Hong Kong GEM Reforms Will Take Effect on 1 January 2024
In less than three months, the Hong Kong Stock Exchange has adopted all proposals for GEM listing reform from the consultation paper issued in September 2023, with only minor amendments.
The reforms will be implemented on 1 January 2024.
Key proposals adopted include:
- A new alternative eligibility test targeting high growth enterprises focusing on research and development (R&D) activities is soon available, in addition to GEM’s existing eligibility requirements (which will be maintained):
- Trading record: at least two financial years.
- Market capitalisation : at least HK$250 million at listing.
- Revenue: at least HK$100 million in aggregate for the two most recent audited financial years, with year-on-year growth over the two financial years.
- R&D expenditure: at least HK$30 million in aggregate for the two financial years prior to listing, where R&D expenditure for each financial year must be at least 15% of its total operating expenditure for the same period.
- Cashflow: no specific requirement.
- A new alternative streamlined transfer mechanism to the Main Board - GEM issuers may apply for a transfer without needing to appoint a sponsor to carry out due diligence, nor produce a “prospectus-standard” listing document.
However, to qualify as an eligible transferee under the streamlined mechanism, the GEM issuers must meet:
- All qualifications for listing on the Main Board;
- A minimum daily turnover threshold of HK$50,000 on at least 50% of the 250 trading days immediately preceding the transfer application and until commencement of dealings on the Main Board (Reference Period); and
- A volume weighted average market capitalisation over the Reference Period that meets the minimum market capitalisation requirement for listing on the Main Board.
The transferee must also demonstrate compliance with on-going obligations of the GEM Listing Rules for a three-year pre-transfer track record period, with continuity of ownership, management and business during that period.
The existing transfer mechanism – which only requires a transferee to demonstrate compliance with on-going obligations of the GEM Listing Rules for a one-year pre-transfer track record period – will be retained.
In other words, GEM issuers may opt for a transfer to Main Board with a shorter period of listing on GEM (one year) by way of the existing transfer mechanism, if the benefit outweighs the cost of sponsor due diligence and production of a “prospectus-standard” listing document under the existing transfer mechanism.
- Removal of mandatory quarterly reporting requirements, instead introduction of recommended best practice in GEM’s Corporate Governance Code.
- Reduction of post-IPO lock up period imposed on GEM issuers’ controlling shareholders from 24 months to 12 months.
We set out details of the key proposals of the consultation paper (which are now all adopted by HKEX), compared to GEM’s existing requirements and those of the Beijing Stock Exchange (BSE) and Catalist of Singapore Stock Exchange (SGX), in our last update which can be viewed here.