Hong Kong's new listing regime for specialist technology companies

By the March 2023 Conclusions[1] to the Consultation on the Listing Regime for Specialist Technology Companies[2], the Hong Kong Stock Exchange (HKSE) has announced some changes to its original proposals after considering responses the consultation.

The objective of the new regime is to allow the specialist technology companies to apply for listing on the main board of HKSE even if they do not satisfy the usual profits, revenue and cash flow listing criteria. We summarise below the conclusions which form the new listing regime from 31 March 2023 onwards.

Pre-IPO investments

• As an indicative benchmark, the applicant is expected to have received investments at least 12 months prior to its listing application from a group of two to five sophisticated independent investors (referred to by HKSE as “pathfinder sophisticated independent investors”). Such investors in aggregate should (1) hold shares or securities convertible into shares equivalent to at least 10% the applicant’s issued share capital as at its listing application and throughout the 12-month pre-application period, or (2) have otherwise invested an aggregate sum of at least HKD1.5 billion (USD192 million) in the applicant’s shares or securities convertible into shares at least 12 months prior to its listing application. Also, at least two of such investors should (1) each hold shares or securities convertible into shares equivalent to at least 3% of the applicant’s issued share capital as at its listing application and throughout the 12-month pre-application period, or (2) each have otherwise invested at least HKD450 million (USD77 million) in the applicant’s shares or securities convertible into shares at least 12 months prior to its listing application.
• The prescribed minimum equity holding by all sophisticated independent investors varies from 10% to 25%, depending on whether the applicant is a Commercial Company and its market capitalisation expected at listing.

IPO arrangements

• The share offer must include both a placing tranche and a public subscription tranche. That essentially means retail investors are allowed to subscribe for, and trade in, the securities of both Commercial Companies and Pre-Commercial Companies.
• At least 50% of the total number of shares offered in the IPO (excluding any shares to be issued under any over-allotment option) must be taken up by independent price setting investors in the placing tranche. Such investors must be (1) independent Institutional professional investors or (2) other types of independent investors with assets under management, fund size or investment portfolio size of at least HKD1 billion (USD128 million). The purpose of this new requirement is to help ensure a robust IPO price discovery process for specialist technology companies.
• The minimum retail allocation is initially 5% of the total offer shares, and must be increased to 10% if the public subscription tranche is over-subscribed by 10 times but less than 50 times and to 20% if the over-subscription is of 50 times or more.
• The minimum free float (being shares not subject to any disposal restrictions) should be of a market capitalisation of HKD600 million (USD77 million) or more upon listing.
• Existing shareholders (including controlling shareholders) are allowed to participate in the IPO provided that the applicant complies with the requirements on public float, minimum allocation to independent price setting Investors and free float market capitalisation.

Post-IPO lock-up periods

• Securities held by controlling shareholders will be subject to a lock-up period of 12 months for a Commercial Company and 24 months for a Pre-Commercial Company.
• Key persons (including founders, beneficiaries of weighted voting rights, executive directors, senior management and key personnel responsible for technical operations and/or the R&D) are subject to non-disposal restrictions of 12 months for a Commercial Company and 24 months for a Pre-Commercial Company.
• Pathfinder sophisticated independent investors will be subject to lock-up periods of 6 months for a Commercial Company and 12 months for a Pre-Commercial Company.

Additional post-IPO requirements for Pre-Commercial Companies

• A Pre-Commercial Company must include in its annual and interim reports specific details of its R&D activities and commercialisation progress during the period under review.
• Where the HKSE considers a Pre-Commercial Company fails to maintain sufficient operations and assets, it may suspend dealings or cancel the listing of the company’s securities, or may give it a remedial period of not more than 12 months.
• Without the HKSE’s prior consent, a Pre-Commercial Company must not effect any acquisition, disposal or other transaction that would result in a fundamental change in its principal business activities described in its listing document.
• The listing regime sets out a process to apply to the HKSE to cease being regarded as a Pre-Commercial Company.

The new listing regime is set out in Chapter 18C of the Listing Rules of the HKSE main board. The HKSE has also published a Guidance Letter for Specialist Technology Companies and may update it from time to time.