New path for technology companies to list in Hong Kong

• Cloud-based services
• Artificial intelligence

The acceptable sectors originally proposed have largely remained the same in the final conclusions.

Some additional sub-sectors have been included in the final conclusions e.g. quantum communications, quantum precision measurements, advanced inorganic materials and advanced composite materials.

The Exchange has commented that the it had not included the following sectors in the final list of acceptable Specialist Technology Industries:

• big data or financial technology as it often involves "downstream" applications of Specialist Technology, so it was not necessary to include them as separate industries / sectors;
• companies (including certain fintech companies) that primarily facilitate transactions between service providers / product suppliers and customers for a fee, as their business models are based on their matching services (rather than sales of Specialist Technology Products); and
• blockchain and digital asset related businesses, as their success often is not attributable to the application of new technology and R&D often do not constitute a major activity.

• Robotics and automation
• Semiconductors
• Advanced communication
• Electric and autonomous vehicles
• Advanced transportation
• Aerospace
• Advanced manufacturing
• Quantum information technology and computing
• Metaverse

• Synthetic biological materials
• Advanced inorganic materials
• Advanced composite materials
• Nanomaterials

• Energy generation
• Energy storage and transmission
• Green technology (e.g. environmental remediation, emissions reduction)

• Food: artificial meat, sustainable protein, synthetic biology, food waste reduction
• Agriculture: agricultural biotechnology, crop efficiency, agricultural synthetic biology, farming

At the time of listing, they have revenue of at least HK$250 million for its most recent audited financial year (Commericalisation Revenue Threshold).

This means that these companies have achieved meaningful commercialisation of their Specialist Technology Products.

At the time of listing, these companies have not reached the Commericalisation Revenue Threshold for its most recent audited financial year.

These companies are primarily engaged in R&D to bring their Specialist Technology Products to commercialisation.

At least HK$250 million arising from the company’s Specialist Technology business segment(s) (i.e. the Commericalisation Revenue Threshold).

Normally expected to demonstrate year-on-year revenue growth throughout the track record period, with allowance for temporary declines in revenue (for example, due to economic, market or industry-wide conditions or other temporary factors outside of the applicant’s control).

Companies with revenue of at least HK$150 million but less than $250 million for the most recent audited financial year:

R&D investment constitutes at least 30% of its total operating expenditure.

Companies with revenue below HK$150 million for the most recent audited financial year:

R&D investment constitutes at least 50% of its total operating expenditure.

Commentary: The R&D expenditure ratio was adjusted in the final rules depending on revenue level.

The applicable percentage threshold above must be met:

(a) on a yearly basis for at least two of the three financial years prior to its listing; and

(b) on an aggregate basis over all three financial years prior to listing.

If the Exchange accepts a shorter trading record period in exceptional circumstances (see "Operational track record" below), the applicant must meet the R&D expenditure ratio on a yearly basis for each of the most recent two financial years prior to its listing.

Commentary: The original proposed rules were relaxed to cater for fluctuations in the overall expenditure and the ratio attributable to R&D. Details of how the R&D expenditure ratio is calculated can be found in Part C of the Guidance Letter.

At least three financial years of operation under substantially the same management prior to listing.

The Exchange may accept a shorter trading record of at least two financial years, on a case-by-case basis in exceptional circumstances, by applying the same approach as set out in Listing Rule 8.05B(3).

The listing applicant must have received meaningful investment from Sophisticated Independent Investors. Details about this requirement can be found in Part D of the Guidance Letter.

There is no general exemption from this requirement. However, exemptions may apply, on a case by case basis, in the context of spin-offs or applicants listed on other stock exchanges that apply to list under Chapter 18C.

Who is an "independent" sophisticated investor?

Independence is determined as at the signing date of the definitive agreement for the relevant investment in an applicant, and up to listing.

The following investors are not considered "independent":

(a) a core connected person of the listing applicant (i.e. a director, supervisor, chief executive or substantial shareholder of the company or any of its subsidiaries or a close associate of any of them); however, a substantial shareholder of the applicant may be considered a Sophisticated Independent Investor if it is a core connected person only because of the size of its shareholding in the applicant;

(b) controlling shareholders of the listing applicant;

(c) the founder(s) of the applicant and their respective close associates; and

(d) persons that the Exchange deems to be not independent (e.g. a person who has an acting-in-concert agreement or arrangement with the founders or controlling shareholders).

Commentary: The Exchange clarified the timing for determining independence and expanded the categories of persons that are not considered independent in the final rules. 

Who is a "sophisticated" investor?

The Exchange will assess each investor on a case-by-case basis, taking into account factors such as its relevant investment experience, knowledge and expertise in the relevant field which could be demonstrated by its net assets, assets under management (AUM), size of its investment portfolio or track record of investments.

For illustration, the Exchange would generally consider the following as "sophisticated" investors:

(a) an asset management firm with AUM of, or a fund with a fund size of, at least HK$15 billion;

(b) a company having a diverse investment portfolio size of at least HK$15 billion;

(c) an investor with an AUM, fund size or investment portfolio size of at least HK$5 billion where that value is derived primarily from Specialist Technology investments; and

(d) a key participant in the relevant upstream or downstream industry with meaningful market share and size, as supported by appropriate independent market or operational data.

