HK’s new listing regime for innovative science and technology companies effective from 31 Mar 2023

Subject

Commercial Companies

Pre-Commercial Companies

Attributes

The Exchange may reject a listing applicant within an acceptable sector of a Specialist Technology Industry if it displays attributes inconsistent with the following principles:

• it has high growth potential;
• its success can be demonstrated to be attributable to the application, to its core business, of the relevant Specialist Technology; and
• R&D significantly contributes to its expected value and constitutes a major activity and expense

Expected market capitalisation upon listing

≥ HK$6 billion

≥ HK$10 billion

Revenue from Specialist Technology business segment for the most recent audited financial year

≥ HK$250 million (normally the Exchange expects to see year-on-year revenue growth throughout track record period while allowing temporary declines due to economic, market or industry-wide conditions or other factors out of the applicant’s control)

N/A

Minimum operational track record period

At least 3 financial years of operation under substantially the same management (the Exchange may accept at least 2 financial years in exceptional cases)

Minimum R&D expenditure ratio of total operating expenditure on Specialist Technology Products prior to listing

≥ 15%

• ≥ 30% (with revenue of the most recent financial year ≥ HK$150 million and < HK$250 million)
• ≥ 50% (with revenue of the most recent financial year < HK$150 million)

The applicant must have engaged in R&D of its Specialist Technology Product(s) for at least 3 financial years prior to listing.

The ratio shall be met:

• on a yearly basis for at least 2 of the 3 financial years; and
• on an aggregate basis over all 3 financial years

If the Exchange has accepted a shorter operational track record period, the applicant must meet the R&D expenditure ratio on a yearly basis for each of the most recent 2 financial years.

Ownership continuity

12 months prior to the date of listing application and up until the offering and/or placing becomes unconditional

Third-party investment (the rationale behind is to help ensure the applicant has been subject to extensive due diligence checks by investors who have taken on significant investment risk and provide independent third party validation in the absence of a competent authority)

Must have received meaningful investment from sophisticated independent investors (“SII”)

• SII refers to an investor who is not (i) a core connected person of the applicant (except a person being connected only by virtue of being a substantial shareholder), (ii) controlling shareholder or person within the group of controlling shareholders, or (iii) founder of the applicant and its respective close associates,  and who is considered sophisticated based on its investment experience, knowledge and expertise, net assets, assets under management (“AUM”), size of investment portfolio and track record of investments, which generally include, for illustrative purpose only, the following:

• an asset management firm or a fund managed by a fund manager with AUM of, a fund with fund size of, or a company with a diverse investment portfolio size of, at least HK$15 billion, or HK$5 billion where such value is derived primarily from Specialist Technology investments;
• a key participant in relevant upstream or downstream industry with meaningful market share and size, as supported by appropriate independent market or operational data; or
• a wholly-owned subsidiary of a company with a diverse investment portfolio size of HK$15 billion
• Meaningful investment refers to:
• investment from a group of 2 to 5 SIIs (the “Pathfinder SIIs”) each has invested at least 12 months before the date of listing application, which satisfy the following:

• such Pathfinder SIIs in aggregate (i) hold 10% or more of the issued share capital of the applicant at the date of listing application and throughout 12-month period before application; or (ii) have otherwise invested in an aggregate sum of at least HK$1.5 billion in the shares of the applicant at least 12 months prior to the date of listing application (excluding any subsequent divestments on or before the date of listing application); and
• at least 2 such Pathfinder SIIs (i) each holds 3% or more of the issued share capital of the applicant at the date of listing application and throughout 12-month period before application; or (ii) each has otherwise invested at least HK$450 million in the shares of the applicant at least 12 months prior to the date of listing application (excluding any subsequent divestments on or before the date of listing application)

Fluctuation in the shareholding such as temporary dilution during the pre-application 12-month period where the Pathfinder SIIs’ shareholding meets the threshold at the time of listing application and on average throughout the pre-application 12 months or temporary dilution pending top-up investment may be allowed by the Exchange.

• at least the following aggregate investment as a percentage of the issued share capital of the applicant from all SIIs at the time of listing before exercise of over-allotment option (including both pre-IPO investment and offer shares issued to the SIIs during IPO):

• if expected market capitalisation is < HK$15 billion, 20% for Commercial Companies and 25% for Pre-Commercial Companies;
• if expected market capitalisation is ≥ HK$15 billion but < HK$30 billion, 15% for Commercial Companies and 20% for Pre-Commercial Companies; and
• if expected market capitalisation is ≥ HK$30 billion, 10% for Commercial Companies and 15% for Pre-Commercial Companies

If the SII holds securities convertible into shares in the applicant, only the investment in the securities to be converted at or before listing will be counted towards the meaningful investment requirement. The number of shares to be converted at or before listing shall be disclosed in the listing document.

Additional qualification requirements for Pre-Commercial Companies

N/A

• Use of proceeds: IPO proceeds to be used for R&D of, and the manufacturing and/or sales and marketing of, its Specialist Technology Products to bring them to commercialization and achieving the minimum revenue threshold for a Commercial Company, i.e. HK$250 million (the “Commercialisation Revenue Threshold”)

• Demonstration of credible path: must demonstrate and disclose in the listing document a credible path to achieving the Commercialisation Revenue Threshold, including the timeframe for and impediments to achieving such threshold and financing plan to address the funding gap in the event of insufficient working capital

Examples of demonstrating a credible path include binding contracts or non-binding framework agreements with a reasonable number of independent customers for the development, testing or sales of Specialist Technology Products with a substantial potential aggregate contract value realisable within 24 months from the date of listing, or beyond 24 months in exceptional circumstances where the independent customers are highly reputable (e.g. key market participant in relevant upstream or downstream industry with meaningful market share and size, as supported by independent market or operational data, or a state or a state corporation).

