On 26 September 2023, The Stock Exchange of Hong Kong Limited (Exchange) published a consultation paper on its GEM listing reform proposals, seeking market feedback by 6 November 2023.
Background
The number of new listings and funds raised on GEM have significantly declined since 2019, and there was no more new GEM listing after January 2021.
The local bourse recognises that it is one of the options for small and/or medium-sized enterprises (SME) seeking capital to drive growth, sustain innovation and create value, and emphasises that encouraging and facilitating SME listings will continue to be its key priority. Having engaged with different stakeholders to hear their concerns regarding GEM, the Exchange has developed proposals to reform the GEM listing regime.
Key proposals
(A) Introduction of a new financial eligibility test (as an alternative to the existing cash flow test)
The Exchange proposes to introduce a new financial eligibility test (referred to as “market capitalisation/ revenue/ R&D test”) targeting high growth enterprises that are heavily engaged in research and development (R&D) activities, while the existing cash flow base test will remain unchanged and continue to be available for use.
A comparison between the respective sets of requirements that GEM listing applicants must meet under the two tests is set out in the table below:
(B) Reduction of post-IPO lock-up period for controlling shareholders
The Exchange proposes to reduce the post-IPO 24-month lock-up period imposed on controlling shareholders of GEM issuers to 12 months, in line with the Main Board requirements.
(C) Introduction of a new streamlined transfer mechanism
The Exchange proposes to introduce a new streamlined transfer mechanism to enable GEM issuers which can meet the modified qualification requirements to transfer to the Main Board without the need to:
- appoint a sponsor to carry out due diligence, or
- publish a “prospectus-standard” listing document.
Under this proposed new streamlined transfer mechanism, a GEM transfer applicant will only be required to submit certain application and supporting documents to the Exchange, and publish a “long-form” announcement (subject to the Exchange’s pre-vetting) at least five clear business days before the intended date dealings in its shares on the Main Board are expected to commence.
A comparison between the qualification requirements under the proposed new streamlined transfer mechanism and the existing transfer requirements is set out in the table below:
A GEM issuer that cannot meet the qualification requirements under the proposed new streamlined transfer mechanism may apply for a transfer under the existing mechanism, in which case the GEM issuer would be required to appoint a sponsor to carry out due diligence and publish a “prospectus-standard” listing document.
In addition, the Exchange proposes to exempt GEM transferees to the Main Board from the Main Board initial listing fee, with a view to reducing the cost of a transfer of listing.
(D) Aligning certain continuing obligations with those for Main Board issuers
In response to certain stakeholder comments that the current GEM Listing Rules impose undue continuing obligations on GEM issuers, the Exchange proposes the following amendments to bring the relevant continuing obligations of GEM issuers in line with those for Main Board issuers:
