3 minute read 11 Apr 2023

Hong Kong's new listing regime for specialist technology companies

By Rossana Chu

Managing Partner

Direct: +852 2629 1768 | Mobile: +852 9733 6010 | rossana.chu@eylaw.com.hk

3 minute read 11 Apr 2023

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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.

Qualifications for listing

  • The term “specialist technology companies” refer to companies engaging in (1) next-generation information technology, (2) advanced hardware and software, (3) advanced materials, (4) new energy and environmental protection, and (5) new food and agriculture technologies.
  • An applicant falling outside the current list of industries or acceptable sectors may still be considered if (1) it has high growth potential, (2) its success can be demonstrated to be attributable to the application of new technology to a new business model which differentiates it from traditional market participants serving similar consumers or end users, and (3) its research and development (R&D) significantly contributes to its expected value and constitutes a major activity and expense.
  • The applicant should have at least three financial years of operation for its current line of business (with R&D activities) prior to listing under substantially the same management, but the HKSE may accept a trading record period of two financial years in exceptional circumstances.
  • There should be continuity of ownership and control for the applicant in the 12 months prior to its listing application.
  • There will be two types of specialist technology companies, namely, “Commercial Companies”, meaning those that have commercialised their technology products with a revenue of at least HKD250 million (USD32 million) for the most recent audited financial year, and “Pre-Commercial Companies”, meaning those which have not met such revenue threshold.
  • The minimum market capitalisation of a Commercial Company and a Pre-Commercial Company is HKD6 billion (USD770 million) and HKD10 billion (USD1,282 million), respectively (reducing from the proposed figures of HKD8 billion and HKD15 billion, respectively).
  • A Commercial Company is expected to demonstrate a year-on-year growth of revenue throughout the trading record period, with allowance for temporary declines in revenue due to economic, market, industry-wide conditions or temporary factors outside the applicant’s control.
  • The R&D expenditure of a Commercial Company should constitute at least 15% of its total operating expenditure. The percentage for a Pre-Commercial Company is 50% if its revenue is less than HKD150 million for its most recent financial year and 30% if its revenue for its most recent financial year reaches HKD150 million. The applicant must meet the applicable percentage threshold (1) on a yearly basis for at least two out of the three financial years prior to listing, and (2) on an aggregate basis over all the three financial years.
  • A Pre-Commercial Company must demonstrate and disclose in its listing document a credible path to the commercialisation of its specialist technology product(s).
  • A Pre-Commercial Company must ensure that it has available sufficient working capital to cover at least 125% of its group’s costs for at least 12 months from the publication of its listing document (after taking into account the IPO proceeds).

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.

Show resources

  • Hong Kong's new listing regime for specialist technology companies (pdf)

Summary

Specialist technology companies can apply for Hong Kong main board listing even if they do not satisfy the usual profits, revenue and cash flow listing criteria.

About this article

By Rossana Chu

Managing Partner

Direct: +852 2629 1768 | Mobile: +852 9733 6010 | rossana.chu@eylaw.com.hk