The Stock Exchange published consultation conclusions on listing regime for Specialist Technology Companies
Introduction
In our previous
newsletter, “The Stock Exchange
published consultation paper on the listing regime for Specialist Technology
Companies“,we discussed
the consultation paper issued by The Stock Exchange of Hong Kong Limited (the “Stock Exchange”) in October 2022
(the “Consultation”), which sought
the market’s opinion on a proposed regime for Specialist Technology Companies
(as defined below) to be listed on the on the Main Board of the Stock Exchange
under the proposed Chapter 18C of the Rules Governing the Listing of Securities
on the Stock Exchange (the “Listing
Rules”). In March 2023, the Stock Exchange published conclusions to the
Consultation (the “Consultation
Conclusions”).
New
listing regime for Specialist Technology Companies
Upon considering the market feedback, the Stock Exchange has decided to largely implement the proposals set out in the Consultation, with the following key amendments made in response to the comments of the respondents:
1. Acceptable sectors of a Specialist Technology Industry
In the
Consultation, the Stock Exchange proposed to define:
1.
“Specialist Technology Company” as “a company primarily engaged (whether
directly or through its subsidiaries) in the research and development of, and
the commercialisation and/or sales of, Specialist Technology Products within an
acceptable sector of a Specialist Technology Industry”;
2.
a “Specialist Technology Product” as “a product and/or service (alone or
together with other products or services) that applies Specialist Technology”;
and
3.
“Specialist Technology” as “science and/or technology applied to
products and/or services within an acceptable sector of a Specialist Technology
Industry”.
The
Consultation Conclusions suggest that Stock Exchange has decided to adopt the
proposed definitions without amendment. Rule 18C.01 of the Listing Rules
defines “Specialist Technology Industry” and “an acceptable sector of a
Specialist Technology Industry” as an industry or an acceptable sector (as the
case maybe) that is included in a list of Specialist Technology Industries set
out in the guidance letter (appendix V of the Consultation Conclusions) published
on the Stock Exchange’s website, as updated from time to time. The list of
Specialist Technology Industries and the non-exhaustive acceptable sectors that
the Stock Exchange considers to fall within each of these industries are set
out as follows:
Specialist
Technology Industry |
Acceptable
Sectors |
Next-generation
information technology |
Cloud-based services;
Artificial intelligence |
Advanced hardware
and software |
Robotics and automation;
Semiconductors; Advanced communication technology; Electric and autonomous
vehicles; Advanced transportation technology; Aerospace technology; Advanced manufacturing; Quantum information
technology and computing; Metaverse technology |
Advanced
materials |
Synthetic biological
materials; Advanced inorganic materials; Advanced composite materials;
Nanomaterials |
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 |
Others - a
pre-IPO enquiry must be submitted to HKEX in consultation with the Securities
and Futures Commission. |
The Stock Exchange may reject an application for listing if it
displays attributes inconsistent with the following principles: 1. it has high growth potential; 2. its success is attributable to the
application of new technologies and/or a new business model; and 3. Research and development (“R&D”) significantly contributes
to its expected value and constitutes a major activity and expense |
2. Qualifications for listing
A summary of the
key differences between the consultation proposals and the requirements to be
implemented is set out below:
Consultation Paper |
Consultation Conclusions |
1.
Expected
market capitalization at the time of listing |
|
·
Commercial Companies: ≥ HK$8 billion ·
Pre-Commercial Companies: ≥ HK$15 billion |
·
Commercial Companies: ≥ HK$6 billion ·
Pre-Commercial Companies: ≥ HK$10 billion (Rule 18C.03) |
2.
R&D
expenditure ratio |
|
Minimum R&D expenditure ratio threshold (amount of R&D expenses
as a percentage of its total operating expenditure for the same period) ·
Commercial Companies: 15% ·
Pre-Commercial Companies: 50% |
Minimum R&D expenditure ratio threshold (amount of R&D
expenses as a percentage of its total operating expenditure for the same
period) ·
Threshold
lowered to 30% (for Pre-Commercial Companies with revenue ≥ HK$150 million but
<HK$250 million (Rule 18C.04(2)(b)) ·
Threshold remained at 50% (for Pre-Commercial
Companies with revenue < HK$150 million) (Rule 18C.04(2)(c)) |
Period of application ·
Each
of the three financial years
prior to listing |
Period of application Require the ratio to be met: ·
(a)
on a yearly basis for at least two of the three financial years
prior to listing (Rule 18C.04(3)(a)); and ·
(b) on an aggregate basis over all three
financial years prior to
listing (Rule 18C.04(3)(b)). |
3.
Meaningful investment from pathfinder sophisticated independent
investors (“Pathfinder
SIIs”) |
|
Indicative benchmark for the investment from Pathfinder SIIs ·
At
least two Pathfinder SIIs, each holding ≥ 5% of an applicant’s issued share capital as at the date of listing application and
throughout the pre-application 12 month period |
Indicative benchmark for the investment from Pathfinder SII Two to five Pathfinder SIIs that: ·
in
aggregate hold ≥ 10% 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 ≥ 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 ≥ 3% 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 ≥ 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). (Paragraph 37 of the Guidance
Letter) |
4. Optimised
price discovery process |
|
·
Require
≥ 50% of the total number of shares offered in the initial public offering
(excluding any shares to be issued pursuant to the exercise of any
over-allotment option) to be taken up by “Independent Institutional Investors” ·
Define
“Independent Institutional Investors” as Institutional Professional Investors that satisfy the
independence requirement |
·
Require ≥
50% of offer shares to be taken up by “Independent Price Setting Investors”(Rule 18C.08) ·
Define
“Independent Price Setting Investors” to comprise (i) Institutional
Professional Investors (as defined in Rule 18B.01); and (ii) other types
of investors with AUM,
fund size or investment portfolio size of at least HK$1 billion that
satisfy the same independence requirement (Paragraph 55 of the Guidance
Letter) |
Conclusion
The new rules set
out in the new Chapter 18C of the Main Board Listing Rules together with the Guidance
Letter for “Specialist Technology Companies” will come effect on 31 March 2023.
The new listing regime is a valuable addition to the market’s development in
Hong Kong and it is believed that the reduction in the minimum valuation will allow
more companies to qualify under the new regime.
For enquiries, please feel free to contact us at: |
E: cc@onc.hk T:
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Connaught Place, Central, Hong Kong |
Important: The law and procedure on this subject are very specialised and complicated. This article is just a very general outline for
reference and cannot be relied upon as legal advice in any individual case.
If any advice or assistance is needed, please contact our solicitors. |
Published by ONC Lawyers © 2023 |