When a company develops to a certain scale, many shareholders will regard listing as the next step for the company. But what are the requirements for listing? Before listing, what financial information should the company prepare? We’ll try to help you understand the requirements of listing on Main Board and the Growth Enterprise Market and the problems encountered by companies during listing, so you can have more adequate preparations.
Initial Public Offerings
In addition to raising more funds to expand the company’s business, initial public offerings (IPO) can increase a company’s exposure and reputation. Therefore, it attracts hundreds of companies to list in Hong Kong every year.
In Hong Kong, you can choose to be listed on the Main Board and the Growth Enterprise Market (GEM). The listing requirements on the Main Board are higher than those on the GEM. Their requirements are listed below:
A. Main Board
To be listed on the Main Board, companies need to pass one of the following three financial tests:
- Profitability test (Note: The requirements will be increased from January 1, 2022)
- i. The cumulative profit for the three-year financial year shall not be less than HKD50 million; and
- ii. Market value not less than HKD500 million.
- Market value/income test
- i. The most recent financial year’s income is not less than HKD500 million; and
- ii. Market value not less than HKD4 billion.
- Market value/income/cash flow test
- i. The most recent financial year’s income is not less than HKD500 million;
- ii. The market value is not less than HKD2 billion; and
- iii. The total operating cash flow of the three-year financial year shall not be less than HKD100 million.
The requirements for the profitability test will be increased starting from January 1, 2022:
- The cumulative profit for the three-year financial year shall not be less than HKD80 million;
- The profit in the most recent financial year shall not be less than HKD35 million;
- The combined profit of the first two financial years shall not be less than HKD45 million; and
- Market value not less than HKD500 million.
B. Growth Enterprise Market
To be listed on the GEM, the company needs to pass the following financial tests:
- The total operating cash flow of the two financial years shall not be less than HK$30 million; and
- The market value is not less than HK$150 million.
C. Biotech Companies
In 2018, the Hong Kong Stock Exchange issued new listing rules, allowing biotech companies that did not meet the financial tests of the current listing regulations and not making a profit to be listed on the stock market for IPOs, thereby promoting the development of the biotechnology industry. HKEx generally bases their judgement on core products and prospects of biotech companies to determine whether the company should go public, such as:
- The time and progress of the core product that has been developed;
- Whether a patent has been registered for the core product;
- Whether the core product has commercial value;
- Whether the purpose of raising funds for listing is used for research and development purposes, so that core products can be launched on the market; and
- Past investors.
Problems Encountered During Listing
Even if a company meets the requirements for listing, insufficient preparation leads to it taking a long time and costing more to be listed, or even failing to be listed. That is why we hope to share the following problems that ordinary companies may encounter when preparing for listing:
- Seeking the assistance of registrars without understanding the requirements of listing, resulting in a lot of money and time wasted
- The accounting records kept are not complete, as preparations for listing often require 3 to 4 years of financial data, but due to various reasons (e.g. change in the accounting system, resignation of colleague in charge, or the information prepared is not enough for listing) extra time is needed to sort issues out.
- Some companies may have prepared financial data three to four years ago in accordance with the “SME Financial Reporting Framework” and “SME Financial Reporting Standards”, but to be listed, they are required to prepare financial data in accordance with the Hong Kong Financial Reporting Standards. Thus, the financial data of previous years have to be updated.
To successfully become a listed company is not easy at all. In addition to passing financial tests, you must also prepare the documents required for listing in advance. Therefore, before finding registrars for assistance, companies that are interested in listing should obtain professional opinions from consultations and make full preparations for listing.
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