Independence of customers is assessed based on the same criteria for SIIs.

• Enhanced working capital: must have available working capital (taking into account expected IPO proceeds) to cover at least 125% of its group’s costs (which must substantially consist of general, administrative and operating costs and R&D costs) for at least the next 12 months after listing

More robust price discovery process

• Minimum allocation to independent price setting investors: must allocate at least 50% of the total shares offered in IPO (not taking into account over-allotment option) to independent price setting investors, which include (a) institutional professional investors participating in the placing tranche of IPO, whether as cornerstone investor or otherwise; and (b) other types of investors with AUM, fund size or investment portfolio size of at least HK$1 billion (including funds with AUM of at least HK$1 billion or wholly-owned subsidiaries of a qualifying entity), excluding existing shareholders and any of their close associates, and core connected persons of the applicant

• Requirement also applies to a Specialist Technology Company listing by way of a De-SPAC transaction (not taking into account shares issued to existing shareholders of the De-SPAC target as consideration for acquiring the De-SPAC target)
• The Exchange will consider granting waiver on a case-by-case basis in the case of a Specialist Technology Company seeking to list by introduction

• Minimum retail allocation: revised minimum retail allocation as of total shares offered in IPO and clawback mechanism as follows:

• initial: 5%
• ≥ 10x to < 50x of over-subscription in the public subscription tranche: 10%
• ≥ 50x of over-subscription in the public subscription tranche: 20%

Requirements on free float and offer size

• Free float: minimum free float (being shares not subject to any disposal restrictions whether under contract, the Listing Rules, applicable laws or otherwise) of at least HK$600 million upon listing

• Offer size: the Exchange would expect the listing of a Specialist Technology Company to be accompanied by an offer (including both the placing tranche and the public subscription tranche) of a meaningful size and reserves the right not to approve the listing if the offer size is not significant enough to facilitate price discovery, or otherwise gives rise to orderly market concerns

Subscription of IPO shares by existing shareholders

Existing shareholders are allowed to participate in the IPO of a Specialist Technology Company as either cornerstone investor or placee (if holding less than 10% of shares) or as cornerstone investor (if holding 10% or more of shares), provided that the applicant complies with the public float requirement, the minimum allocation to independent price setting investors requirement and the minimum free float requirement (see above)

Disclosure requirements

• Must disclose additional information in the listing document to facilitate IPO investors’ assessment of a Specialist Technology Company, including:

• valuation related information in each round of pre-IPO investments
• burn rate and historical and future cash operating cost
• Specialist Technology Products and their commercialisation status, plan and prospects
• R&D expenditure, activities and experience
• market share and industry specific information
• details of material intellectual property rights
• warning statement on the cover of the listing document regarding the heightened investment risks

Additional disclosure requirements for Pre-Commercial Companies

N/A

Must disclose in the listing document:

• the stage of R&D for each of its Specialist Technology Products
• the key stages and milestones for its Specialist Technology Products to achieve the Commercialisation Revenue Threshold
• all relevant risks associated with the commercialisation of each of its Specialist Technology Products
• additional warning statement regarding the risk of operation failure due to lack of available funds
• potential earlier expiry of the lock-up periods in the case of removal of designation as a Pre-Commercial Company (see below)

Subject

Commercial Companies

Pre-Commercial Companies

Post-IPO lock-up obligation

(lock-up periods will be shortened  on the removal of designation of Pre-Commercial Companies to the later of: (1) the date on which such lock-up periods would have ended if the issuer had applied for listing as a Commercial Company; and (2) the date falling on the 30^th day after the announcement on the removal of designation of Pre-Commercial Companies)

Controlling shareholders

12 months

24 months

Key persons as identified in the listing document (including founders, beneficiaries of weighted voting rights, executive directors and senior management  and key personnel responsible for technical operations and/or R&D of Specialist Technology Products) and their close associates

12 months

24 months

Pathfinder SIIs

6 months

12 months

Cornerstone investors (including existing shareholders subscribing for shares as cornerstone investors)

Generally 6 months similar to other cornerstone investors

Deemed disposal

Deemed disposal resulting from allotment, grant or issue of new securities by a Specialist Technology Company in compliance with the Listing Rules during lock-up period will not be regarded as breach of the lock-up restrictions

Disclosure of shareholding

Must disclose in interim and annual reports the total number of securities held by persons subject to the lock-up restrictions based on public information or otherwise within the directors’ knowledge (e.g. information on persons being currently employed by the company)

Additional continuing obligations for Pre-Commercial Companies (until removal of designation of Pre-Commercial Companies when achieving the Commercialisation Revenue Threshold or meeting at least one of the Main Board eligibility tests under Listing Rule 8.05, upon when an announcement shall be made)

N/A

• Disclosure: must disclose in the interim and annual reports:

• details of the development progress of its Specialist Technology Products

• timeframe for and progress made towards achieving the Commercialisation Revenue Threshold, including any updates to previously disclosed information

• updates on  any revenue, profit and other business and financial estimates as previously disclosed

• summary of R&D expenditure

• prominently disclosed warning that the Company may not achieve  the Commercialisation Revenue Threshold

• Sufficient operations: shortened remedial period of 12 months (rather than the usual 18 months) for re-compliance with the sufficiency of operations requirement before delisting

• Material changes: restricted from effecting any transaction that would constitute a material change of business without the prior consent of the Exchange

• Stock marker: identified through the stock marker “P” at the end of its stock name