Source: Securities Times
Author: Roman

March 24,$HKEX (00388.HK)$Introduce a listing mechanism for new specialty companies to further expand the listing framework in Hong Kong. A new section, Chapter 18C, will be added to the “Main Board Listing Rules” starting March 31. In other words, companies interested in listing under Chapter 18C can submit a formal application from that date.

This is another new milestone in the development of the Hong Kong stock market. The addition of a special technology section will open the door for a new generation of companies in more innovative fields to go public and support the financing needs of more companies.

The listing mechanism for new special technology companies came into effect at the end of March

On March 24, the Hong Kong Stock Exchange announced the launch of a new special technology company listing mechanism, which allows technology companies with no income and no profit to go public in Hong Kong, which took effect on March 31. Companies that intend to go public under the new section can submit formal applications from that day on.

Further revisions to the “Main Board Listing Rules” have lowered the listing threshold for special technology companies, which means that the Hong Kong Stock Exchange has opened the door for more innovative companies to go public. According to the Securities Times reporter, special technology companies can accept listing applications from companies in five major fields, including next-generation information technology, advanced hardware, advanced materials, new energy, energy saving and environmental protection, new food, and agricultural technology.

Potential applicants who are not currently on the list of specialty technology industries or admissible fields but who wish to apply for listing under Chapter 18C must first submit a pre-IPO inquiry to the Stock Exchange to seek confidential guidance on whether they can be considered “an acceptable field within the specialty technology industry”.

Applicants who are not in the specialty technology industry or on the list of admissible fields may still be considered “an acceptable field for the specialty technology industry: first, they have high growth potential; second, they can prove that their successful operation relies on adopting new technology and/or applying relevant science and/or technology within the industry to new business models in their core business, which also differentiates them from traditional market participants that serve similar consumers or end users; third, R&D contributes a large part of its expected value to it, which is also its main activity and accounts for most of its expenses.

Regarding the listing threshold for special technology companies, the reporter sorted out the following main points: in terms of market capitalization, commercialized companies need to have a market capitalization of at least HK$6 billion, and uncommercialized companies need to have a market capitalization of at least HK$10 billion. A so-called commercialized company refers to a speciality technology company with an audited revenue of at least HK$250 million (commercial revenue threshold) in the most recent fiscal year, while an uncommercialized company refers to a special technology company that did not meet the commercial revenue threshold at the time of listing.

The minimum R&D expenditure ratio is reduced to ≥ 30% for non-commercialized companies with revenues of HK$150 million but below HK$250 million. Furthermore, it is necessary to reach the relevant ratio for at least 2 of the three fiscal years prior to listing, or the sum of the first three fiscal years of listing to reach the relevant ratio.

In addition, the Hong Kong Stock Exchange also has requirements for investors in special technology companies. There must be 2-5 senior leading independent investors who hold at least 10% of the listed applicant's issued share capital on the day of listing application and the 12 months prior to the listing application, or have invested at least HK$1.5 billion in the amount invested in the listing applicant.

In terms of optimizing the pricing process, at least 50% of the shares offered must be distributed to “independent pricing investors”. How to define “independent pricing investors”, the Hong Kong Stock Exchange believes that two conditions must be met. First, institutional professional investors are required, and secondly, other types of investors that manage assets, fund sizes, or portfolios of at least HK$1 billion.

The chief executive of the Hong Kong Stock Exchange said that this is another new milestone in the development of the Hong Kong stock market. The new economy industry is rapidly changing the way we live and work, and the new listing mechanism we have introduced will help a new generation of companies in innovative fields connect to capital markets. HKEx has always been committed to supporting the needs of issuers and investors. The listing system reform introduced in 2018 enabled Hong Kong to develop into a leading biotechnology fund-raising market in Asia. Now we have added a special technology section to this, which will support the fund-raising needs of more companies and implement innovative ideas.

Enhancing the appeal of the Hong Kong stock market

The determination of the Hong Kong Stock Exchange to enhance the attractiveness of Hong Kong stocks can be seen from the above reform plan. In fact, for the Hong Kong Stock Exchange, reform is a necessary topic.

Up to now, listed companies in the technology industry are the largest industries in the Hong Kong stock market. The healthcare and information technology industries together account for more than one-third of the total market value of the Hong Kong market.

However, despite these achievements, the Hong Kong stock market still has imperfections. For example, the number of companies and market capitalization in the specialty technology industry lags behind the US and the mainland.

Statistics show that the number of issuers of special technology in US stocks reached 738. As of September 9, 2022, the total market capitalization reached HK$85.4 trillion, the number of A-share special technology issuers was 451, with a total market capitalization of HK$15.3 trillion. The number of Hong Kong stock special technology issuers was only 99, with a total market capitalization of HK$3 trillion.

As we all know, adding a biotechnology section to the revised “Listing Rules” in April 2018 created Hong Kong's healthcare financing ecosystem.

Chen Yiting, head of listing at the Hong Kong Stock Exchange, said that when formulating the relevant proposals, considering the characteristics of special technology companies, especially that technology plays a unique role in the business of the relevant companies and is equivalent to other listing applicants, the development of these companies is still in the early stages. It is believed that the provisions in the proposal can achieve an appropriate balance between all aspects, not only maintain market quality, but also establish a commercially viable listing platform to meet the fund-raising needs of a new generation of leading enterprises.

In addition to reforming the Main Board listing rules, the Hong Kong Stock Exchange will also put forward specific reform proposals on GEM (GEM) within this year and consult with stakeholders.

In response, the Champions League said in an interview with the Securities Times, “GEM reform is a topic that has been emphasized recently. We should ensure that we can create (financing) opportunities for all participants and small and medium-sized companies. They should all benefit from market opportunities. However, GEM reform is a very difficult and complex issue. In particular, the Listing Committee has also been studying this difficult issue. We hope to provide a more liquid market.”

Editor/Somer