On August 23, 2024, the Securities and Futures Commission of Hong Kong and the Stock Exchange of Hong Kong Limited (HKEx) jointly announced temporary modifications to HKEx’s Listing Rules and guidance materials with respect to:
- The minimum initial market capitalization of specialist technology companies.
- Independent third-party investment requirements for deSPAC transactions conducted by special purpose acquisition companies (SPACs).
The temporary modifications apply for a period of three years – from September 1, 2024 to August 31, 2027. Before the implementation period expires, HKEx may review the relevant requirements and conduct public consultation.
Specialist technology companies
In March 2023, HKEx introduced a new listing pathway for specialist technology companies that cannot satisfy any of the basic financial eligibility tests set out in Rule 8.05 of HKEx’s Listing Rules. Specialist technology companies are companies primarily engaged in the research and development of, and the commercialization and/or sales of, products and/or services that apply science and/or technology within one of five acceptable sectors:
- Next-generation information technology.
- Advanced hardware and software.
- Advanced materials.
- New energy and environmental protection.
- New food and agriculture technologies.
Under the new listing route, specialist technology companies are classified into “commercial companies” and “pre-commercial companies.” Commercial companies are specialist technology companies with revenue arising from the specialist technology business segment(s) of at least HK$250 million for the most recent audited financial year at the time of listing. Pre-commercial companies are specialist technology companies that cannot meet such revenue threshold. Both types of specialist technology companies must satisfy a minimum initial market capitalization at the time of listing.
Reduction in minimum initial market capitalization of specialist technology companies
The minimum initial market capitalization of specialist technology companies is reduced as follows:
| Before temporary modifications | After temporary modifications | |
| Commercial companies (at least HK$250 million in annual revenue for the most recent audited financial year) | HK$6 billion | HK$4 billion |
| Pre-commercial companies | HK$10 billion | HK$8 billion |
The reduction in minimum initial market capitalization applies to all listing applications (including renewals of such applications) from specialist technology companies submitted on or before August 31, 2027, and with expected listing date on or after September 1, 2024.
DeSPAC transactions
HKEx launched the listing regime for SPACs in January 2022, aiming to enable experienced and reputable SPAC promoters to source listings from new and innovative industries through deSPAC transactions. Unlike its US counterparts, HKEx mandates independent third-party investment to complete a deSPAC transaction as a form of validation of the transaction’s valuation. Pursuant to the temporary modifications, HKEx has reduced the minimum investment requirements for third parties participating in a deSPAC transaction.
Reduction in minimum independent third-party investment
The minimum independent third-party investment of deSPAC transactions is reduced as follows:
| Before temporary modifications | After temporary modifications | |
| Minimum independent third-party investment | The total funds to be raised from independent third-party investors must constitute at least the following percentage of the negotiated value (NV) of the deSPAC target: NV < HK$2 billion: 25%HK$2 billion ? NV < HK$5 billion: 15%HK$5 billion ? NV < HK$7 billion: 10%NV ? HK$7 billion: 7.5% NV > HK$10 billion: Waiver to be considered on a case-by-case basis | The lower of: Currently prescribed percentage of the NV of the deSPAC target set out in the left column HK$500 million |
Independence requirements for third-party investors
The independence test for third-party investors in deSPAC transactions is aligned with the test for sophisticated independent investors in specialist technology companies. Independence will be assessed as of the date of entering into the definitive agreement for the relevant investment in the deSPAC transition and up to listing of the successor company. HKEx does not consider the following persons to be independent:
- Core connected persons of the SPAC or the deSPAC target, other than any substantial shareholder of the SPAC or the deSPAC target who is considered a core connected person only because of the size of their shareholding in the SPAC or the deSPAC target (subject to the conditions in #2 below).
- A controlling shareholder (or any person within the group of persons considered to be controlling shareholders) of the SPAC or the deSPAC target.
- Founders of the deSPAC target and their respective close associates.
HKEx also retains the discretion to deem any other person to be not independent based on the facts and circumstances of an individual case.
In addition, HKEx requires that at least 50% of the value of independent third-party investment discussed above is contributed by at least three sophisticated investors. Whether an investor is sophisticated will be assessed on a case-by-case basis with reference to its relevant investment experience and knowledge and expertise in the relevant field of the deSPAC target, which could be demonstrated by its net assets, assets under management, size of its investment portfolio or track record of investments.
The reduction in minimum independent third-party investment and the alignment of the independence requirements for third-party investors apply to all deSPAC transactions announced during the implementation period.
Reasons for modifications
The HKEx implemented the temporary modifications to address changes in market conditions since the introduction of the listing regimes for specialist technology companies and SPACs. They are expected to provide greater flexibility to listing applicants facing difficulties in meeting either the original minimum initial market capitalization requirement or the minimum independent third-party investment amid current market headwinds. The move also demonstrates local regulators’ deep commitment to maintaining the attractiveness and competitiveness of Hong Kong’s capital markets.
