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For a company to become listed on the Hong Kong Stock Exchange (HKEX), it must satisfy the Financial Eligibility Tests under Rule 8.05 of the Main Board Listing Rules. Chapter 18 of the Listing Rules currently provide for exemptions to the tests for mineral companies, and in exceptional circumstances for other companies. However, businesses in the biotech and information technology sector have legitimate capital market needs prior to generating profit and revenue, as intensive R&D is necessary to create the requisite intellectual property needed to develop commercial products.
In recognition of this, the HKEX published a consultation paper in February 2018 regarding their proposed enactment of a new Chapter 18A (Biotech Chapter) to broaden the range of companies eligible for listing before having to satisfy the Financial Eligibility Tests under Rule 8.05. To safeguard investors from potential risks associated with investing in an early-stage company, they propose to initially target biotech companies. In summary, the proposed Biotech Chapter will allow biotech companies to be listed in circumvention of Rule 8.05 subject to the following requirements:
- The Company must have developed at least one Core Product beyond the concept stage, the standard for which varies between pharmaceutical products, biologic products, medical devices (including diagnostics), and other biotech products.
- The Company must have been primarily engaged in R&D of its Core Products for at least 12 months prior to listing.
- The Company must own durable/registered patents or intellectual property in relation to the Core Products.
- A minimum expected market capitalisation at the time of listing on the Exchange of HK$1.5 billion.
- The Company must have operated in its current line of business for at least two financial years prior to listing.
- The Company must have available working capital to cover at least 125% of the group’s costs for at least the next 12 months.
- The Company is subject to enhanced disclosure requirements and must disclose the phases of development for its Core Products, all material safety data relating to Core Products, details of operating costs, capital expenditure and working capital, and more.
- Cornerstone investors should not count towards initial public float requirement at time of listing
- Biotech Companies are prohibited from effecting transactions or arrangements resulting in a fundamental change to its principal business without the HKEX’s prior consent.
For more information on the topic of the Hong Kong Listing Rules, please see:
Halsbury’s Laws of Hong Kong on Companies and Corporations