next 12 months (the costs must substantially consist of general, administrative and operating costs and R&D costs) (“Enhanced Working Capital Requirement”).
Operational track record and management and ownership continuity	Been in operation in their current line of business for at least three financial years prior to listing and under substantially the same management. Ownership continuity and control for at least the 12 months before listing.
IPO requirements
Optimized price discovery process	At least 50 percent of the offer shares must be taken up by Independent Price Setting Investors. Independent Price Setting Investors: Institutional Professional Investors (i.e. persons falling under paragraphs (a) to (i) of the definition of "professional investor" in section 1 of Part 1 of Schedule 1 to the Securities and Futures Ordinance (Cap. 571)); and other types of investors with assets under management (AUM), fund size, or investment portfolio size of at least HK$1 billion that meet the same independence requirement.
Minimum free float	HK$600 million upon listing
Disclosures in the listing document	Pre-IPO investments, commercialization status and prospects, R&D expenditure, experience and specific risks, industry-specific standards, material intellectual property and appropriate warning statements etc.
Post-IPO requirements
Post-IPO lock-ups on:
(a) Controlling shareholders	12 months	24 months
b) Key persons (including founders, beneficiaries of weighted voting rights, executive directors and senior management, and key personnel responsible for the technical operations and/or R&D)	12 months	24 months
(c) Pathfinder SIIs	6 months	12 months
Additional continuing obligations for Pre-Commercial Companies (non-exhaustive list)	Not applicable	Provide additional disclosures in interim and annual reports about their progress towards achieving the Commercialisation Revenue Threshold. Updates on any business and financial estimates provided in the listing document.

Conclusion

The HKEx anticipates that the new regime will increase the appeal of Hong Kong as a listing venue for Specialist Technology Companies. The regime is constructed to address risks associated with Specialist Technology Companies that are not yet commercially viable whilst also providing a framework for issuers to follow. The regime is also expected to strengthen Hong Kong's position as a preferred alternative for Chinese companies that are listed in the U.S. and want to pursue a dual or secondary listing elsewhere, particularly given the increased regulatory scrutiny over their listing status in the U.S.

Hong Kong's New Listing Regime for Specialist Technology Companies

David Chan

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