- The SFC and the Exchange announce temporary modifications to certain requirements relating to the listing of Specialist Technology Companies and De-SPAC Transactions with effect from 1 September 2024
- Modified requirements respond to market feedback and changing market conditions
The Securities and Futures Commission (the SFC) and The Stock Exchange of Hong Kong Limited (the Exchange), a wholly-owned subsidiary of Hong Kong Exchanges and Clearing Limited (HKEX), jointly announce today (Friday) temporary modifications to the Listing Rules (Modifications)1 and amendments to the Exchange’s guidance materials effective from 1 September 2024, with respect to:
| (a) | the minimum initial market capitalisation of Specialist Technology Companies2; and | |
| (b) | independent third-party investment requirements for De-SPAC Transactions conducted by special purpose acquisition companies (SPACs)3. |
The modifications, with the SFC’s support, are designed to address the change in market conditions since the introduction of both listing regimes, taking into account the Exchange’s experience gained from handling Specialist Technology Companies’ listing applications and De-SPAC Transactions.
Katherine Ng, HKEX’s Head of Listing, said: “At HKEX, we are committed to continuously reviewing and enhancing our listing framework so that it remains fit for purpose, supporting the attractiveness and competitiveness of Hong Kong’s capital market. Drawing on insights from listing applicants and related transactions, we have identified opportunities to boost the inclusivity and dynamism of our listing environment within the established framework. These modifications will provide greater flexibility and clarity for both issuers and investors, whilst upholding our robust regulatory standards.”
Michael Duignan, the SFC’s Executive Director of Corporate Finance, said: “The SFC fully supports these modifications to maintain Hong Kong’s edge as a top listing destination for innovative and fast-growing technology companies. It is another example of how the listing authorities can be both agile and responsive to a challenging market environment, whilst continuing to maintain the quality of the market.”
Details of the Modifications
Specialist Technology Companies
| 1. | Reduction in initial market capitalisation thresholds for listing | |||
| The minimum initial market capitalisation at the time of listing required for the listing of Specialist Technology Companies pursuant to Main Board Listing Rule 18C.03(3) will be reduced: |
||||
| (a) | from HK$6 billion to HK$4 billion for Commercial Companies4; and | |||
| (b) |
from HK$10 billion to HK$8 billion for Pre-Commercial Companies5. |
|||
De-SPAC Transactions
| 2. | Reduction in minimum independent third party investment | |||||
|
The minimum independent third party investment6 required for a De-SPAC Transaction will be modified to the lower of: (a) the currently prescribed percentage of the negotiated value of the De-SPAC Target as set out in Main Board Listing Rule 18B.41, or (b) HK$500 million in value. |
||||||
| 3. | Independence requirements for third party investors |
|||||
|
The independence test for third party investors in a De-SPAC Transaction pursuant to Main Board Listing Rule 18B.40 will be aligned with that for sophisticated independent investors (SIIs) in Specialist Technology Companies (Chapter 18C Independence Test)7, such that: |
||||||
| (a) | the independence of a third party investor will be determined as at the date of the signing of the definitive agreement for the relevant investment in the De-SPAC Transaction, and up to listing of the Successor Company8; |
|||||
| (b) | the following persons will not be considered as independent third party investors: |
|||||
| (i) |
core connected persons9 of the SPAC or the De-SPAC Target, except for any substantial shareholder of the SPAC or the De-SPAC Target that is considered a core connected person only because of the size of its shareholding in the SPAC or the De-SPAC Target (subject to paragraph (b)(ii) below); |
|||||
| (ii) | controlling shareholder (or any person within the group of persons who are considered as controlling shareholders) of the SPAC or the De-SPAC Target; | |||||
| (iii) |
the founders of the De-SPAC Target and their respective close associates; and |
|||||
| (c) | the Exchange retains the discretion to deem any other person to be not independent based on the facts and circumstances of an individual case. For example, a person who has an acting-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, normally will not be considered as independent. |
|||||
Time limit for the Modifications
The above Modifications will apply temporarily for a fixed period of three years from 1 September 2024 to 31 August 2027 (Implementation Period). Prior to 31 August 2027, the Exchange may review the requirements and conduct public consultation, if necessary.
