Hong Kong’s stock market operator has announced yet another listing reform for high-technology companies that analysts believe will attract domestic stock sales of US-listed Chinese firms and even foreign issuers across emerging markets.
The Hong Kong Exchanges & Clearing Ltd (HKEX), the city’s bourse operator, on Friday announced lower thresholds for public listings by “specialist technology” companies across almost 20 sectors, including artificial intelligence (AI), semiconductors, and new energy.
The new listing regime, dubbed “Chapter 18C”, will allow public listings by high-tech companies with at least HK$10 billion ($1.3 billion) of market capitalisation even before they generate a single dollar in sales, according to an official statement. The threshold for pre-commercial companies was set at HK$15 billion when HKEX first proposed the rule change in October 2022.
For companies with at least HK$250 million ($31.8 million) revenue for the most recent audited financial year, the HKEX also reduced the minimum market cap requirement to HK$6 billion ($764.4 million) from HK$8 billion in the original proposal. The new regime comes into effect on March 31.
“The new economy sector is rapidly changing the way in which we live and work, and this new route to market will support some of the most innovative and progressive companies of the future,” HKEX chief executive officer Nicolas Aguzin said in the statement.
“This new Specialist Technology chapter will support even more companies as they access capital to fund innovative ideas and growth,” said Aguzin.
The implementation of Chapter 18C marks one of the biggest listing rule reforms in Hong Kong in the past five years, following the city bourse’s introduction of Chapter 18A in April 2018 which opened the gate for public listings by pre-revenue biotech companies.
As of June 2022, 50 biotech firms had listed on the bourse, raising HK$114.6 billion ($14.6 billion) in IPO funds, according to official data from the HKEX.
Opportunities for new issuers
Analysts believe the new listing regime will further boost Hong Kong’s position as a preferred location for US-listed Chinese companies seeking a dual or secondary listing elsewhere amid heightened regulatory scrutiny over their listing status on Wall Street.
“Hong Kong will likely be a more convenient listing venue and a preferred destination for Chinese ADRs’ homecoming,” commented Melody Lai, chief strategist at the Hong Kong-based China Renaissance Securities (Hong Kong). ADRs, or American Depositary Receipts (ADRs), are US securities that represent foreign shares of a foreign company.
“The new listing regime may facilitate ADR homecomings as companies that do not currently qualify for Main Board listing will become eligible. This strategic move helps these firms mitigate potential risks associated with scrutiny from a single stock exchange while also paving the way for them to capitalise on higher valuations and superior returns in their home market,” said Lai.
While the revamped rules are expected to make a Hong Kong listing more appealing to Chinese issuers, they may also help the city rope in more public share sales by foreign technology firms looking to tap the deep capital pool in mainland China.
“While the majority of interest has come from mainland Chinese hard tech firms, the new listing regime will also be attractive to regions which are a hotbed for innovative tech companies, such as Southeast Asia and the Middle-East,” said Virginia Lee, a partner at law firm Clifford Chance.
“With the Exchange’s Stock Connect programmes, the additional access to Chinese capital is another advantage for Hong Kong,” said Lee.
The city’s Stock Connect scheme allows investors in mainland China to buy shares listed in Hong Kong via bourses in Shenzhen and Shanghai. It is also one of the most popular and efficient ways for international investors to trade in mainland stocks via Hong Kong. HKEX expanded the scope of Stock Connect in March to cover eligible shares of international issuers that are primary-listed in the city.
In Hong Kong, over 100 new listings are expected to raise about HK$200 billion ($25.5 billion) in 2023, accounting firm PricewaterhouseCoopers (PwC) estimates. The prediction stands in contrast to a sluggish listing scene in 2022 when the city scored only 89 new listings, the lowest since 2014, according to Shanghai-based financial data provider Wind.