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HKEX recently published a consultation paper on expanding Hong Kong’s listing regime to permit listings of Specialist Technology Companies and we have already seen a lot of interest in the market. In this post, HKEX Head of Listing Bonnie Y Chan answers a few of the frequently asked questions on this topic. Check out the below to learn more!
Why is HKEX proposing this new listing chapter?
We propose the new listing chapter for the following reasons:
To enhance market competitiveness: Encouraged by the success of the diversification of our markets following the 2018 Listing Reforms, this new proposal intends to further elevate Hong Kong’s position as the listing venue of choice for innovative tech companies from around the world.
To support the development of Specialist Technology Companies: Many Specialist Technology Companies require substantial capital investment on R&D to bring their products and/or services to commercialisation or to scale up their business. As they may not have yet commercialised their products or reached a certain business scale, they face difficulties in meeting our existing profit, revenue or cash flow requirements of HKEX’s existing Main Board Eligibility Tests. The proposed new Chapter 18C takes into account of the unique features of Specialist Technology Companies, in particular, the uniqueness of the role technology plays in their business and their early stage of development relative to other listing applicants.
Investment demand: During our preliminary discussions with stakeholders, most commented that Specialist Technology Companies present investment opportunities with high growth potential that have attracted substantial investment from sophisticated investors in private funding rounds. Therefore, they should also present good investment opportunities for investors in public markets as listed companies.
Which specialist technology industries are covered in the proposal?
We define Specialist Technology as “science and/or technology applied to products and/or services within an acceptable sector of a Specialist Technology Industry”. The five Specialist Technology Industries we propose are:
Next-generation information technology, such as the Cloud and AI;
Advanced hardware, including robotics and automation, semiconductor and more;
Advanced materials, such as synthetic biomaterials, smart glass, nanomaterials;
New energy and environmental protection, such as new energy production, new technology for energy storage and energy transmission, new green technology;
New food and agriculture technologies, such as new food technology, new agriculture technology
Why were these five specialist tech industries chosen? Will the list be updated in the future?
The five Specialist Technology Industries were chosen based on discussions with stakeholders and by reference to the China and US markets. We acknowledge that changes to our list of industries and acceptable sectors are likely to be needed as new industries and sectors emerge over time.
When do you expect the first specialist technology company to list in Hong Kong?
The consultation period will end on 18 December 2022. We will then publish our conclusions, which include the feedback we have received from respondents. We will set out our final Rule amendments and details regarding implementation in the conclusions paper in 2023.
Subject to the feedback from respondents, we would expect the first Specialist Technology Company to apply with the 2022 full year financial results and, potentially, to list on our market in 2023 at the earliest.
Is the proposed market capitalisation requirement for commercial and pre-commercial companies too high?
We set the market capitalisation thresholds for applicants seeking under the new regime with the following aims:
To uphold market quality: The large expected market capitalisation thresholds of at least HK$8 billion are indicative of valuations generally associated with ‘unicorn companies’ within the investment industry. This would help uphold market quality by ensuring the applicants listing under the regime had already attracted substantial investment from sophisticated investors whose investment decisions had been based on their independent due diligence checks.
Consistent with nature of specialist technology companies: According to our stakeholders, high quality specialist technology companies tend to achieve high valuations before generating substantial revenue as investors in such companies generally value them based on future growth and revenue, rather than past or current revenue already generated.
To attract pre-commercial companies to list at HKEX: The substantially higher threshold of HK$15 billion proposed for pre-commercial companies is to address the heightened risks associated with these companies. We believe the substantially higher threshold will help attract high calibre Specialist Technology Issuers while safeguarding investors’ interests.
How do you strike a balance between increasing the attractiveness of Hong Kong market for issuers and protecting investors?
We have carefully crafted the proposals under the proposed listing chapter, with a view to strike the right balance between enhancing market competitiveness and investor protection.
On enhancing market competitiveness, the proposed new rules take into account of the unique features of Specialist Technology Companies. For example, we propose to keep the scope of the regime flexible so that newly emerging industries can be incorporated from time to time.
On investor protection, we incorporate extra measure in our proposal to safeguard investors’ interests.
For example, given the inherent difficulties in valuing Specialist Technology Companies, we proposed a minimum of 50% allocation of IPO shares to independent institutional investors to ensure a robust price discovery process. We also propose to impose post-IPO lock-ups on key shareholders to ensure their ongoing commitment of the Specialist Technology Company. The proposed lock-up takes into account the legitimate commercial needs of existing shareholders to realise the value of their investments in a timely manner. There are also additional disclosure requirements for Specialist Technology Companies to provide a sufficient basis for investors to make an informed assessment.
Global IPO activities have slowed this year. Do you think it is the right timing to introduce such new listing rules for Specialist Technology Companies?
We design our policy initiatives for the long term so that they are fit-for-purpose in all types of market conditions. We believe the new listing chapter, if adopted, will help further diversify the Hong Kong market and help bring a wider range of investment opportunities for investors. The proposals offer a new listing route that meets the fundraising needs of the leading companies of tomorrow, further elevating Hong Kong’s position as the listing venue of choice for innovative companies from around the world.
Tap Read More for the consultation paper.
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