Hong Kong's New Listing Regime for Specialist Technology Companies Takes Effect on 31 March 2023

The Hong Kong Stock Exchange (HKEX) announced the addition of a new Chapter 18C “Specialist Technology Companies” to the Main Board Listing Rules with a view to elevating Hong Kong’s position as the listing venue of choice for innovative and progressive companies. The new Rules, together with the related Guidance Letter, will come into effect on 31 March 2023.

HKEX published in October last year a consultation paper on the proposed listing regime for Specialist Technology Companies, which we discussed in an earlier Update. HKEX, after considering market feedback (90 written responses), decided to implement the proposal with modifications. We set out in this Legal Update the major requirements under the new Chapter 18C.

Specialist Technology Companies - Definition

A list of acceptable sectors of a Specialist Technology Industry is set out in the new Guidance Letter, which include:

Specialist Technology Industry	Acceptable Sectors
Next-generation information technology	Cloud-based services; Artificial intelligence
Advanced hardware and software	Robotics and automation; Semiconductors; Advanced communication technology; Electric and autonomous vehicles; Advanced transportation technology; Aerospace technology; Advanced manufacturing; Quantum information technology and computing; Metaverse technology
Advanced materials	Synthetic biological materials; Advanced inorganic materials; Advanced composite materials; Nanomaterials
New energy and environmental protection	New energy generation; New energy storage and transmission technology; New green technology
New food and agriculture technologies	New food technology; New agriculture technology
Others - a pre-IPO enquiry must be submitted to HKEX in consultation with the Securities and Futures Commission	Only if applicant can demonstrate: (i) it has high growth potential; (ii) its success is attributable to the application of new technologies and/or a new business model; and (iii) R&D significantly contributes to its expected value and constitutes a major activity and expense

Conditions for Listing of a Specialist Technology Company

The eligibility/suitability requirements differ depending on the applicants’ degree of commercialisation: "Commercial Companies" (with revenue of at least HK$250 million for the most recent audited financial year) and "Pre-Commercial Companies" (with revenue not meeting the HK$250 million threshold):

Eligibility Requirements	Commercial Companies	Pre-Commercial Companies
Market capitalisation	≥HK$6 billion	≥HK$10 billion
Revenue	≥HK$250 million for the most recent audited financial year	no requirement, but must demonstrate a “credible path” to achieving the HK$250 million threshold
Minimum R&D expenditure ratio threshold – amount of R&D expenses as a percentage of its total operating expenditure for the same period	≥15% on yearly basis for at least two of the three financial years prior to listing; and on aggregate basis over the three financial years	≥50% (for companies with revenue < HK$150 million) ≥30% (for companies with revenue ≥ HK$150 million but < HK$250 million) on yearly basis for at least two of the three financial years prior to listing; and on aggregate basis over the three financial years
Working capital	no requirement	working capital (including IPO proceeds) able to cover at least 125% of its group’s costs for at least the next 12 months from publication date of the listing document
Sophisticated Independent Investors (SIIs) – minimum total investment from all SIIs at listing (as a percentage of applicant's issued share capital before exercise of over-allotment option)	20% (for companies with market cap ≥ HK$6 billion to < HK$15 billion) 15% (for companies with market cap ≥ HK$15 billion to < HK$30 billion) 10% (for companies with market cap ≥ HK$30 billion)	25% (for companies with market cap ≥ HK$10 billion to < HK$15 billion) 20% (for companies with market cap ≥ HK$15 billion to < HK$30 billion) 15% (for companies with market cap ≥ HK$30 billion)
Pathfinder SIIs - indicative minimum investment benchmark from a group of two to five Pathfinder SIIs	in aggregate hold ≥ 10% of an applicant’s issued share capital as at the date of listing application and throughout the pre-application 12-month period; or otherwise have invested an aggregate sum of ≥ HK$1.5 billion in the applicant at least 12 months prior to the application date (excluding any subsequent divestments made on or before the application); Provided that at least two such Pathfinder SIIs: each hold ≥ 3% of an applicant’s issued share capital as at the date of listing application and throughout the pre-application 12-month period; or otherwise each have invested ≥ HK$450 million in the applicant at least 12 months prior to the application date (excluding any subsequent divestments made on or before the application date)
Profit	no requirement
Trading record and management continuity	≥ 3 financial years
Ownership continuity	in the 12 months prior to the date of the listing application and up until the time immediately before the offering and/or placing becomes unconditional

Initial Public Offering (IPO) of a Specialist Technology Company

The following applies for both Commercial Companies and Pre-Commercial Companies:

Minimum free float	shares (listed on HKEX not subject to any disposal restrictions) with a market capitalisation of at least HK$600 million upon listing
Optimised price discovery process	≥ 50% of offer shares (before exercise of over-allotment option) must be taken up by “Independent Price Setting Investors” (comprising Institutional Professional Investors; and other types of investors with AUM, fund size or investment portfolio size of at least HK$1 billion that satisfy the same independence requirement)
Minimum allocation of shares to public subscription tranche (as a percentage of total offer shares)	5% - initial allocation 10% - over-subscription of 10x to < 50x 20% - over-subscription of ≥50x
Existing shareholders subscribing IPO shares	holder of < 10% may subscribe as corner investor or placee holder of ≥10% may subscribe as corner investor

Post-IPO Lock-up Requirements for a Specialist Technology Company

Persons (including their respective close associates)	Lock-up Period
Persons (including their respective close associates)	Commercial Companies	Pre-Commercial Companies
Controlling shareholders	12 months	24 months
“Key persons” comprising : founders (including founding members of key operating subsidiaries) beneficiaries of weighted voting rights executive directors and senior management key personnel responsible for the technical operations and/or R&D	12 months	24 months
Pathfinder SIIs that satisfy the indicative minimum investment benchmark (above)	6 months	12 months
Cornerstone investors	generally for at least six months

Though companies may only submit a formal listing application under the new Chapter 18C - Specialist Technology Companies on or after 31 March 2023, HKEX is now open for pre-IPO enquiries. Prospective listing applicants are welcome to contact the authors of this Update for further details.