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Hong Kong exchange proposes looser IPO rules for tech companies

Hong Kong Exchanges & Clearing Ltd. is planning a system that will slash the revenue requirements for advanced tech and science companies to go public in the city, in an effort to revive listings while echoing China’s drive for developing cutting-edge technology.

The bourse is planning to adjust its listing rules to accommodate companies in sectors ranging from next-generation information technology to advanced hardware and materials, and new energy to food and agriculture science. The HKEX is seeking public consultation till Dec. 18, according to a statement.

Granting easier access to public markets for such companies fits with China’s push to beef up its artificial intelligence and semiconductor industry. For the HKEX, the move may boost its appeal as a listing hub and broaden its revenue stream, after a bruising year hit by Covid and regulatory setbacks that have dented its listing business.

It dovetails with Chief Executive John Lee’s push to restore the city’s competitiveness by announcing special visas and a property tax cut for non-permanent residents to attract talent.

Here are the specific terms proposed:

  • Types of firms included: 1) next-generation information technology 2) advanced hardware 3) advanced materials 4) new energy and environmental protection 5) new food and agriculture technologies
  • Firms pre-commercialization: market value requirement of at least HK$15 billion ($1.9 billion) at time of IPO; R&D investment of at least 50% of operating expenditure in each of three years prior to listing
  • Commercialized firms: Revenue from specialist technology business of at least HK$250 million, versus current requirement of HK$500 million for total revenue; market value requirement would be at least HK$8 billion

Xi’s Plea

As China decouples from the US, President Xi Jinping has been exhorting top officials to pool their resources and focus on breakthroughs critical to the country’s future.

The US, after years of targeting specific companies such as Huawei Technologies Co., is enacting broader restrictions on the Chinese economy. President Joe Biden’s administration implemented new controls over the sale of artificial intelligence chips to Chinese customers and restricted so-called US persons supporting the development, production or use of integrated circuits at some chip plans located in China.

Hong Kong could play a larger role in attracting capital to support hard-tech company growth, while it tries to compete with other hubs to lure cutting-edge startups.

That’s especially important as the HKEX comes under financial strain. The bourse on Wednesday reported a 28% decline in profits in the first nine months of the year as trading slumped and IPO deals were down 74% from the same period last year. Reuters

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