Hong Kong Exchanges & Clearing is discussing a system that will slash the revenue requirements for hard-tech companies to go public in the city, according to people familiar with the matter.
The bourse is planning a new chapter 18C scheme to accommodate companies in sectors ranging from artificial intelligence and chips to autonomous vehicles and smart manufacturing, the people said, asking not to be identified because the matter is private. The HKEX could seek public consultation as soon as this month and aims to finalize the plan by the year’s end, they added.
Granting easier access to public markets for hard-tech firms 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.
The exchange has already been trying to attract biotech and internet firms, dovetailing with President Xi Jinping’s call for stepping up the development of technology critical to national security.
The considerations are ongoing and details of the proposal could still change, said the people. Company types that could be included are new energy, software as a service (SaaS), platform as a service (PaaS), smart manufacturing and robotics, semiconductors, quantum computing, autonomous driving and AI.
Here are the specific terms proposed for the two types of companies, according to the people:
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Firms pre-commercialization: the market value requirement for such companies at the time of their initial public offering would be more than US$2 billion
Commercialized firms: Revenue requirement would be HK$200 million (US$25 million) to HK$300 million, versus the current requirement of HK$500 million; market value requirement would be at least US$1 billion
The HKEX said it continues to work on a range of new initiatives to ensure its listing franchise remains attractive.
“We are therefore studying how best to create a listing chapter to cater for the funding needs of large-scale advanced technology companies that are at an early stage of product commercialization,” it said in an emailed statement. “We will update the market should there be any new developments.”
As China decouples from the US, Xi 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 like Huawei Technologies Co., is enacting broader restrictions on the entire Chinese economy. The Biden administration implemented new controls over the sale of artificial intelligence chips to Chinese customers, a blow to the development of cutting-edge technologies, and is weighing an executive order that would curtail investment in the country.
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. In the first half, IPOs were down more than 90%, while overall trading volumes slid 27%. The bourse’s profit slid 22% and it lost HK$274 million of investments in the second quarter.