With regard to Specialist Technology Companies, the modified initial market capitalisation thresholds will apply to all listing applicants under Main Board Chapter 18C that meet the following criteria:
| (a) |
the expected date of listing is on or after the start of the Implementation Period (i.e. 1 September 2024); and |
|
| (b) |
the relevant listing applications (including all renewals of such applications) are submitted on or before the end of the Implementation Period (i.e. 31 August 2027). |
With regard to De-SPAC Transactions, the modified independent third party investment threshold and independence requirements for third party investors will apply to all De-SPAC Transactions that are expected to be announced during the three-year Implementation Period.
Clarification on the definition of a “sophisticated investor” for independent third party investment
In tandem with the above Modifications, the Exchange has published amendments to its guidance materials that align the definition of a “sophisticated investor” for independent third party investment more closely with the Exchange’s requirement for identifying qualified SIIs in Specialist Technology Companies10.
Marked-up changes to the Guide for New Listing Applicants, the guidance letter HKEX-GL113-22 and the frequently asked questions on SPACs are available on the HKEX website.
Reasons for the Modifications
Specialist Technology Companies
The Modification recognises recent market conditions and intends to provide a viable listing pathway for new economy companies with high growth potential.
De-SPAC Transactions
The purpose of requiring mandatory independent third party investment to complete a De-SPAC Transaction is to mitigate the risk of artificial valuation. The new minimum independent third party investment requirements will continue to represent a significant commitment of “capital at risk” to help ensure that there is support for the valuation of the De-SPAC Target in a De-SPAC Transaction.
Similar to the purpose of independent third party investment requirement for De-SPAC Transactions, the Chapter 18C Independence Test was designed to mitigate concerns related to difficulty in valuing Specialist Technology Companies. The new independence requirements for third party investors in De-SPAC Transactions are aligned with those of the Chapter 18C Independence Test for consistency and to address the difficulties experienced by SPACs in applying the independent financial adviser test11, which was formulated for a different purpose.
Notes:
- The SFC has formally consented to the Modifications pursuant to Main Board Listing Rule 2.04.
- A Specialist Technology Company is a company primarily engaged 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. Chapter 18C of the Main Board Listing Rules provides a listing pathway for Specialist Technology Companies that cannot meet the eligibility requirements under Chapter 8 of the Main Board Listing Rules.
- A SPAC is a shell company that raises funds through its listing for the purpose of acquiring a business (a De-SPAC Target) at a later stage (a De-SPAC Transaction) within a pre-defined time period after listing. Chapter 18B of the Main Board Listing Rules provides a listing pathway for SPACs in Hong Kong and set out the requirements for De-SPAC Transactions.
- A Commercial Company is a Specialist Technology Company that has revenue of at least HK$250 million for its most recent audited financial year (Commercialisation Revenue Threshold).
- A Pre-Commercial Company is a Specialist Technology Company that has not met the Commercialisation Revenue Threshold at the time of listing.
- A SPAC must demonstrate that the required minimum independent third party investment has been committed by the time of announcing the De-SPAC Transaction.
- The independence requirements for SIIs in Specialist Technology Companies are set out in Chapter 2.5 of the Guide for New Listing Applicants.
- A Successor Company is the listed issuer resulting from the completion of a De-SPAC Transaction.
- As defined in Main Board Listing Rule 18B.01 with respect to the core connected persons of the SPAC, or as defined in Main Board Listing Rule 1.01 with respect to the core connected persons of the De-SPAC Target.
- The qualification requirements for SIIs in Specialist Technology Companies are set out in Chapter 2.5 of the Guide for New Listing Applicants.
- Main Board Listing Rule 18B.40 currently requires that the terms of a De-SPAC Transaction must include investment from third party investors who must meet independence requirements consistent with those that apply to an independent financial adviser under Main Board Listing Rule 13.84.
