Key information of the Modifications

1.    Reduction in initial market capitalization thresholds for listing of Specialist Technology Companies (STCs)

The Modifications took into account recent market conditions and it is hoped that they will provide a more viable listing path for companies in emerging industries with high growth potential. The minimum market capitalisation requirement for STCs at the time of listing pursuant to Rule 18C.03(3) of the Rules Governing the Listing of Securities on the Stock Exchange (Listing Rules) will be reduced as follows:

• For Commercial Companies³: from HK$6 billion to HK$4 billion; and
• For Pre-Commercial Companies⁴: from HK$10 billion to HK$8 billion.

2.    Reduction in the investment threshold for independent third-party investors in De-SPAC Transactions

Chapter 18B of the Listing Rules require that special purpose acquisition companies (SPACs) must obtain independent third-party investment before completing De-SPAC Transactions. Lowering the threshold for independent investors will facilitate listing applicants securing such investments which provides the foundation for independent valuations of SPACs. The specific provisions are as follows:

• Reduction in minimum independent third-party investment amount

The minimum independent third-party investment amount required for a De-SPAC Transaction will be reduced to the lower of:

• the currently prescribed percentage of the negotiated value of the De-SPAC Target as set out in Rule 18B.41 of the Listing Rules (i.e. for a negotiated value of the De-SPAC Target of less than HK$2 billion to HK$7 billion or more, the minimum independent investment would be a percentage of between 25% to 7.5% of the aforementioned bands of negotiated value of the De-SPAC Target); or
• HK$500 million in value

• Adjustment to the independence requirements for third-party investors

The independence test for third-party investors in de-SPAC transactions pursuant to Rule 18B.40 of the Listing Rules will be adjusted to align it with that for sophisticated independent investors (SIIs) in STCs as follows:

• The independence of third-party investors will be determined as of the date of the signing of the definitive agreement for their investment in the De-SPAC Transaction, and up to listing of the Successor Company.
• The following persons will not be considered as independent third-party investors:

• Core connected persons of the SPAC or the De-SPAC Target, except for any major shareholders of the SPAC or the De-SPAC Target that are considered core connected persons solely because of the size of their shareholding in the SPAC or the De-SPAC Target (subject to paragraph (b)(ii) below);
• Controlling shareholders (or any person within the group of persons who are considered as controlling shareholders) of the SPAC or the De-SPAC Target;
• The founders of the De-SPAC Target and their respective close associates；and

• The Stock Exchange reserves the discretion to deem any other person to be not independent based on the specific facts and circumstances. For example, a person who has an act-in-concert agreement or arrangement with a SPAC promoter or with a controlling shareholder of the SPAC or the De-SPAC Target or with a founder of the De-SPAC Target, are not normally considered as independent.

• Clarifying the definition of a “sophisticated investor”

Along with the above-mentioned Modifications, the Stock Exchange has updated its guidance materials to align the definition of a “sophisticated investor” for independent third-party investments more closely with its criteria for identifying qualified SIIs in STCs.

3.    Time limit for the Modifications

The Modifications will apply temporarily for a fixed period of three years, from 1 September 2024 to 31 August 2027 . Prior to 31 August 2027, the Stock Exchange may review the requirements and conduct public consultations, if necessary.

With regard to STCs, the revised minimum initial market capitalisation thresholds will apply to all listing applicants under Chapter 18C of the Listing Rules and meet the following criteria:

• the expected date of listing is on or after 1 September 2024; and
• the relevant listing applications (including all renewals of such applications) are submitted on or before 31 August 2027.

Conclusion

These changes to the Listing Rules are testament to the Stock Exchange’s focus on actively responding to market needs based on (amongst other things) changes in market conditions, making the Hong Kong market a better place for capital markets activities. These changes aim to not only attract and encourage more high-quality companies to choose to list in Hong Kong but also ensure the regulatory standards are current to market needs.

1. Specialist Technology Company is defined as a company primarily engaged (whether directly or through its subsidiaries) in the research and development of, and the commercialisation and/or sales of, products and/or services that apply science and/or technology within an acceptable sector of any of the specialist technology industries as set out in Chapter 2.5 of the Guide for New Listing Applicants published by the Stock Exchange. Chapter 18C of the Rules Governing the Listing of Securities on the Stock Exchange (Listing Rules) provides a listing pathway for Specialist Technology Companies that cannot meet the eligibility requirements under Chapter 8 of the Listing Rules.
2. A “De-SPAC Transaction” refers to an acquisition of, or a business combination with, a business (De-SPAC Target) by a special purpose acquisition company (SPAC), which is a shell company that raises funds through its listing for the purpose of conducting a De-SPAC Transaction at a later stage within a pre-defined time period after listing resulting in the listing of the “Successor Company”.
3. A Commercial Company is a STC that has revenue of at least HK$250 million for its most recent audited financial year (Commercialisation Revenue Threshold).
4. A Pre-Commercial Company is a STC that has not met the Commercialisation Revenue Threshold at the time of listing. 

Client Alert 2024-188