Bourse operator Hong Kong Exchanges and Clearing (HKEX), which runs the third-largest stock market in Asia, has embarked on listing reforms for its second board to enable fundraising by small and medium-sized enterprises (SMEs) and technology start-ups, according to a minister.
The HKEX is now looking at overseas and mainland examples of potential ways to reform GEM for SMEs and technology start-ups, and is collecting views on these issues, Secretary for Financial Services and the Treasury Christopher Hui Ching-yu told lawmakers at a meeting on Monday.
A consultation paper is planned for later this year to seek views on listing reforms for GEM, its second board, which includes increased focus on converting the platform to a fundraising avenue for tech firms, Hui said.
The GEM’s listing reform is the latest in a series of changes made by the HKEX to attract technology companies to list in Hong Kong and consolidate its position as an international financial centre.
“We hope the reforms will better serve the fundraising needs of all companies, including innovative start-ups, which are in earlier development stages and contribute to the development of innovation and technology,” Hui said.
GEM, formerly known as the Growth Enterprise Market, is the second board of HKEX. Established in 1999, GEM aims at allowing companies that fail to meet the main board profit requirement to raise funds. The GEM currently has 334 firms listings with a total market capitalisation of HK$78 billion, representing just 0.2 per cent of the HKEX total.
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There have been no new listings on GEM for over two years. Grand Power Logistics Group was the last to raise HK$55.5 million in January 2021.
“The GEM reform is wishful thinking. Many mainland small tech firms prefer listing in Shenzhen or Shanghai for better valuations. It would not be easy to attract them to list on the GEM,” said Louis Tse Ming-kwong, managing director at Wealthy Securities.
The GEM reform is another move by the HKEX to enhance its status this year, after it added Chapter 18C to its listing rules in March. The new chapter allows firms with at least HK$10 billion in valuation to launch initial public offerings (IPO) before registering any sales, while the threshold will be reduced to HK$6 billion if they have at least HK$250 million in sales in the financial year before the IPO.
Hui said the Chapter 18C reform “will further strengthen Hong Kong’s position as the premier global listing venue for innovative enterprises.”
The exchange’s listing requirement is among the most stringent in the world as it requires a company to make at least HK$80 million in combined profits in the three years preceding a listing.
The Chapter 18C reform is the most significant shift by the HKEX since its April 2018 move allowing companies with multiple voting rights and pre-revenue biotechnology firms to list.
Hui said the 2018 reforms had attracted 86 new listings in Hong Kong up until March 2023. These companies had raised more than HK$580 billion, representing over 40 per cent of the total funds raised through IPOs in Hong Kong during the period.
Among them, were 56 pre-revenue or pre-profit biotechnology companies which had raised HK$116 billion, and made Hong Kong the second largest listing centre globally for biotechnology companies, behind Nasdaq.
Hui also noted progress on the number of fintech initiatives taken by Hong Kong. The eight virtual banks had 1.9 million accounts as of March, with deposits of HK$30 billion and its four virtual insurance companies had issued 92,200 policies with total premiums over HK$657 million as of December 2022. Hong Kong issued eight so-called virtual banking licences in 2019 and its first online-only insurance license in 2018 launching a number of fintech initiatives to outpace rival centres such as Singapore and London by attracting more investments.
InvestHK had received enquiries from over 90 virtual asset firms in the mainland and other markets interested in setting up shop in Hong Kong after the Securities and Futures Commission on June 1, 2022 started a new licensing regime for virtual asset trading.
Since then, InvestHK had helped 57 fintech companies set up shop in Hong Kong, bringing in a total investment of HK$2.6 billion and creating 650 new jobs, Hui said. InvestHK is the department of the Hong Kong Government responsible for foreign direct investments.
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