Hong Kong Stock Exchange finalises listing regime for specialist technology companies

Specialist technology companies will be able to apply for listing in Hong Kong from 31 March 2023 when a new Chapter 18C will be added to the Listing Rules. This opens up Hong Kong’s listing regime to companies engaged in five specialist technology industries, namely next generation information technology, advanced hardware and software, advanced materials, new energy and environmental protection, and new food and agriculture technologies. Specialist technology companies, particularly those that are still at the development stage have, until now, faced difficulties meeting the existing Hong Kong listing criteria. The new rules will enable potentially high growth technology companies which meet the requirements of Chapter 18C to list despite not meeting the standard minimum revenue and profit thresholds in Chapter 8 of the Listing Rules.

The Hong Kong Stock Exchange has made a number of modifications to the regime originally proposed. These include:

• Adjustments to minimum expected market capitalisation requirements – The consultation paper proposed a minimum market capitalisation of HK$8 billion for commercial companies and HK$15 billion for pre-commercial companies. These have been adjusted to HK$6 billion for commercial companies and HK$10 billion for pre-commercial companies.
• R&D expenditure – The consultation paper originally proposed that, for a pre-commercial company, in each of the three financial years prior to the listing, there must have been investment on research and development in respect of its specialist technology product(s) amounting to at least 50% of its total operating expenses for the relevant year. Reflecting market feedback, the Stock Exchange has introduced an alternative threshold of 30% for those pre-commercial companies that have already generated HK$150 million or more (but less than HK$250 million revenue) for the most recent audited financial year. Those generating less than HK$150 million in the most recent financial year must still meet the 50% threshold originally proposed. In addition, the Stock Exchange has modified the period of application of the expenditure ratio, requiring specialist technology companies to meet the threshold: (1) on a yearly basis for at least two of the three audited financial years prior to listing, and (2) on an aggregate basis over all three audited financial years prior to listing.
• Meaningful investment from sophisticated independent investors – The Stock Exchange has revised the meaningful investment requirements to provide more flexibility. Specialist technology companies are now required to have received investment from a group of two to five “sophisticated independent investors” who must have each invested at least 12 months before the date of the listing application. The investments must satisfy the following:
  • the investors in aggregate must hold 10% or more of the share capital (in shares or securities convertible into shares) as at the date of the listing application and throughout the prior 12-month period. Alternatively, the investors must have invested in aggregate at least HK$1.5 billion (in shares or securities convertible into shares) at least 12 months prior to the date of the listing application, excluding any subsequent divestments; and
  • at least two of the investors must each either (i) hold 3% or more of the share capital (in shares or securities convertible in to share) as at the date of the listing application and throughout the prior 12-month period, or (ii) have invested at least HK$450 million (in shares or securities convertible into shares) at least 12 months prior to the date of the listing application, excluding any subsequent divestments.
• Independent price setting investors – In the consultation paper, the Stock Exchange proposed that at least 50% of the total shares offered in the IPO be taken up by independent institutional investors to ensure a robust price discovery process. For this purpose, the Stock Exchange has added a new defined term of “independent price setting investors” which modifies the types of investors that will qualify. It comprises independent institutional professional investors (as originally proposed) and has been amended to also include other independent investors with a fund or investment portfolio size (or assets under management) or at least HK$1 billion. The definition excludes existing shareholders (or their close associates) or any core connected person of the listing applicant.

Please refer to the attached briefing for details of the key requirements under the new Chapter 18C of the Listing Rules.

Whilst the new Chapter 18C does not come into effect until 31 March 2023, the Stock Exchange also noted in its Consultation Conclusions that specialist technology companies and their sponsors are able to submit formal pre-IPO enquiries now if guidance is needed on the interpretation of the new regime.

Herbert Smith Freehills has a top-tier equity capital markets practice in Hong Kong, regularly advising issuers and underwriters on listings and securities offerings. If you have any queries in relation to the new regime for specialist technology companies, please do not hesitate to contact any member of our team.