Hong Kong Stock Exchange Proposes New Listing Regime for Specialist Technology Companies

By Winston & Strawn LLP on November 9, 2022

The Stock Exchange of Hong Kong Limited (SEHK) published the Consultation Paper on a Listing Regime for Specialist Technology Companies on October 19, 2022 (Consultation Paper) for the proposed introduction of a new Chapter 18C to the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited (Listing Rules) to enable the listing of Specialist Technology Companies on the Main Board of SEHK. The end of the consultation period is December 18, 2022, and the amendments are expected to become effective in the first half of 2023.

The current proposed amendments follow the success of the reforms back in 2018, which permitted, among others, the listing of pre-revenue biotech companies under Chapter 18A of the Listing Rules, and will enable Specialist Technology Companies, which are otherwise unable to meet the listing requirements under the current Listing Rules, to list in Hong Kong.

Specialist Technology Companies

The proposals under the Consultation Paper introduce a regime for the listing of Specialist Technology Companies, which is proposed to be defined as “companies primarily engaged (whether directly or through [their] subsidiaries) in the research and development of, and the commercialization and/or sales of, Specialist Technology Products within an acceptable sector of a Specialist Technology Industry.”

It is proposed that Specialist Technology Industries will initially include the following list of industries and acceptable sectors:

Specialist Technology Industry	Acceptable Sectors
Next-generation information technology	Cloud-based services Artificial intelligence
Advanced hardware	Robotics and automation Semiconductors Advanced communication technology Electric and autonomous vehicles Advanced transportation technology Aerospace technology Advanced manufacturing Quantum computing Metaverse technology
Advanced materials	Synthetic biological materials Smart glass Nanomaterials
New energy and environmental protection	New energy generation New energy storage and transmission technology New green technology
New food and agricultural technologies	New food technology New agricultural technology

The list of Specialist Technology Industries and acceptable sectors is non-exhaustive and may be updated by SEHK from time to time after consultation with the Securities and Futures Commission (SFC), taking into account any pre-IPO enquiries from potential listing applicants and the following principles:

participants in the relevant sector must have high growth potential

the success of participants in the sector can be demonstrated to be attributable to the application, to their core business, of new technologies and/or the application of the relevant science and/or technology within that sector to a new business model, which also serves to differentiate them from traditional market participants serving similar consumers or end users; and

R&D significantly contributes to the expected value and constitutes a major activity and expense of participants in the sector.

Listing Qualifications

Under the proposed Chapter 18C, Specialist Technology Companies are sorted into two categories: “Commercial Companies” and “Pre-Commercial Companies,” with different listing requirements for each of them. The revenue threshold serves as a bright-line test to distinguish Pre-Commercial Companies from Commercial Companies, and those companies that do not meet the bright-line test may seek to list as Pre-Commercial Companies, which would attract more stringent listing requirements.

The following table summarizes the proposed listing requirements under Chapter 18C:

	Commercial Companies	Pre-Commercial Companies
Revenue	At least HK$250 million arising from the company’s Specialist Technology business segment(s) for the most recent audited financial year	N/A
Expected market capitalization at the time of listing	At least HK$8 billion	At least HK$15 billion
R&D	Engaged in R&D for at least three financial years
	At least 15% of total operating expenditure constituted by R&D investment for each of the three financial years prior to listing	At least 50% of total operating expenditure constituted by R&D investment for each of the three financial years prior to listing
Operational track record and management continuity	In operation in its current line of business for at least three financial years prior to listing under substantially the same management
Ownership continuity	Ownership continuity and control in the 12 months prior to the date of the listing application
Third-party investment	The listing applicant must have received meaningful investment from Sophisticated Independent Investors.
Additional requirements	N/A	A credible path to achieving the Commercialization Revenue Threshold (i.e., at least HK$250 million arising from the Specialist Technology business segment(s) for the most recent audited financial year) Available working capital (including IPO proceeds) to cover at least 125% of group’s costs (which must substantially consist of general, administrative, and operating costs and R&D costs) for at least the next 12 months from the date of publication of listing document

Opportunity for Listing in Hong Kong

Based on the current Listing Rules, Specialist Technology Companies often have difficulties listing on the Main Board of SEHK as they are usually unable to meet the profit, revenue, or cash flow requirements to render them eligible. These Specialist Technology Companies are often only in the R&D stage to bring their products to commercialization, or are otherwise unable to meet the relevant requirements as a result of the nature of their businesses.

The new listing regime under the proposed Chapter 18C of the Listing Rules would provide an opportunity for Specialist Technology Companies to have access to funding from a large and diversified international investor pool through a listing on the Main Board to support their business operations.