The Stock Exchange published consultation paper on the listing regime for Specialist Technology Companies
In October 2022, the Stock Exchange of Hong Kong Limited (the “Stock Exchange”) published a consultation paper (the “Consultation Paper”) 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”).
Specialist Technology Companies
Given the difficulties of formulating an exhaustive definition of “Specialist Technology” that is constantly up-to-date and can accurately identify the types of companies with strong growth potential, the Stock Exchange proposes to adopt a broad definition in the Listing Rules and issue a guidance letter on the industries and sectors falling within the definition.
A new applicant seeking to list under the proposed regime must be a “Specialist Technology Company” (“Specialist Technology Company”), which the Stock Exchange proposes to define as “a company primarily engaged (whether directly or through its subsidiaries) in the research and development of, and the commercialisation and/or sales of, product and/or services (alone or together with other products or service) that applies science and/or technology (“Specialist Technology”) within an acceptable sector of a “Specialist Technology Industry” (“Specialist Technology Industry”). The Stock Exchange prepares a list of Specialist Technology Industry, which will be updated from time to time. The list of Specialist Technology Industry includes the next-generation information technology, advance hardware industry, advance materials, new energy and environment protection and new food and agriculture technologies.
Qualifications for listing
Under the new proposed regime, Specialist Technology Company falls into two categories depending on their different risk profiles – the “Commercial Companies” (“Commercial Companies”)(those that has met the proposed minimum revenue threshold of at least HK$250 million in revenue arising from their Specialist Technology business segment for the most recent audited financial year (the “Commercialisation Revenue Threshold”); and “Pre-Commercial Companies” (“Pre-Commercial Companies”), which means those companies that have not yet met the Commercialisation Revenue Threshold. Pre-Commercial Company and be subject to more stringent listing requirements.
The eligibility requirements for Commercial Companies and Pre-Commercial Companies are set out below:
Minimum expected market capitalization at the time of listing
Minimum revenue from Specialist Technology business segment(s) for the most recent audited financial year
Minimum total Research & Development (“R&D”) investment (as a percentage of total operating expenditure) for each of the three financial years prior to listing
Requirement for Pathfinder Sophisticated Independent Investors (“Pathfinder SIIs”)
Meaningful investment from at least 2 Sophisticated Independent Investors (as defined below) at least 12 months before the date of listing application, each holding shares or convertible instrument equivalent to at least 5% of total issued share capital as at the date of listing application and throughout at least the 12 months before application.
The amount of minimum investment depends on expected market capitalisation of the listing applicant at listing and whether it is a Pre-Commercial Company or Commercial Company.
To qualify as a sophisticated independent investor (“Sophisticated Independent Investors”):
1. he/she/it must not be a core connected person (as defined under the Listing Rules) of the listing applicant; and
2. he/she/it must be a sophisticated investor who meets any of the indicative size thresholds or qualification requirements, such as a corporation with assets under management (AUM), fund size or investment portfolio size of at least HK$15 billion.
Minimum third party investment
Enhanced working capital requirement
Cover at least 125% of the group’s costs for at least the next 12 months
Management and ownership continuity
At least 3 financial years of operation under substantially the same management prior to listing and ownership continuity for the most recent audited financial year up to immediately before the offering becomes unconditional.
Robust price discovery process
The new prescribed initial retail allocation and clawback mechanism to help ensure a robust price discovery process is as follows:
At least 50% of the total shares offered in IPO (before over-allotment option) to be placed to independent institutional investors (i.e. professional investors, whether as cornerstone investor or otherwise, excluding existing shareholders or any of their close associates, any core connected persons)
Free float and offer size
Free float: A minimum free float (being shares not subject to any disposal restrictions) of at least HK$600 million upon listing
Offer size: The Stock Exchange reserves the right not to approve the listing if the offer size is not significant enough to facilitate post-listing liquidity, or otherwise gives rise to orderly market concerns
Specific disclosure requirements to facilitate IPO investors’ assessment of a Specialist Technology Company, including:
· Pre-IPO investments and cash flow;
· Products and commercialisation status and prospects;
· information relating to research and development;
· Industry specific information; and
· Intellectual property.
A warning statement in the listing document that the applicant is a Specialist Technology Company and so investment in its securities carries additional risks
Additional disclosure requirements in the listing document
Pre-Commercial Company must make the following disclosures in its listing document:
· the stage of research and development for each of its Specialist Technology Product(s);
· development details by key stages and milestones for its Specialist Technology Product(s) to achieving the Commercialisation Revenue Threshold;
· all relevant risks associated with the commercialisation of each of its Specialist Technology Product(s); and
· additional warning statement
Upon listing, Specialist Technology Companies are subject to the following proposed key requirements:
Post-IPO lock up
· Controlling shareholders: 12 months
· Founders, any beneficiaries of weighted voting rights, executive directors and senior management, and key personnel responsible for the technical operations and/or R&D: 12 months
· Pathfinder SIIs: 6 months
· Controlling shareholders: 24 months
· Founders, any beneficiaries of weighted voting rights, executive directors and senior management, and key personnel responsible for the technical operations and/or R&D: 24 months
· Pathfinder SIIs: 12 months
Continuing obligations for Pre-Commercial Companies (until achieving the Commercialisation Revenue Threshold)
· Additional disclosure in the interim and annual reports including the timeframe for, and any progress made towards the issuer achieving the Commercialisation Revenue Threshold, and updates on any revenue, profit and other business and financial estimates as provided in the listing document
· Shortened remedial period of 12 months for re-compliance with the sufficiency of operations requirement before delisting
· Restricted from effecting any transaction that would constitute a material change of business without the prior consent of the Stock Exchange
As stated in the Consultation Paper, Hong Kong lags behind the United States and Mainland China in terms of the number and market capitalisation of companies belonging to the Specialist Technology Industries. The proposed amendments is expected to improve attractiveness of Hong Kong as a listing venue for new economy companies and drive growth in talent and investment across high-growth frontier industries in the region and beyond. It is hoped that the proposed amendment for the proposed listing regime can adequately address the market concerns on the listing of new technology companies in Hong Kong.
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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 © 2022