Innovative firms seeking IPOs on bourse may enjoy lower threshold in revenue

The Hong Kong bourse plans to introduce a new listing rule to lower the revenue threshold for advanced technology and eco-friendly companies, including those who generate zero income, aiming to expand the city's liquidity pool and drive high-tech growth.

The bourse issued a consultation paper on Wednesday to seek public views in the following two months on the proposed new rule, which will be implemented next year.

The stock exchange is expected to remove revenue requirement barriers for pre-commercial firms whose market value reaches at least HK$15 billion ($1.91 billion), while it will require commercial companies whose valuations stand at least at HK$8 billion to earn no less than HK$250 million.

Pre-commercial firms refer to those primarily engaged in research and development with income that has not achieved the minimum threshold of HK$250 million, according to the statement.

The suggested rule applies to enterprises from five "Specialist Technology Industries" of next-generation information technology, advanced hardware, advanced materials, new energy and environmental protection, along with new food and agricultural technologies.

The next-generation information technology and advanced hardware sectors cover artificial intelligence and cloud computing, as well as semiconductors.

The current listing regime requires companies aiming to list on the main board to earn at least HK$35 million in the most recent year, and at least HK$45 million in total in the two preceding years.

CEO of HKEX Nicolas Aguzin said, "We expect the new proposed specialist technology rules will help to drive growth in talent and investment across these five frontier industries, such as in green technologies, in the region and beyond."

Aguzin added, "These new proposals will expand the range of companies that can access Hong Kong's deep, liquid, international markets and will offer investors even greater choices."

Under the new rule, retail investors are allowed to trade shares of those companies, while institutional investors will be allocated at least half of the total number of shares offered in the IPO process.

Bonnie Chan, head of listing at HKEX, said, "We took into account the unique features of specialist technology companies, in particular, the uniqueness of the role technology plays in their business and their early stage of development relative to other listing applicants."

"We believe our proposed rules strike the right balance between upholding market quality and creating a commercially viable chapter that meets the fundraising needs of the leading companies of tomorrow," she said.

According to the consultation paper, as of Sept 9, there were more than 700 specialized technology companies listed in the United States and around 450 on the Chinese mainland, with market values of HK$85.4 trillion and HK$5.3 trillion, respectively. Hong Kong trails far behind as only about 100 such firms had gone public by that time.

The move aligns with Hong Kong's road map of being an international innovation and technology hub which has been acknowledged by the 14th Five-Year Plan (2021-25), the social and economic development outline of China. Chief Executive of Hong Kong Special Administrative Region John Lee Ka-chiu expressed resolutions to boost Hong Kong's innovation and technology sector and attract talent with a package of new policies during his policy address on Wednesday.

Duncan Chiu, a lawmaker representing the technology and innovation functional constituency in the Legislative Council, said the Hong Kong government should approach those companies who intend to list on HKEX and attract them to move part of their research and development departments along with production lines to Hong Kong.