Following the successful launch of the biotech listing regime, the Hong Kong Stock Exchange (HKEx) issued a Consultation Paper on New Listing Rules for Specialist Technology Companies in October 2022, which proposes to lower the bar for innovative technology enterprises with high growth potential that seek to list on the HKEx.

These new proposals form part of the HKEx’s continuing efforts to diversify its mix of products and elevate the competitiveness of the Hong Kong bourse as an international fundraising platform. HKEx CEO, Nicolas Aguzin, expects that the new regime will expand the range of companies that can access Hong Kong’s deep, liquid, international markets and will offer investors even greater choice.

The consultation period ended on 18 December 2022 and it is expected that the new listing regime under Chapter 18C of the Listing Rules will be introduced in the first half of 2023.

Set out below are the key features of the new listing regime.

Specialist Technology Companies

Specialist Technology Companies are companies primarily engaged in the research and development (R&D) and commercialisation and/or sales of products and/or services that apply science and/or technology within an acceptable sector of a Specialist Technology Industry, which will be updated from time to time by the HKEx:

The HKEx proposes to divide Specialist Technology Companies into two categories:

• Commercial Company: a company that has met the proposed minimum revenue threshold of HK$250 million for the most recent audited financial year arising from the issuer's specialist technology business segment(s) (Commercialisation Revenue Threshold); and
• Pre-Commercial Company: a company which is primarily engaged in R&D to bring its specialist technology products to commercialisation and which has not yet met the Commercialisation Revenue Threshold at IPO.

Qualifications for listing

The key proposed listing eligibility requirements for Commercial Companies and Pre-Commercial Companies are set out below.

Disclosure requirements

Both Commercial Companies and Pre-Commercial Companies are required to disclose the following in the listing document:

• Pre-IPO investments and cash flow
• Products and commercialisation status and prospects
• R&D activities
• Industry-specific information (e.g. applicable standards or regulatory requirements)
• Intellectual property

Given the risks associated with Pre-Commercial Companies which heavily rely on equity or debt financing, additional disclosure requirements are proposed for Pre-Commercial Companies. For instance, a Pre-Commercial Company must detail the key stages and milestones for its products to achieving the Commercialisation Revenue Threshold and all the relevant risks associated with the commercialisation of its products.

IPO requirements

Due to the lack of track record of revenue/profit and the newness of the industries, there is concern over the difficulty in reaching a consensus on the valuation of Specialist Technology Companies (especially Pre-Commercial Companies) compared to companies from traditional industries. In view of this, the HKEx proposes a more robust price discovery process which applies to both Commercial Companies and Pre-Commercial Companies:

• At least 50% of the total number of shares offered in the IPO must be allocated to independent institutional investors (i.e. professional investors, whether as cornerstone investors or otherwise, excluding existing shareholders or any of their close associates, any core connected persons).
• A new prescribed initial retail allocation and clawback mechanism:
  
  

  	Initial	No. of times (x) oversubscription in the public subscription tranche
  		10x to less than 50x	50x or more
  Minimum retail allocation as a percentage of total offer shares	5%	10%	20%

• A minimum free float (being shares not subject to any disposal restrictions) of at least HK$600 million upon listing.
• Existing shareholders (including controlling shareholders) of a Specialist Technology Company are allowed to participate in its IPO as placees or cornerstone investors.

Post-IPO lock-ups

The HKEx proposes the following post-IPO lock-up requirements on the controlling shareholders, key persons, Pathfinder SIIs and cornerstone investors of Commercial Companies and Pre-Commercial Companies, respectively.

Continuing obligations for Pre-Commercial Companies

It is proposed that a Pre-Commercial Company will be subject to post-listing continuing obligations until it is able to demonstrate to the HKEx that it has met the Commercialisation Revenue Threshold or at least one of the Main Board Eligibility Tests under Rule 8.05 of the Listing Rules. For instance, a Pre-Commercial Company is required to make additional disclosures in its interim and annual reports on the progress made towards achieving the HK$250 million Commercialisation Revenue Threshold, updates on any business and financial estimates provided in the listing document, and details of R&D activities and development progress of specialist technology products.