Hong Kong Stock Exchange Eases Listing Rules for Tech Companies and SPACs in Bid to Boost Innovation

In a significant move to bolster its position as a premier listing hub for innovative technology companies, the Securities and Futures Commission (SFC) and the Stock Exchange of Hong Kong (HKEX) announced on August 23, 2024, temporary modifications to the listing requirements for Specialist Technology Companies (STCs) and De-SPAC Transactions. These changes, which will be in effect from September 1, 2024, to August 31, 2027, are aimed at enhancing the attractiveness of Hong Kong as a destination for high-growth tech enterprises amid a challenging market environment.

Lower Market Capitalization Thresholds for Tech Listings

One of the key aspects of these modifications is the reduction of the initial market capitalization threshold for companies seeking to list under the Specialist Technology Companies regime, which was introduced under Chapter 18C of the Main Board Listing Rules in March 2023. Despite the lowered revenue thresholds, the regime had seen a lukewarm response from potential listing applicants.

To address this, the minimum initial market capitalization required for Commercial Companies will be reduced from HK$6 billion to HK$4 billion, while for Pre-Commercial Companies, the threshold will be lowered from HK$10 billion to HK$8 billion. This change is expected to provide a more viable listing pathway for tech companies with high growth potential, encouraging more high-tech unicorns to consider Hong Kong as their listing venue.

Easing De-SPAC Transaction Requirements

The modifications also include adjustments to the listing requirements for Special Purpose Acquisition Companies (SPACs) under Chapter 18B of the Main Board Listing Rules. SPACs, which are essentially shell companies that raise capital through a public listing with the aim of acquiring an existing business, have become increasingly popular as an alternative route to public markets.

One of the key changes is the reduction in the minimum independent third-party investment required for a De-SPAC Transaction. Under the new rules, the minimum investment will be the lesser of the currently prescribed percentage of the negotiated value of the De-SPAC target or HK$500 million. This modification is designed to ease the burden on SPACs while still ensuring that there is sufficient “capital at risk” to validate the valuation of the target company.

Alignment of Independence Requirements

Additionally, the independence test for third-party investors in a De-SPAC Transaction will now be aligned with the test for sophisticated independent investors in STCs under Chapter 18C. This change addresses the difficulties faced by SPACs in meeting the independent financial adviser test, which was originally designed for a different context. By harmonizing these requirements, the Exchange aims to streamline the process and reduce regulatory hurdles for SPACs.

The Exchange has also clarified the definition of “sophisticated investor” in this context, aligning it more closely with the criteria used for STCs. This includes requirements for listing applicants to disclose the size and basis for determination of the assets under management (AUM) and other relevant information about these sophisticated investors in the De-SPAC Transaction announcement and listing document.

A Strategic Move to Maintain Hong Kong’s Competitive Edge

These temporary modifications reflect the Exchange’s commitment to maintaining Hong Kong’s edge as a leading global financial hub, particularly for innovative and fast-growing technology companies. By lowering entry barriers and simplifying regulatory requirements, the HKEX hopes to attract a new wave of tech listings and SPAC activity, ensuring that the city remains a top destination for capital markets activity.

With these changes set to take effect on September 1, 2024, market participants will be closely watching how they influence the dynamics of Hong Kong’s tech and SPAC markets. The Exchange is confident that these adjustments will provide the necessary flexibility and support to foster innovation and growth in the region’s rapidly evolving financial landscape.

Ben Tang
Financial Desk