The Exchange emphasized in its conclusions that other types of "sophisticated" investors will be considered on a case by case basis.

Reasons for why an investor is considered "sophisticated" must be substantiated and disclosed in the listing document. If certain information cannot be disclosed due to confidentiality reasons, the Exchange may consider alternative disclosures based on its existing guidelines.

What is considered a meaningful investment?

As an indicative benchmark, meaningful investment involves two components: investment from (a) Pathfinder SIIs (defined below) and (b) all sophisticated independent investors.

Investment from Pathfinder SIIs

Investments from at least 2 to 5 sophisticated independent investors (each having invested in the applicant at least 12 months before the date of the listing application) (“Pathfinder SIIs”) that fulfil the following:

(a) such Pathfinder SIIs, in aggregate:

(i) hold shares or securities convertible into shares equivalent to 10% or more of the issued share capital of the applicant as at the date of its listing application and throughout the pre-application 12-month period; or

(ii) have otherwise invested an aggregate sum of at least HK$1.5 billion in the shares or securities convertible into shares of the applicant at least 12 months prior to the date of the listing application (excluding any subsequent divestments made on or before the date of the listing application); and

(b) at least 2 Pathfinder SIIs:

(i) each holding shares or securities convertible into shares equivalent to 3% or more of the issued share capital of the applicant as at the date of its listing application and throughout the pre-application 12-month period; or

(ii) each having invested at least HK$450 million in the shares or securities convertible into shares of the applicant at least 12 months prior to the date of the listing application (excluding any subsequent divestments made on or before the date of the listing application).

The timing of investment by the Pathfinder SIIs should be determined by reference to the date of irrevocable settlement.

The Guidance Letter also sets out non-exhaustive examples of temporary fluctuations in the shareholding of the Pathfinder SIIs (i.e. the 10% / 3% requirement) that the Exchange is prepared to accept.

Commentary: Although the requirement for Pathfinder SIIs remains, the Exchange has relaxed the indicative benchmarks to a large degree in the final rules to provide more flexibility for applicants.

Investment from all sophisticated independent investors

Investments from all sophisticated independent investors result in them holding, in aggregate, shares or securities convertible into shares equivalent to the following percentages (before exercise of any overallotment option) as set out below (Aggregate Investment Benchmark):

The Aggregate Investment Benchmark includes investments by sophisticated independent investors made before listing, and any shares issued to such investors at the time of listing (whether or not those investors held securities in the relevant applicant before listing).

In addition, if investments made by sophisticated independent investors before listing and cornerstone investments by sophisticated independent investors are insufficient to meet the Aggregate Investment Benchmark, the Exchange would allow shares allocated to sophisticated independent investors participating as placees under the placing tranche to satisfy the Aggregate Investment Benchmark (SII Placees), provided that certain conditions are met.

Commentary: The expected market capitalisation tiers in the final rules have been adjusted to reflect the revised minimum market capitalisation. In addition, the Exchange has clarified in the final rules the types of investments that may count towards the Aggregate Investment Benchmark.

Securities convertible into shares

In the case of securities convertible into shares in an applicant, only investments which would be converted at, or before, listing will be counted towards the "meaningful investment" requirement.

The listing applicant must allocate at least 50% of the total number of shares offered in the IPO (excluding any shares to be issued pursuant to the exercise of any over-allotment option) to Independent Price Setting Investors. This is defined in Part F of the Guidance Letter to include:

(a) Institutional Professional Investors¹; and

(b) other types of investors with AUM, fund size or investment portfolio size of at least HK$1 billion.

Such an investor will not be considered "independent" if it is:

(a) an existing shareholder of the applicant, or a close associate of such an existing shareholder; or

(b) a core connected person of the applicant.

Commentary: Independent Price Setting Investors have been expanded to include more types of investors in the final rules.

The following initial allocation and clawback mechanism applies:

Commentary: No changes have been made to the above figures in the final rules.

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

Commentary: Despite the reduction in the minimum market capitalisation requirement, the minimum "free float" amount has not been changed.

The offer (including both the placing tranche and the public subscription tranche) must be of a meaningful size. The Exchange may not approve a Chapter 18C listing if the offer size is not significant enough to facilitate price discovery, or may otherwise give rise to orderly market concerns.

However, the Exchange emphasized in its consultation conclusions that it does not wish to set a bright-line threshold as to what is considered a "meaningful size". The Exchange intends to assess whether an offer size is meaningful on a case-by-case basis.

• Additional disclosures are required, such as relating to (a) pre-IPO investments and cash flows; (b) products and commercialisation status and prospects; (c) R&D; (d) third party investors; (e) industry specific information; and (f) intellectual property.
• The applicant must include a warning statement in the listing document that it is a Specialist Technology Company and so investment in its securities carries additional risks.

• The applicant must disclose in its listing document the key stages and milestones for its products to reach the Commercialisation Revenue Threshold, risks to commercialisation, and potential early expiry of any lock-up periods.
• It must include a warning statement that that the company may not generate sufficient revenue to sustain its operations after listing and that it may fail due to a lack of available funds.

Controlling shareholders

Key persons (including their respective close associates) covering:

• Founders
• Beneficiaries of weighted voting rights
• Executive directors and senior management
• Key personnel responsible for technical operations and/ or R&D of the relevant products