On October 19, John Lee Ka-chiu, Chief Executive of Hong Kong, put forward in his first policy address that, in order to maintain the international finance center status of the city, the Hong Kong Stock Exchange plans to amend the listing rules to facilitate the financing of advanced technology enterprises that have not yet made any profits. The new amendment is expected to be implemented next year.
Subsequently, the Hong Kong Stock Exchange published a consultation document on the listing system of specialized tech firms, proposing to amend the listing rules and set up new channels for them to be listed on the main board of the Stock Exchange.
According to the consultation document, the new rules will apply to five types of companies that focus on the new generation of information technology, advanced hardware, advanced materials, new energy and environmental protection, in addition to new food and agricultural technologies. The stock exchange will seek market feedback over the next two months.
The main recommendations in the consultation document include five major directions. A commercialized company needs to obtain income from a specialized technology business during the latest fiscal year worth at least HK $250 million. In terms of market value, the expected minimum market value at the time of listing of a company should be HK $8 billion for commercialized companies and HK $15 billion for non-commercialized companies.
In terms of R&D, all applicants must have been engaged in R&D for at least three fiscal years before listing, and the amount of R&D investment must account for at least 15% (for commercialized companies) or 50% (for uncommercialized companies) of total operating expenses. In terms of third-party investment, the listing applicant needs to receive a considerable amount of investment from senior independent investors.
For the listing of uncommercialized companies, the document makes additional provisions. They must prove and disclose the credible path to reach the threshold of commercialization income in the listing documents, and have sufficient working capital to cover at least 125% of the expenses required for at least 12 months in the future.
Bonnie Chan, head of listing at the Hong Kong Stock Exchange, said that when formulating the relevant proposals, the characteristics of specialized tech firms were taken into account, especially the unique role played by technology in the business of the companies. The development of these companies was still in the initial stage compared with other listing applicants.
In the first three quarters of 2022, the revenue of Hong Kong Stock Exchange was HK $13.255 billion, down 18% year-on-year, while the fundraising activities in Hong Kong slowed considerably. Wind’s data shows that only 55 companies successfully listed in Hong Kong in the first three quarters of 2022, a decrease of 24.66% compared with 73 in the same period last year. The funds raised only reached HK $73.2 billion, a sharp decrease of 74.63% compared with 288.5 billion in the same period last year. Only 18 companies have raised more than $100 million, less than half of the same period last year.
In order to maintain Hong Kong’s international finance center status, the Hong Kong government will provide tax relief for eligible family offices, with the goal of promoting no less than 200 family offices to set up or expand their business in Hong Kong by the end of 2025. The government will also allocate HK $30 billion from the “Future Fund” to set up a “Co-Investment Fund”, hoping to attract no less than 100 potential or representative science and technology enterprises to set up or expand their business in Hong Kong in the next five years.