The major changes to the GEM Listing Rules are as follows:

1. Introduction of new financial eligibility test for high-growth enterprises engaged in R&D activities, namely the “market capitalisation/revenue/R&D test”

Listing applicants must provide evidence of:

1. An adequate trading record over at least the last two most recent financial years;
2. An expected market capitalisation of at least HK$ 250 million at the time of listing;
3. Revenue of at least HK$ 100 million in aggregate for the two most recent financial years, as well as year-on-year growth over those two years; and
4. Incurred R&D expenditure of at least HK$ 30 million in aggregate in the most recent financial years, with the R&D expenditure incurred for each financial year being at least 15% of its total operating costs over the same period.

2. Removal of mandatory quarterly reporting requirement

Since 1999, as part of the reinforced scrutiny of GEM-listed companies, issuers have been required to submit quarterly reports. However, companies listed on the Main Board are not subject to similar requirements. After years of development, the provisions of the GEM Listing Rules and the Main Board Listing Rules have now converged. As a result, the Stock Exchange considers it unnecessary for GEM-listed issuers to report financial data more frequently than Main Board issuers. The removal of the mandatory quarterly reporting requirement will be helpful in reducing compliance costs for GEM-listed issuers.

3. New streamlined transfer mechanism

Conclusion

While small and medium-sized mainland Chinese enterprises form an indispensable part of the financial market in Hong Kong, it is of paramount importance for the Stock Exchange to continue to attract such enterprises and encourage them to go public in Hong Kong. Not only can the Stock Exchange provide them with financial support, it may also pave the way for their continued growth and value creation through their compliance with listing requirements. The reform of the GEM Listing Rules by the Stock Exchange will attract more high-growth companies to the listing platform, providing them with opportunities for expansion and thus giving added impetus to the comprehensive and sustainable development of the economy in Hong Kong.

Client Alert 2023-216