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HKEX considers lowering revenue threshold for tech company listings

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Hong Kong Exchanges & Clearing (HKEX) will ease revenue requirements for tech companies that go public in the city, but a lawyer suggests clarifying the definition of eligible companies and tightening disclosure requirements.

HKEX considers lowering revenue threshold for tech company listings, Ronny Chow
Ronny Chow

The HKEX said it was “studying how best to create a listing chapter to meet the financing needs of large, high-tech companies that are in the early stage of product commercialization.” The market will be informed of any new developments in due course.

Bloomberg quoted sources familiar with the matter, reporting that the new Section 18C will allow nonprofits or high-tech companies with no income to sell shares on the Hong Kong stock exchange, which was expected to be finalized as soon as the end of the month. ‘year. .

Hard tech companies can include those in new energy, software as a service (SaaS), platform as a service (PaaS), smart manufacturing and robotics, semiconductors, quantum computing, autonomous driving and artificial intelligence.

The report also states that in terms of listing requirements, the HKEX would categorize technology companies as either pre-commercialization companies or commercialized companies. Companies classified as pre-market companies must have a market capitalization of more than $2 billion at the time of their IPO.

Market capitalization of listed companies will be at least $1 billion and revenue requirements around 200-300 million HKD ($25-38 million UDS), down from the current level of 500 million HKD from HKEX.

The above market capitalization threshold is above the HKD 1.5 billion required for biotechnology companies before income under Chapter 18A.

Ronny Chow, head of the corporate finance practice group at Deacons, said investors perceive pre-commercialized or for-profit hard tech companies as higher risk. If the finalized pattern matches the reported details, “it makes sense for HKEX to require a much larger market cap.”

If the HKEX intended to lower the hurdle, he suggested that it should “apply the shorter history period, namely the two-year requirement for applicants for biotechnology registration before income , to applicants for listing under the proposed new Section 18C”.

Prior to the Bloomberg report, the Hong Kong Economic Journal had indicated that technology companies aspiring to be listed must have developed core products and be funded by a number of independent third-party investors for a specified period, while a longer post-listing lock-up period of 12 to 24 months was also intended for these companies.

Chow said for-profit hard tech companies posed a similar risk to capital markets as pre-revenue biotech companies under Chapter 18A, therefore a pre-revenue biotech-like system was preferable. , such as the “requirement to have pre-IPO investments from independent sophisticated investors to validate the valuation”.

In 2018, Hong Kong implemented a major reform in nearly 25 years by adding three new Chapters 8A, 18A and 19C to the listing rules, allowing innovative companies with weighted voting right (WVR) structures, companies pre-revenue biotech and a new secondary listing route for companies – which are mostly listed on other eligible exchanges – to be listed on the HKEX. The latest initiative also aims to expand the pool of innovations on the exchange.

“It’s important to have a clear definition of the scope or type of businesses eligible for listing under this new Section 18C,” Chow said.

“Note the experience of some market participants and potential listing candidates with WVR structures who have had difficulty demonstrating compliance with the criteria of ‘innovative company’, which can be a term with some degree of subjectivity. “