New chapters and amendments have made significant changes to the Hong Kong listing regime in the past two decades and opened up a new era for the Hong Kong capital markets.
After several months of consultation, The Stock Exchange of Hong Kong Limited (HKSE) published three new chapters and consequential amendments to the existing Main Board Listing Rules (Listing Rules) on 24 April 2018, which came into effect on 30 April 2018, from which date, companies in emerging and innovative sectors seeking to list under the new regime may submit a formal application. These three new chapters and consequential amendments have made significant changes to the Hong Kong listing regime in the past two decades and opened up a new era for the Hong Kong capital markets.
The new Listing Rules now (i) permit listings of biotech issuers that do not meet any of the Main Board financial eligibility tests; (ii) permit listing of companies with “weighted voting right” (WVR) structures; and (iii) establish a new concessionary secondary listing route for Greater China and international companies seeking a secondary listing in Hong Kong.
Pre-profit or pre-revenue biotech issuers that produce pharmaceuticals (small molecule drugs), biologics and medical devices (including diagnostics) may now be permitted to list on the HKSE. Such biotech companies do not need to meet either the profit test, the market capitalisation/revenue/cash flow test or the market capitalisation/revenue test in the Listing Rules if it can demonstrate the following features:
- have developed at least one Core Product (being a regulated product approved by the US Food and Drug Administration, the China Food and Drug Administration or the European Medicines Agency, based on data derived from clinical trials before being marketed and sold in the market) beyond the concept stage;
- have been primarily engaged in research and development (R&D) for the purposes of developing its Core Product(s) for a minimum of 12 months prior to listing;
- have as its primary reason for listing the raising of finance for R&D to bring its Core Product(s) to commercialisation;
- have registered patent(s), patent application(s) and/or intellectual property in relation to its Core Product(s);
- (if engaged in the R&D of pharmaceutical (small molecule drugs) products or biologic products) must has a pipeline of those potential products; and
- must have previously received meaningful third party investment from at least one sophisticated investor at least six months before the listing date of listing (which must remain at IPO).
Issuers with WVR structures
“Innovative” issuers may now be listed in the HKSE with a WVR share structure, if they satisfy a number of requirements and implement detailed investor protection safeguards, and possess more than one of the following four characteristics:
- its success is demonstrated to be attributable to the application to the company’s core business of new technologies, innovations and/or a new business model, differentiating the company from existing players;
- R&D is a significant contributor of its expected value and constitutes a major activity and expense;
- its success is demonstrated to be attributable to its unique features or intellectual property; and/or
- it has an outsized market capitalisation/intangible asset value relative to its tangible asset value.
The above characteristics are neither exhaustive nor binding and the HKSE will take into account all relevant circumstances in accessing the applicant.
Whether an applicant is “innovative” would depend on the state of the industry and market it operates, and will change over time as technology, markets and industries develop and change. The applicant must also demonstrate a track record of high business growth objectively measured by operational metrics, such as business operations, users, customers, unit sales, revenue, profits and/or market value (as appropriate), and that its high-growth trajectory is expected to continue.
Secondary listing of qualifying issuers
An issuer primary listed on the New York Stock Exchange, Nasdaq Stock Market or the Main Market of the London Stock Exchange (under the “Premium Listing” segment) may apply for secondary listing on the HKSE if it is an innovative company possessing more than one of the four characteristics as listed above. They must also satisfy the requirements of the existing Chapter 19 of the Listing Rules dealing with overseas issuers, as modified by the new Chapter 19C.
Listing candidates meeting certain qualifications can enjoy an extensive list of waivers from the Listing Rules, including waivers from the connected transactions rules, rules on notifiable transactions, new share issuance and corporate reporting.
The new Listing Rules are expected to attract companies which have previously not been able to list in Hong Kong. We have already seen a surge of enquiries for secondary listing and dual-class listing involving offshore vehicles, and we expect more companies to take advantage of these Rules in order to tap into one of the world’s most liquid capital markets.
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