Plan for GEM reforms to help tech start-ups raise funds
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 tech start-ups, according to Secretary for Financial Services and the Treasury Christopher Hui Ching-yu.
The bourse operator was now looking at overseas and mainland examples of potential ways to reform the GEM board for SMEs and tech start-ups and was collecting views on these issues, Hui told lawmakers yesterday.
A consultation paper was planned for later this year to seek views on listing reforms for the second board, including an increased focus on converting the platform into a fundraising avenue for tech firms, Hui said.
The GEM’s listing reforms are the latest in a series of changes made by HKEX to attract tech companies to list in the city 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,” the minister said.
Established in 1999, the GEM aims at allowing companies that fail to meet the main board’s profit requirement to raise funds. The board currently has 334 firms with a total market capitalisation of HK$78 billion, representing just 0.2 per cent of HKEX’s total.
There have been no new listings on the GEM for more than two years. Grand Power Logistics Group was the last to raise HK$55.5 million in January 2021.
“The GEM reforms are wishful thinking. Many mainland small tech firms prefer to list in Shenzhen or Shanghai for better valuations. It would not be easy to attract them to list on the GEM,” said Louis Tse Mingkwong, managing director at Wealthy Securities.
The reforms are another move by 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 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 listing.
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 rules are among the most stringent in the world, requiring a company to make at least HK$80 million in combined profits in the three years preceding a share offer.
The Chapter 18C reform is the most significant step taken by HKEX since its April 2018 move allowing companies with multiple voting rights and pre-revenue biotechnology firms to sell shares.
Hui said the 2018 reforms had attracted 86 new listings in the city up to March this year. These companies had raised more than HK$580 billion, representing over 40 per cent of the total funds raised through listings in Hong Kong during the period.
Among them were 56 prerevenue or pre-profit biotechnology companies, which had raised HK$116 billion and made Hong Kong the second-largest listing centre globally for such firms behind Nasdaq.
Hui also noted progress on the number of fintech initiatives taken by the city. Its eight virtual banks had 1.9 million accounts as of March with deposits of HK$30 billion, while its four virtual insurance companies had issued 92,200 policies with total premiums in excess of HK$657 million as of last December.
Hong Kong issued eight so-called virtual banking licences in 2019 and its first online-only insurance licence in 2018.
InvestHK had received inquiries from more than 90 virtual asset firms on the mainland and in other markets interested in setting up shop in the city after the Securities and Futures Commission started a new licensing regime for trading of digital assets on June 1, 2022.
It had since helped 57 fintech firms 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 government responsible for foreign direct investment.